Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3316282 times)

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12570 on: May 24, 2019, 09:06:28 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.

I was referencing the treasury plan via phillip/ mnuchin with the road map etc.


muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12571 on: May 24, 2019, 09:31:00 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?

Well, if you guys think I am annoying when I post TA, I'll stop. Sorry that it is not helpful to you guys. I'll just stay quiet as before then, as I am not good FA.

I am muslceman. I have more muscle than brain!

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12572 on: May 24, 2019, 09:48:59 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.

my thoughts were that Buffett would detoxify the GSEs if he invested.  it has been fashionable to hate on the GSEs but if warren buys in, GSEs become apple pie and motherhood

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12573 on: May 24, 2019, 10:04:46 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.

my thoughts were that Buffett would detoxify the GSEs if he invested.  it has been fashionable to hate on the GSEs but if warren buys in, GSEs become apple pie and motherhood

I would just be afraid that Buffett's terms would be unfavorable to all current shareholders. He can certainly crush the commons if he gets to dictate the terms, and he could probably find a way to hurt the juniors too if it benefits him/Berkshire enough.

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12574 on: May 24, 2019, 10:06:26 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?

rumored decision? Source? Either way these things to tend to be a predictive in regards to timing. Should be coming way sooner then later.
« Last Edit: May 24, 2019, 10:09:27 AM by orthopa »

TwoCitiesCapital

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12575 on: May 24, 2019, 10:12:48 AM »
One would have to wonder if we have met or coming very close to the all in moment if one is inclined to do so. Best would be to hold out till midterms later this year then go for the gusto. Seems like time is the biggest impediment to ROI at this point. If you were willing to put 5-10% etc of your portfolio with what we as investors knew 2-3 years ago it seems like a significant increase in exposure would be in order relative to what is thought/known now.

I was willing to put up to 10% of my portfolio with a coin flip of whether or not they were going to be "wound down". Where we sit now an increase in exposure should be in order no?

I'm about 80/20 preferred to common. I'm expecting the recap to take some time and the dilution issue to put downward pressure on the common.

If we know for sure commons are ok then I'll go all in common if the price is weak enough for a multi bagger return on a sure thing.

Anyone adding to their position with the recent news?

Or waiting for something more "sure" - a court decision, an endorsed plan, etc.?

(Count me in the second group - still a speculative position for me.)

I'm torn between adding because outcome appears to be getting more positive than what it was a year ago

and

Reducing exposure because the price reflects those developments, we've been burned by rallies before, and it's what prudent risk/portfolio management would advise.

I think I'm gonna settle in the middle and just hold what I already have recognizing that the 2-3x appreciation we've seen increased the position for me.

I bought a few more preferred shares this year.  Not too much though.

For position sizing I’m currently using a model where, within a year or so, the investment “works out” with probability p, in which case I get back a fraction f of par, or it doesn’t (with probability 1-p), in which case I get x.  My (subjective) belief at the moment is that p >= 80% and that the distribution of f should be no worse than a uniform distribution between 50% and 100%.  I have no idea what x is but I know it’s >= 0.  So I ran some simulations using my most conservative/pessimistic assumptions (p=.8, f~U[.5, 1.], x=0), and from that I got an optimal portfolio allocation (in the Kelly sense, assuming there are no competing investment opportunities) of about 25%.  That number is of course very sensitive to the inputs, but having played around with them, I decided that I feel fine with, say, a 10-20% position, so that is where I’m at. 

My general view of this bet is that the expected return may no longer be spectacular but it is still pretty high among those opportunities where one can reasonably expect a very low (in fact close to zero) beta.  I happen to be somewhat macro bearish at the moment so for me that is a big plus.

Understood. My approach is far less sophisticated, but still ended up with a position at my maximum allowed 10% concentration.

The struggle is knowing if I should implement my risk controls and potentially make less and let the sucker run and make more (but also risk losing more).

In the words of Howard Marks, "Investing is hard!"

SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12576 on: May 24, 2019, 10:16:54 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?

rumored decision? Source? Either way these things to tend to be a predictive in regards to timing. Should be coming way sooner then later.

It was on Maloni's blog.  Almost definitely bologna.

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12577 on: May 24, 2019, 10:37:59 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?

rumored decision? Source? Either way these things to tend to be a predictive in regards to timing. Should be coming way sooner then later.

It was on Maloni's blog.  Almost definitely bologna.

That guy looks like a piece of old bologna.

james22

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12578 on: May 24, 2019, 11:59:19 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.

my thoughts were that Buffett would detoxify the GSEs if he invested.  it has been fashionable to hate on the GSEs but if warren buys in, GSEs become apple pie and motherhood

Especially so, having sold out of FNMA/FMCC once before when he became concerned with their management. He is really uniquely suited to lend them credibility.

And given the Presidential Medal of Freedom by Obama, he somewhat protects Trump's administration from being seen as favoring "big finance" from the Left.
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

james22

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12579 on: May 24, 2019, 12:00:32 PM »
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.

my thoughts were that Buffett would detoxify the GSEs if he invested.  it has been fashionable to hate on the GSEs but if warren buys in, GSEs become apple pie and motherhood

I would just be afraid that Buffett's terms would be unfavorable to all current shareholders. He can certainly crush the commons if he gets to dictate the terms, and he could probably find a way to hurt the juniors too if it benefits him/Berkshire enough.

Sure, but the value he would add might more than offset?
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