Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 4917778 times)

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16750 on: January 13, 2021, 08:32:39 AM »
Sep 30 2019, press release from Treasury:  "The (housing) Plan also recommended that Treasury and FHFA develop recapitalization plans for Fannie Mae and Freddie Mac after identifying and assessing the full range of strategic options.   Subsequent amendments to the PSPAs may be appropriate to facilitate the implementation of any eventual recapitalization plans."

January 2021:  Never mind.
\

Looking at a decision tree if the answer is no, and one would have to assume Mnuchin would know what Trump thinks by now, why pass the question up to Trump? Mnuchin already looks like a bad guy by saying no. Do we really need 2 "no's" at this point?

Secondly its the eve before this goes down and a decision still has not been made on this? How the hell do you have a framework, blueprint all that BS but you havent made a decision on the "thorniest issue"? Really?

We are in Trumps hands here, he finishes it but you wait till the end to say no? Just say no right away, or why isnt mnuchins "no" not good enough.

I dont get it.

I thought this was an agreement between Treasury and FHFA? Why get Trump involved?
« Last Edit: January 13, 2021, 09:10:13 AM by orthopa »


cameronfen

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16751 on: January 13, 2021, 08:34:54 AM »
One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isnít actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

Itís not over until itís over and the floor is not $0 as there are multiple prongs of margin of safety.

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out.


Good luck to all

There is $16mm in ADV across the 2 most liquid preferreds (FNMAS and FMCKJ) before accounting for any of the other series.  Over the course of 4 years, wouldn't be too difficult to make some $.

Again - I have no idea and certainly not trying to accuse.  I'm just starting to do a post-mortem on alternative explanations so I can at least learn something here.  Ex-ante I think a lot of the "Mnuchin won't act" were surface level opinions that may prove to be correct, but never thought through specific incentives like the one I mentioned above.  Right for the wrong reasons.  But all that matters in this game is the result.

For what itís worth for your post mortem I think SM was probably on track to sign the amendment until the riots.  But thatís just opinion. 

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16752 on: January 13, 2021, 08:49:50 AM »
One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isnít actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

Itís not over until itís over and the floor is not $0 as there are multiple prongs of margin of safety.

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out.


Good luck to all

There is $16mm in ADV across the 2 most liquid preferreds (FNMAS and FMCKJ) before accounting for any of the other series.  Over the course of 4 years, wouldn't be too difficult to make some $.

Again - I have no idea and certainly not trying to accuse.  I'm just starting to do a post-mortem on alternative explanations so I can at least learn something here.  Ex-ante I think a lot of the "Mnuchin won't act" were surface level opinions that may prove to be correct, but never thought through specific incentives like the one I mentioned above.  Right for the wrong reasons.  But all that matters in this game is the result.

For what itís worth for your post mortem I think SM was probably on track to sign the amendment until the riots.  But thatís just opinion.

Why would this be more palatable without the riots? If Trump does this he enriches hedge funds, paulson et al. He is already going down as the worst president in history and has pardoned all of his cronies manafort, kushners dad, flynn,  etc. The riot made this too much? Interesting.

beaufort

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16753 on: January 13, 2021, 12:08:48 PM »
All of the press are a bunch of hit pieces/misinformation.  It is easy to interpret Light's article as follows.

1.  NWS

"Most significant, Fannie and Freddie wonít have to pay their profits to the government until they have much bigger capital buffers to protect the companies against losses."

NWS is done.  No commitment fee until hitting a certain amount in buffers.  And "[p]eople briefed on the plans said it wasnít clear how much capital the companies will be permitted to keep but said the changes were framed as an end to the so-called net-worth sweep, a controversial policy implemented during the Obama administration that requires they send their earnings to the Treasury."


2.  Warrants

"However, Treasury opposes reducing the governmentís ownership stake in Fannie and Freddie, a longtime goal of the companiesí private shareholders." 

This can easily be understood to be the warrants and not the SPS, becuase in the very next sentence, Light addresses the SPS.

3.  SPS

"Whether to modify the Treasuryís senior preferred stake is under consideration at the White House, said one person familiar with the matter."

There is no reason 'modify' can't be interpreted to mean liquidation preference paid down.

4.  Conditions precedent for release

"With the agreement, the Treasury and FHFA plan to set out recommendations for what needs to happen before Fannie and Freddie are freed. But the suggestions wonít be binding for Bidenís Treasury, the people said. That means the changes effectively amount to a blueprint for eventually making Fannie and Freddie fully privatized companies."

It will be up to the GSEs to meet the conditions precedent in order to get out.  Of course that is not 'binding' on Biden's treasury.  The conditions precedent must be met by FnF.  As for anything still to be negotiated, sure, maybe the Biden admin makes further agreements.

5.  Conflating SPS and warrants

There is a distinction between SPS and warrants, but Light conflates them here.  I base this on the fact that he acknowledges that the SPS is a WH decision above:

"One of the thorniest issues that Treasury intends to leave unresolved will be the governmentís stake in Fannie and Freddie, a position that now exceeds $220 billion in senior preferred shares as well as warrants to acquire nearly 80% of the companiesí common stock."


All in all, sloppy work from Light, as usual.  In this regard he is matched by Ackerman and Gasparino.
« Last Edit: January 13, 2021, 12:26:53 PM by beaufort »

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16754 on: January 13, 2021, 02:15:29 PM »
All of the press are a bunch of hit pieces/misinformation.  It is easy to interpret Light's article as follows.

