no_free_lunch

I think it could affect profit margins if it lowers prices. What if margins stay the same as a % of revenue. If your volume doesn't increase then your operating margins go down. It could also lead to more competition if it is faster / easier to ramp up production. It is a long-term risk though, just something I think about if I bought into this industry and got stuck in a slump for a decade. It is possible I am completely wrong on the tech thing. However, like you say there is still politics, used firearms, which indicate secular headwinds. I am staying out.

Good catch Flynnstone. Very interesting to see it from yellen given she isn't even part of the republican admin. Part of my thesis is that you will start to see a narrative shift as they prep the gse's for re privatization.

I think robotics could significantly lower labour costs. Which would be good in the short-term but long-term could lead to lower pricing. I don't know, to me it just feels like a tech company. Hard to predict what will happen. It could do good but I am not confident in that outcome.

Rukawa. For all the reasons people have listed. Competition, possible sales peak. I would only pay 18x if i was confident earnings could slowly grow. I think technology could disrupt the industry at some point. If i had to buy one id buy rgr just because they seem to have a brand.

Does anyone know what happened in Feb 2014 that pref's traded higher than they do today?

RGR seems ball park reasonable. Unless there is growth it's hard to justify a much higher price. I would be concerned about competition. How hard is it to get into this industry? Couldn't there be new competitors? You combine that with a market that is probably mnore or less at a plateau and I am skeptical. It has come down a lot so I could be wrong.

I think the biggest risk is some type of wind down and opening up to private competition. That is what the republicans were talking about and the majority of people in the house / senate are still likely in favor of that. If you hold other financials it could be a windfall for them so it might mitigate your loss a bit if it happens.

Good little primer video on Mnuchin here: https://www.bloomberg.com/news/videos/2017-02-09/how-steven-mnuchin-got-the-treasury-job-video

I don't know why. I do know that the 2 should negatively correlate. A lower FNMA price would put pressure on admin to give more fannie shares per preferred share in a conversion scenario. A higher fannie price lowers the number of shares per preferred. As a preferred holder I want FNMA to stay down.

Midas/Flynnstone, At the end of the day, how much equity do you see fannie mae needing to hold? So hard for me to calculate this without that number and I think you guys implicity have a figure in mind.

Pauly, always good to hear your thoughts. I think you under-estimate the degree to which POTUS is a patriot. The amount of risks he is taking, where he is taking them (e.g. travel ban) doesn't make sense from a purely financial point of view. I don't know. I have read this a few times and I think this is an incomplete argument. Exactly WHY would it be an insurmountable hurdle? At current prices we are talking $15B in stock vs a company that will probably trade north of $100B once recapped. As far as recap goes, it creates like a 2 foot hurdle to raising enough equity. So maybe they need to retain profits for 1 more year, after 9 years in conservatorship, big deal. If anything it will be easier to bring them out of conservatorship if warrants are exercised because the government is getting their share and it is an easier argument to the taxpayer. Or like spekulatius said, convert and sell. I know, talking against myself here but since I don't have any influence I might as well at least be rational. It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement. I think it is priced in. Fannie is trading at what $5B market cap without the warrants? Which is not much higher than quarterly earnings! Feds could exercise the warrants/preferred's and then raise equity as best they can. It's a duopoly, who wouldn't want to invest, especially given S&P 2300.

I don't know. I have read this a few times and I think this is an incomplete argument. Exactly WHY would it be an insurmountable hurdle? At current prices we are talking $15B in stock vs a company that will probably trade north of $100B once recapped. As far as recap goes, it creates like a 2 foot hurdle to raising enough equity. So maybe they need to retain profits for 1 more year, after 9 years in conservatorship, big deal. If anything it will be easier to bring them out of conservatorship if warrants are exercised because the government is getting their share and it is an easier argument to the taxpayer. Or like spekulatius said, convert and sell. I know, talking against myself here but since I don't have any influence I might as well at least be rational.

So mnuchin is getting sued now? Has to be politically driven given the timing. Politics in the US is so interesting. On a separate note, given the price action in the preferred's it looks like the market is buying into the swim theory. I have to admit it makes sense. Price difference is collapsing and starting to ignore divvy yields. It is tempting to trade up in yield.

