Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3211974 times)

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12560 on: May 23, 2019, 08:15:10 PM »
Why do some seem to think that Tsy and FHFA will agree to execute an IPO 5x the size of the largest IPO of all time under terms that are unreasonable and not certain to garner full private capital buy-in (i.e. unreasonably high capital requirements)?   

These guys aren't going to close their eyes and hope for the best under this much spotlight.  If they genuinely go with recap approach they will acknowledge reality.  Reasonable capital requirements and treat prior private capital fairly while providing a decent rate of return for new investors. 

I can't do chaos math theory but if you remove the noise and think about this using first principles, incentives, and invert the final outcome - what are you worried about? 

There won't be a failed IPO attempt - just isn't a plausible downside scenario.
+1


muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12561 on: May 23, 2019, 09:47:07 PM »
Why do some seem to think that Tsy and FHFA will agree to execute an IPO 5x the size of the largest IPO of all time under terms that are unreasonable and not certain to garner full private capital buy-in (i.e. unreasonably high capital requirements)?   

These guys aren't going to close their eyes and hope for the best under this much spotlight.  If they genuinely go with recap approach they will acknowledge reality.  Reasonable capital requirements and treat prior private capital fairly while providing a decent rate of return for new investors. 

I can't do chaos math theory but if you remove the noise and think about this using first principles, incentives, and invert the final outcome - what are you worried about? 

There won't be a failed IPO attempt - just isn't a plausible downside scenario.

The big difference between this and other IPOs is that this is a really profitable company while others like Uber are endless money pits.

In addition, they could do the IPO step by step. Do 20 bn first. Cancel NWS. This would cause the P/E ratio to be really low. Then as price goes up, they could do a few more.

james22

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12562 on: May 24, 2019, 02:29:31 AM »
if I was running the recap, I would first do an institutional private placement, before doing a public underwriting, and ask brk to backstop the PP...giving him warrants to agree to buy any amount not raised in the PP.  maybe PP=$20B. then with that as a successful first step, I would do a follow on $30B public offering. that would be a very good two step. so I can see Buffett being very helpful and willing, for a pound of flesh

Yes, please.
25% BRK l 25% BAM l 8% SV (VSIAX) l 8% EM (VEMAX) l 4% FNMA/FMCC l 4% FNMAS/FMCKJ l 25% Stable Value

SHDL

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12563 on: May 24, 2019, 05:58:03 AM »
@shdl

re your view that there will be a uniform distribution between 50-100% of par, I think you have to analyze what the drivers of the return will be.  those drivers include legal (collins en banc result principally), capital markets (will the market be receptive to an offering or will we go into a china-trade induced bear market), negotiating tactics (there are several very large sophisticated holders of preferred shares who I believe are in it to win it, ie 100% of par, most likely on a conversion into common rather than cash retirement basis), requisite capital level to escape conservatorship and so on.  as a for instance, if through negotiation or simply the desire by treasury to successfully execute the release from conservatorship, treasury agrees to provide a credit for taxes, or simply pays back, $25B that it has received above the 10% moment, that is a huge jumpstart at replenishing capital, which would have an outsized effect on executing the release, which would have an outsized effect on our return. one may wonder why treasury would be so gracious, but one may also consider what treasury has to do to get this transaction done, and that may be one of those things.

it seems to me that gauging the return distribution is a multivariable, dynamic and nonlinear exercise, with many actors and factors that probably requires chaos theory math if one could ever gather all of the factors. so this makes the use of heuristics sensible to me (I can't handle chaos theory much less advanced algebra) and TINA (there is no alternative) seems like a good one to me.  didn't think it would take this long for TINA to prevail though.

Yes, there are a lot of interesting moving parts here...  Like I said, I view f~U[.5, 1] as a pessimistic lower bound and I think the true distribution is skewed more towards 100% of par for reasons that you and others mention.  Im waiting for more evidence to come in before making a move though.  If Im reading the situation right, there should be a window of opportunity to make a profitable trade between the time the news comes out and the time the price catches up. 

HalfMeasure

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12564 on: May 24, 2019, 06:17:58 AM »
if I was running the recap, I would first do an institutional private placement, before doing a public underwriting, and ask brk to backstop the PP...giving him warrants to agree to buy any amount not raised in the PP.  maybe PP=$20B. then with that as a successful first step, I would do a follow on $30B public offering. that would be a very good two step. so I can see Buffett being very helpful and willing, for a pound of flesh

Yes, please.

