FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[SnarkyPuppy]

Same thing came to mind.  But we are all subject to confirmation bias here

[orthopa]

https://www.marketwatch.com/story/prospects-for-housing-finance-reform-brighten-and-may-favor-shareholders-2017-12-08

The angle that some have mentioned in this thread that the gov will want to not have lawsuits hanging over reform mentioned in this article.

[DocSnowball]

VALUATION ATTEMPT:
Back in Feb 2017, Judges Millet and Ginsburg wrote that our company is not undergoing "liquidation" in their opinion, and like a good corporate finance student I first calculated the net present value of my equity FNMAT as promised in the prospectus (8.25% dividends unless called back at par, valuing it as a perpetuity). If dividends are turned on in future it will be a delayed perpetuity and discounted further based on when dividends are turned on. I'm revisiting this today to compare this option (the odds of this best case scenario) to alternative investment decisions.

NPV = Dividend/(r-g) where r is the discount rate and g is the growth rate (assuming zero growth rate, and beta =1 for a low risk utility)
Using Professor Aswath Damodaran's discount rate teachings, Discount rate = Risk free rate + Implied Equity risk premium at current level of index*Beta = 2.37%+ (4.68%*1) = 7.05%

NPV whenever dividends turned on (example today)
       = 2.06/0.0705%
       = 29.22 FOR FNMAT

NPV if dividends turned on after capital raise completed 12/31/2020 as per Moelis blueprint (3 years from now)
29.22 discounted back at 7.05%
      = 24.00 for FNMAT

EDIT: based on this valuation and revaluing it as an option at current price of 6.87, markets are giving 28.6% chance of this working out. That is still a mispricing with the ever-changing narrative

[orthopa]

EDIT: based on this valuation and revaluing it as an option at current price of 6.87, markets are giving 28.6% chance of this working out. That is still a mispricing with the ever-changing narrative

Agree, we aren't all the way there yet but becoming increasingly likely that this works out favorably with a target of par for the preferred. Like I had mentioned back probably 300 pages ago my capital at stake is aligned with Berkowitz, Paulson etc. Ill take that any day in a situation that has the relationships we hashed out before.  I know a fear for some has been preferential treatment for those bringing suit against the gov but that is not the clean solution I believe the gov is working towards.

I was thinking too it really makes more sense now that Paulson and Ackman mentioned Corker working on a bill and targeted an early 2018 for the investment working out favorably. They knew Corkers actions, the time table laid out does not seem all that unrealistic now.

I think one has to look hard at passing up a possible ~400% return to par in some of the preferred issues +/- a div for the common which seems to be a bit of a black box.  Is the risk for more then a 400% return worth what you could lose in common? First thing I would say if I read this typed by someone else is fat chance the div gets restarted, and I agree. But why is the market pricing it in then? Its odd. The market is pricing this at a ~25% of success but respecting the dividend payouts the securities had.

..and to fuel my overwhelming confirmation biased I added more FNMAH today

[SnarkyPuppy]

EDIT: based on this valuation and revaluing it as an option at current price of 6.87, markets are giving 28.6% chance of this working out. That is still a mispricing with the ever-changing narrative

Agree, we aren't all the way there yet but becoming increasingly likely that this works out favorably with a target of par for the preferred. Like I had mentioned back probably 300 pages ago my capital at stake is aligned with Berkowitz, Paulson etc. Ill take that any day in a situation that has the relationships we hashed out before.  I know a fear for some has been preferential treatment for those bringing suit against the gov but that is not the clean solution I believe the gov is working towards.

I was thinking too it really makes more sense now that Paulson and Ackman mentioned Corker working on a bill and targeted an early 2018 for the investment working out favorably. They knew Corkers actions, the time table laid out does not seem all that unrealistic now.

I think one has to look hard at passing up a possible ~400% return to par in some of the preferred issues +/- a div for the common which seems to be a bit of a black box.  Is the risk for more then a 400% return worth what you could lose in common? First thing I would say if I read this typed by someone else is fat chance the div gets restarted, and I agree. But why is the market pricing it in then? Its odd. The market is pricing this at a ~25% of success but respecting the dividend payouts the securities had.

..and to fuel my overwhelming confirmation biased I added more FNMAH today

Those involved have generally already doubled and tripled down over the past couple of years when things looked arguably just as optimistic as they do now.

I'm still completely lost as to reconciling Ackmans praise and the fact that it seems directionally commons might not perform well. 

Also completely weirded out by henslaring "doubling down" on getting rid of F/F but comprimising  on other aspects of reform.   The presumption is ackman isn't an idiot, but I'm skeptical that corker doesn't have some mischievous plan in mind.   F/F shareholders have been personally attacking his name for years now, and it strikes me as odd that anyone in his position wouldn't try to harm shareholders for that reason alone. 