It was scary. Start extrapolating a downward line in earnings, employment and an upward line in debt. Everything looked like hell. Media was good at the beginning as T-bone said. Before Lehman they talked like you were stupid if you didn't invest. After lehman it all changed and the general concensus was to stay away, or at least on the sites I went to. Things change a tiny bit when Buffet made his comment in october /november but still overall everyone was very pessimistic. Obama's green shoot comment seemed to mark and maybe even generate the bottom. I sold all financials a month before lehman so I did ok. However, very tough to get back in. I got in at SP500 level of 800 in late march 09 I believe, ONLY because some very pessimistic perma bears were suddenly less pessimistic. Still, even at that level people were talking about SP500 at 300-400 to match depression era levels. When I went back in I was scared and mostly went via broad etfs. I had little confidence in the market in anything less than the next 20 years.

So one easy question, what is the outstanding share count of fannie mae common? In one section of their Q3 it indicates 1.1b shares. Elsewhere it says over 5b. Is the 5b shares with the warrants exercised and the 1.1b is without the warrants?

Someone had mentioned the citigroup recap a while back. It is tough to find information and I wasn't involved in that personally. FWIW I dug up the term sheet and ALL preferred's, including government owned were converted to common at a standard price o $3.25 per citigroup share using full preferred price. At the time citi group was trading at about half that but then this was on Feb 27, 2009 so it was very volatile times. What I get out of that is that no consideration was given to the dividend yield of preferreds since they all converted in the same fashion. All in all, if there were low yielding citi preferred's they must have done very well. http://www.citigroup.com/citi/news/2009/090227a.pdf However, with fannie mae I would be concerned with the really low yielders. Since they will be issuing debt anyways, I don't see why they wouldn't just keep those preferred's on the book and pay the divvy.

I agree with this 100%. I was thinking of exactly the same dinner. I have read more, much more. People are calling for Trumps assassination, this is beyond personal. I have many theories on how this plays out but regardless it *should* be beneficial to fnma pref & common. One bit of tea leave was Trump was signing executive orders to repeal obama care within hours of being inaugurated. Before even a replacement is evident, wise or not. He wants to completely eliminate Obama's legacy. I can see fannie playing into that. None of this means of course that fannie mae preferred's work out okay, but he would have to really subvert the law to wipe them out. Possible but not likely, IMO.

Okay, good to hear. No bets for me then.

Lots of good points. Maybe impeachment isn't really a risk then. The whole fnma process is just on rails at this point? Seems too good to be true. So with impeachment doesn't it trigger a new general election? I am totally ignorant of how that all works.

Just google it.

I believe the biggest risk to this investment at the moment is impeachment. Normally this isn't something I would even consider but regardless of which side you are on, if any, it's getting crazy out there. I am thinking of hedging this risk element by betting on trump impeachment. 7:1 odds if impeachment procedures commence in 2017. I would probably not fully hedge but enough to cover about 1/3 of the position if I "win". Obviously there are still other risks to the investment but given you have seen the prefs up 100%+ the market is betting heavy on Trump. I am being very serious and not trying to start a political argument here. Thoughts from an investing perspective?

Thanks for posting that. It happened to me on FNMAH not too long ago and I had no idea was going on. I was able to buy FNMAJ instead. The liquidity of these things is a bit concerning.

Factors this novice is aware of : - Yield - Discount to par - Liquidity - Redemption rules - Alignment with major holders ... This one I don't understand very well. Perhaps a lawsuit outcome could favor some preferred's over others. I just try to balance yield with discount to par. There is a chance they all just get converted to common/paid out at par value or some percentage of par and yield might mean nothing. But then you don't want to own a tiny yielder if they turn dividends on again. Those low yielders might just never be redeemed. I see it that if they redeem anything they redeem T series and given par is 3x what I purchased at that seemed like best odds for me.

Anyone care to discuss which particular preferred issues they find most attractive? Or maybe everyone is buying so we want to stay quiet. I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

6%, purchased over the last 2 months. Overall I am up something small like 6 or 7%, so a tiny bit of a buffer right now. As I look at this more I can see the benefit to having some in commons. Still 100% preferred but will probably move some over to common if I see an opportunity.