I reckon Buffett would be willing to buy the whole business if he were allowed. I think he's very fond of the core mortgage guarantee business.

james22

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12565 on: May 24, 2019, 06:37:19 AM »
It seems such an obvious solution. I'd love to see it happen.
25% BRK l 25% BAM l 8% SV (VSIAX) l 8% EM (VEMAX) l 4% FNMA/FMCC l 4% FNMAS/FMCKJ l 25% Stable Value

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12566 on: May 24, 2019, 07:08:20 AM »
Why do some seem to think that Tsy and FHFA will agree to execute an IPO 5x the size of the largest IPO of all time under terms that are unreasonable and not certain to garner full private capital buy-in (i.e. unreasonably high capital requirements)?   

These guys aren't going to close their eyes and hope for the best under this much spotlight.  If they genuinely go with recap approach they will acknowledge reality.  Reasonable capital requirements and treat prior private capital fairly while providing a decent rate of return for new investors. 

I can't do chaos math theory but if you remove the noise and think about this using first principles, incentives, and invert the final outcome - what are you worried about? 

There won't be a failed IPO attempt - just isn't a plausible downside scenario.

Maybe Im just drinking the kool aid but Ill let everyone else worry too. I dont think at this point the worry should be whether or not this all goes through but on ultimate return at these prices. Second on my list of worries is just how long it will take to ultimately realize the final upside return and that is only because crazy or not Im contemplating buying more on margin. 

My biggest prfd holding is trading at 47% of par. In bedded in final return could be a sweetener conversion to common, dividend turn on? (unlikely). At a 7% margin rate borrowing at these prices and holding for a year you would break even on a 50% of par final pay out.

So what is coming up?

1. Treasury plan by end of June to end conservatorship?
2. FNMA proposed capital rules by July-Augustish?
3. Amendment by Calabria by fall with treasury to stop sweep by end of year?
4. IPO/recap starting in winter spring of 2020.

So 1 year from now you need 50% of par to break even buying on margin at 7% with FNMAH. Ill take that bet all day this point.  :)

As many has mentioned Calabraia has diarrhea of the mouth and mentioned conversion to common and do prfd holders get par. He also mentions he is very confident he can get to an agreement with Mnuchin. Well of course like Otting said everyone has signed off remember? He speaks and I listen.

HalfMeasure

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12567 on: May 24, 2019, 07:58:41 AM »
Why do some seem to think that Tsy and FHFA will agree to execute an IPO 5x the size of the largest IPO of all time under terms that are unreasonable and not certain to garner full private capital buy-in (i.e. unreasonably high capital requirements)?   

These guys aren't going to close their eyes and hope for the best under this much spotlight.  If they genuinely go with recap approach they will acknowledge reality.  Reasonable capital requirements and treat prior private capital fairly while providing a decent rate of return for new investors. 

I can't do chaos math theory but if you remove the noise and think about this using first principles, incentives, and invert the final outcome - what are you worried about? 

There won't be a failed IPO attempt - just isn't a plausible downside scenario.

Maybe Im just drinking the kool aid but Ill let everyone else worry too. I dont think at this point the worry should be whether or not this all goes through but on ultimate return at these prices. Second on my list of worries is just how long it will take to ultimately realize the final upside return and that is only because crazy or not Im contemplating buying more on margin. 

My biggest prfd holding is trading at 47% of par. In bedded in final return could be a sweetener conversion to common, dividend turn on? (unlikely). At a 7% margin rate borrowing at these prices and holding for a year you would break even on a 50% of par final pay out.

So what is coming up?

1. Treasury plan by end of June to end conservatorship?
2. FNMA proposed capital rules by July-Augustish?
3. Amendment by Calabria by fall with treasury to stop sweep by end of year?
4. IPO/recap starting in winter spring of 2020.

So 1 year from now you need 50% of par to break even buying on margin at 7% with FNMAH. Ill take that bet all day this point.  :)

As many has mentioned Calabraia has diarrhea of the mouth and mentioned conversion to common and do prfd holders get par. He also mentions he is very confident he can get to an agreement with Mnuchin. Well of course like Otting said everyone has signed off remember? He speaks and I listen.

I would think the NWS needs to end and capital rules need to be established first before ending conservatorship.

emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12568 on: May 24, 2019, 08:48:12 AM »
How do you do TA analysis? What tools do you use? I am interested in learning it. Thank you.

My TA analysis shows this should now make an accelerated run with small volatility. Hold on tight guys.  :D

SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12569 on: May 24, 2019, 09:03:56 AM »
How do you do TA analysis? What tools do you use? I am interested in learning it. Thank you.

My TA analysis shows this should now make an accelerated run with small volatility. Hold on tight guys.  :D

Wait for news -> wait for stock price to go up -> TA tells you stock will go higher.   Where's TA analysis today on no apparent news but a rumored 5th circuit decision?