SnarkyPuppy

Is there anything formally in the way of Mnuchin acting on 1/1/18? I presume the only thing congress can do is write legislation to change the GSEs structure going forward and cannot block Mnuchin's actions. Can FHFA block Mnuchin recap/release?

Need someone to positively spin this for me

Really not loving the Mel Watt MBA coordination

Mel Watt seems to be spending a lot of time with MBA. December 2017 Director Mel Watt to give remarks at MBA's Summit on Diversity and Inclusion Date: 12/4/2017 Location: Capital Hilton, 1001 16th Street, NW, Washington, D.C. 20036 October 2017 The Honorable Melvin L. Watt, Director, Federal Housing Finance Agency - General Session - A View From Washington at MBA Annual Convention and Expo 2017 Date: 10/23/2017 Time: 11:00 AM - 11:45 AM Location: Denver Convention Center, 700 14th Street, Denver, CO 80202

Did carney just delete all of his fannie tweets?

Not sure if this is in jest, but I don't think the guy is going to go down without a fight. If nothing else, the Fanniegate community has directly attacked him personally (removing whether it was justified or not) and there's a solid chance he puts up a fight for no other reason

He'll still be around for the defining moments of the GSE's so I'm cautiously optimistic

apologies for pushing my own question but seriously curious if anyone has a mitigant to this? Other than low risk that HERA is overturned and retrospective damage is assessed

One argument for why shareholders cannot practically get wiped is that litigation would remain outstanding and effectively a contingent liability for the government. Could that same argument not be made in a recap/release scenario? I haven't been following the legal cases closely but my understanding is there is a suit questioning the inherent constitutionality of HERA. If the preferreds are swapped to commons as part of satisfying the preferred litigants needs and removing litigation risk (and adequately capitalizing the GSEs), could the common shareholders not continue down the path of challenging HERA with damages > $13 per share? Seems like a contingent liability would still exist here for the govt.

https://www.forbes.com/sites/jameshcarr/2017/09/18/playing-russian-roulette-with-the-u-s-housing-finance-system/?s=trend#55a3e3096240 "The greatest weakness of these agencies prior to conservatorship was their private, shareholder-owned structure that made quarterly earnings growth more important than either good public policy or financial common sense. These institutions also suffered from an implicit federal guarantee that enabled and encouraged them to take unnecessary risks at taxpayer expense." "There are many ways to release Fannie Mae and Freddie Mac from conservatorship in a manner that overcomes inherent weaknesses of a stock ownership structure with implicit federal backing while also enabling them to better meet the homeownership desires of our nation’s families while simultaneously operating in a safer and sounder manner." "This 21st Century housing finance system would best be achieved by transforming Fannie Mae and Freddie Mac in a new Federal Housing and Community Investment Corporation. As a government corporation, it would have the ability to operate as a private company, including having the ability to offer competitive salaries and bonus plans, as well as to make timely business decisions without the need to wait for Congressional approval. By eliminating shareholders, the trigger for employee bonuses would be based on how successful the new corporation achieves its mandate in a safe and sound manner to increase low-cost and sustainable homeownership, improved affordable rental production, and successful community investments including improved job opportunities. Earnings of the new Corporation would be used to cover operations including a strong capital buffer against future losses. All earnings not required for operations would be reinvested into the housing sector to make homebuyer education a permanent aspect of mortgage lending, as well as to develop and pilot new generations of affordable home mortgage products, substantially increase support for the construction of low-cost rental housing, and invest in comprehensive and inclusive rebuilding strategies." Correct me if I'm wrong, but nothing Mnuchin has publicly said has directly been inconsistent wit the above, correct? Maybe the out of government control sttement but that is pretty vague.

? is this not simply trading in a broker/dealer capacity? It likely is. But can they buy things for their customers what they consider a fraud? Exactly. It's a fraud and a scam and I'll fire anyone who buys it because they are stupid, but if you're our customer and you want some we'll be happy to facilitate the trade. So Jamie Dimon personally has to agree with the investment merits of every trade his clients want to make? I think this whole JPM/bitcoin thing is ridiculous

Great comment. +1

Agree. I think it's as simple as him learning his lesson from the first fox interview.

? is this not simply trading in a broker/dealer capacity?

IMO it makes little to no sense to own the commons at this point. Things are trending in the direction of the Moelis plan which estimates the commons will price at $9-13 in 2020. Similar absolute upside as the prefs, potentially more timing risk than the prefs, and more downside risk than the prefs. Only benefit of the commons IMO is upside optionality but seems unlikely with a dilutive restructuring looking like the most probable outcome. Prefs might even get a taste of the common upside depending on conversions. Ackman's position is reflective of where things were a few years ago. Not sure why anyone would own commons at this point, aside from mixing a small amount into a pref position for upside optionality and consideration of govt incentives. I'm sure you will continue to only look at the unrealistic upside for the commons and ignore everything else I just wrote, and it is a shame that unsophisticated speculators are riding along and will probably end up doing well. Fanniegate in general has done nothing but hurt our positioning.