[Luke 5:32]

Also completely weirded out by henslaring "doubling down" on getting rid of F/F but comprimising  on other aspects of reform.   The presumption is ackman isn't an idiot, but I'm skeptical that corker doesn't have some mischievous plan in mind.

+1

[rros]

https://www.congress.gov/bill/115th-congress/house-bill/4560

I can understand someone seeing a link between this bill, Hensarling's FF hatred and Joe Light's article. But then, this was introduced by Rep Fench Hill, has no co-sponsors and will be voted on on Tuesday. Does it matter that Hensarling's name isn't there as in taking no part? The bill's new section clearly states "preservation of capital during periods of low net worth". I continue to believe this bill anticipates a move by Treasury/FHFA to retain dividends. Housing Trust funds are not part of the PSPAs or its amendments. They are part of HERA 08 and one way to handle these payments is by congressional action. Another one is by Watt undoing his prior pay-out move but here he may be of 2 minds unable to resolve the conflict. Would Hensarling ever support a bill that has as one of its titles "preservation of capital... " which is actually presented as a remedy?

Maybe I am being naive but it really makes no sense to pay out the funds (although the amount is peanuts) while attempting to build capital. I understand where IU and investorG are coming from but if there is talk of starting to retain earnings/building capital and a 40-page bill is making the rounds in the Senate pointing at (shareholder friendly) legislation in 2018, this bill makes sense. I know many will disagree. In general, a shareholder friendly bill that resolves all issues wins over administrative action that can be undone later on. 

I sense that the idea of a dysfunctional Congress has become so widespread and it is so in-grained in our minds that it's hard to believe there may be some kind of minimal accord. But maybe there is. Lastly, a conspiracy theory about a bill rumored to be friendly to appease investors so that the new Jumpstart sails through Congress seems far-fetched.

[rros]

You may be correct but it seems far-fetched to expect anything positive from Corker bill who has publicly asked to short GSE  stock and asked Watt to draw money from treasury ‘s line of credit for fun and he is well plugged into bank lobby.  He is the author of  Jumpstart bill and asked his staffer Bright to write a stupid bankcentric bill. Hard to believe anything positive from Corker. I do believe he tried to snuck in the tax bill that was not good for GSE’s and they didn’t buy into it. Nothing is secret in DC for long, if there was anything positive in his bill, the bill would have been released by now. This is all done in a haste to influence the tax bill and sneak in last minute, something devious. It is big money for large banks that is involved here. I think Trump is stepping into it, slowly (Hint: Wells Fargo)

Well, I speak out of my butt. But you seem to hear things and have sources... so we'll see.

[emily]

I don’t  have sources and I don’t  I hear. I read on GSElinks.com  and the feeling is universal.  Joe light should have sources but he cites as ‘anonymous sources’  and there is no sign of a bill either. Right after they throw a carrot at us of a par, they disclose the reauthorization of jumpstart bill that would stop the clock for another 12 months at a standstill.

You may be correct but it seems far-fetched to expect anything positive from Corker bill who has publicly asked to short GSE  stock and asked Watt to draw money from treasury ‘s line of credit for fun and he is well plugged into bank lobby.  He is the author of  Jumpstart bill and asked his staffer Bright to write a stupid bankcentric bill. Hard to believe anything positive from Corker. I do believe he tried to snuck in the tax bill that was not good for GSE’s and they didn’t buy into it. Nothing is secret in DC for long, if there was anything positive in his bill, the bill would have been released by now. This is all done in a haste to influence the tax bill and sneak in last minute, something devious. It is big money for large banks that is involved here. I think Trump is stepping into it, slowly (Hint: Wells Fargo)

Well, I speak out of my butt. But you seem to hear things and have sources... so we'll see.

[doc75]

I don’t  have sources and I don’t  I hear. I read on GSElinks.com  and the feeling is universal.  Joe light should have sources but he cites as ‘anonymous sources’  and there is no sign of a bill either. Right after they throw a carrot at us of a par, they disclose the reauthorization of jumpstart bill that would stop the clock for another 12 months at a standstill.

You may be correct but it seems far-fetched to expect anything positive from Corker bill who has publicly asked to short GSE  stock and asked Watt to draw money from treasury ‘s line of credit for fun and he is well plugged into bank lobby.  He is the author of  Jumpstart bill and asked his staffer Bright to write a stupid bankcentric bill. Hard to believe anything positive from Corker. I do believe he tried to snuck in the tax bill that was not good for GSE’s and they didn’t buy into it. Nothing is secret in DC for long, if there was anything positive in his bill, the bill would have been released by now. This is all done in a haste to influence the tax bill and sneak in last minute, something devious. It is big money for large banks that is involved here. I think Trump is stepping into it, slowly (Hint: Wells Fargo)

Well, I speak out of my butt. But you seem to hear things and have sources... so we'll see.

Pardon me for being daft, but what exactly is the benefit of throwing a carrot at shareholders in this way?   How does it grease the wheels of anything in particular (e.g. the jumpstart reauth)?