1.  NWS

"Most significant, Fannie and Freddie wonít have to pay their profits to the government until they have much bigger capital buffers to protect the companies against losses."

NWS is done.  No commitment fee until hitting a certain amount in buffers.  And "[p]eople briefed on the plans said it wasnít clear how much capital the companies will be permitted to keep but said the changes were framed as an end to the so-called net-worth sweep, a controversial policy implemented during the Obama administration that requires they send their earnings to the Treasury."


2.  Warrants

"However, Treasury opposes reducing the governmentís ownership stake in Fannie and Freddie, a longtime goal of the companiesí private shareholders." 

This can easily be understood to be the warrants and not the SPS, becuase in the very next sentence, Light addresses the SPS.

3.  SPS

"Whether to modify the Treasuryís senior preferred stake is under consideration at the White House, said one person familiar with the matter."

There is no reason 'modify' can't be interpreted to mean liquidation preference paid down.

4.  Conditions precedent for release

"With the agreement, the Treasury and FHFA plan to set out recommendations for what needs to happen before Fannie and Freddie are freed. But the suggestions wonít be binding for Bidenís Treasury, the people said. That means the changes effectively amount to a blueprint for eventually making Fannie and Freddie fully privatized companies."

It will be up to the GSEs to meet the conditions precedent in order to get out.  Of course that is not 'binding' on Biden's treasury.  The conditions precedent must be met by FnF.  As for anything still to be negotiated, sure, maybe the Biden admin makes further agreements.

5.  Conflating SPS and warrants

There is a distinction between SPS and warrants, but Light conflates them here.  I base this on the fact that he acknowledges that the SPS is a WH decision above:

"One of the thorniest issues that Treasury intends to leave unresolved will be the governmentís stake in Fannie and Freddie, a position that now exceeds $220 billion in senior preferred shares as well as warrants to acquire nearly 80% of the companiesí common stock."


All in all, sloppy work from Light, as usual.  In this regard he is matched by Ackerman and Gasparino.

+1.

And again no source names, every thing is "fluid", "not set in stone", still "under consideration", we wont know till we know.

TwoCitiesCapital

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16755 on: January 13, 2021, 02:18:01 PM »
Picked up more today at 19.5% of par. Can't decide if this is me being stubborn and throwing good money after bad or a very timely and tactical addition to what is going to be a multibagger. Time will tell.

Read the Footnotes

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16756 on: January 13, 2021, 02:48:00 PM »

For what itís worth for your post mortem I think SM was probably on track to sign the amendment until the riots.  But thatís just opinion.

Why would this be more palatable without the riots? If Trump does this he enriches hedge funds, paulson et al. He is already going down as the worst president in history and has pardoned all of his cronies manafort, kushners dad, flynn,  etc. The riot made this too much? Interesting.
I think Cameronfen has a good point.

The Joint Chiefs just reiterated that they serve the constitution, that they only take lawful orders and that Joe Biden "will" become the next President (they made a similar statement just after the election, for the first time ever). The emphasis on the use of "will" is interesting, because in US military speak it might have an additional emphasis of inevitability. It's a VERY unusual statement. The kind of thing that you would only write if you believe one branch of the government was engaging in a cold war with the other.

https://www.cnn.com/2021/01/12/politics/joint-chiefs-memo-capitol-insurrection/index.html

Mnuchin and other cabinet members have made similar gestures that indicate they side with the Constitution (and that might indicate they have ambitions for the future under the current US Constitution). That combined with the fact that many cabinet members and staff are reportedly trying to avoid Trump for legal reasons, plus the added complexity of COVID-19, and it starts to be understandable that timelines could slip. Plus his staff are probably dealing with all kinds of crazy problems that they weren't last week. Staff are also resigning across the administration at even faster rates after last Wednesday.

Mnuchin is fifth in line of succession and we see a military presence in DC unlike anything we have every seen before. The top five are going to be treated differently from other members of government, and with the level of dysfunction he might be taking on additional responsibilities as one of the top four most important Cabinet officials.

We also need to add in the Russian hack discovered quite recently that involved government and financial institutions. With that longs list there is a lot that the Treasury has on it's plate that  on and ensuring financial stability during these troubling times would of course be a top priority. The number of previously unexpected curve balls is quite high.

If he was planning on something last minute and the work wasn't all done well in advance, it make sense to me that there could be major issues meeting a planned schedule.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16757 on: January 13, 2021, 02:53:48 PM »
bravo beaufort


investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #16759 on: January 14, 2021, 06:11:31 AM »
Sep 30 2019, press release from Treasury:  "The (housing) Plan also recommended that Treasury and FHFA develop recapitalization plans for Fannie Mae and Freddie Mac after identifying and assessing the full range of strategic options.   Subsequent amendments to the PSPAs may be appropriate to facilitate the implementation of any eventual recapitalization plans."

January 2021:  Never mind.
\

Looking at a decision tree if the answer is no, and one would have to assume Mnuchin would know what Trump thinks by now, why pass the question up to Trump? Mnuchin already looks like a bad guy by saying no. Do we really need 2 "no's" at this point?

Secondly its the eve before this goes down and a decision still has not been made on this? How the hell do you have a framework, blueprint all that BS but you havent made a decision on the "thorniest issue"? Really?

We are in Trumps hands here, he finishes it but you wait till the end to say no? Just say no right away, or why isnt mnuchins "no" not good enough.

I dont get it.

I thought this was an agreement between Treasury and FHFA? Why get Trump involved?

two "no's" lessens any potential blowback on mnuchin for this disaster.