I have a different take, one that I haven't seen expressed yet. Trump is unpredictable and he may indeed make the GSE's a talking point to beat up the previous administration, but his essential #1 priority is tax reform. His administration needs to make good on a campaign promise to produce the first major tax reform in over 30 years. Given the GOP failure on Obamacare, tax reform is now also the top priority, and possibly the only remaining source of survival, for the GOP congress as well. The hallmark of this administration and congress will be tax reform, and the metric for judging success will be the new corporate tax rate. The lower, the better, and Trump wants 15%. To complete tax reform and meaningfully lower corporate rates, CBO scoring is required. In this process, every dollar counts. This is where politicians scrape for every dollar of savings that can be assumed (without causing a media backlash), and find every possible source of future revenue. Both work to further the case for the lowest possible corporate tax rate. Would $100bln in extra revenue from selling the GSE warrants help achieve the top domestic priority of lower corporate taxes? Hell yes. Does the administration & GOP have a huge incentive sell the warrants? For sure. Will GOP leaders allow ideological hatred for the GSE’s to get in the way of a tax achievement essential to their survival? No, especially after their complete failure on Obamacare. For these reasons, I believe the $100bln revenue from a warrant sale is likely included in the projections of the tax reform plan currently being assembled by GOP leaders and the administration. They can’t disclose it yet. It is incredibility market sensitive, and the GSEs warrant sale is only one part of a much larger tax reform plan that isn’t completed. But the leaders know about it and the plan to sell the warrants. Of course, this may be wishful thinking from someone with a very meaningful position in Jr Preferred. But if true, it goes a long way in explaining the apparent overnight change in how members of the GOP view the GSE’s. Their sudden embrace of Moelis and shareholder rights gets them out in front of a future warrant sale. Now the interesting question: If the $100bln proceeds from an assumed warrant sale is part of tax reform plan to be scored by the CBO, how long can this super-sensitive information be kept under wraps in the Leak Capital of the World, Washington DC? Probably not long. Leaks may force an all-at-once public disclosure of a warrant sale. Ryan said the tax plan outline will be released on September 25. It's possible - but a one-time $100bn hit isn't very material in the grand scheme of annualized net-revenue loss figures I've seen thrown around as part of preliminary tax reform analysis (not accounting for the loss of quarterly sweep payments). I think it's an interesting angle, consistent with the update to the budget language we saw earlier this year, and aligns to the recent shift in GOP view. It would provide some political cover to recap/release. Couldn't agree more that tax reform is optically a game-changer for this administration. I see that as a risk as well- I could see Trump/Mnuchin giving up on their plans for the GSE's in exchange for having successful tax reform.

I'll add Mnuchin exit as treasury secretary to list of (low probability) risks. Any other tangible/specific risks other than the fact that we have a long thread so the market price just make sense?

Only two key risks (but very low %) from my perspective are: - private settlement with large players excluding retail - complete structural reform (some creative Mnuchin scheme that I wouldn't be able to come up with) which does not include current GSEs and their current capital structure as is. Other than that there's black swan events that can't be accounted for. Outside of that I'd be curious if anyone has thoughts on risks that would cause the prefs to trade below 20% par

Where's the smack my head emoticon... Right next to the "I can't believe I didn't load up in September 2017" emoticon ;D We know how well that would have worked prelamberth, pre dc appeals, which is when a lot of ppl did in fact load up.My point is there's more uncertainty and randomness than our irrational brains lead us to believe Can you please explain what risks you see as having a >5% chance of occurrence? What scenario do you see occurring that causes the preferreds to trade at less than 20% of par value?

Thanks. Bizarre how the current prices aren't reflecting how obvious the end game is here. Could be a function of us being wrong, a function of the market not connecting the dots, or a function of the fact that everyone who understands the end game and isn't restricted from buying for institutional reasons is already fully positioned (price leaks over time from day traders). Seems that while there are certain risks that are scary (as I've highlighted), the probability of each is very low as compared to the almost too obvious end game here. What are we missing...

I can't find it now but I thought Paulson had updated his prediction on timing to 2018- which would be consistent with Mnuchins response yesterday. Would indicate the two are talking

This guy..

So difficult to not add to my concentrated position right now

Says this was a result of the 2017 RNC summer meeting

The RNC document, if real, is hands down the most bullish news to come out with respect to this investment. As someone mentioned, it reads as if berkowitz himself wrote it, and was almost certainly coordinated