SnarkyPuppy

Why are you so adamantly against conservative and constructive measures in the face of something that is growing at a fast rate w/ no obvious mechanism in place to cut off the growth? Why is your base case that what is seemingly happening across the world is not going to occur here? Can you entertain a scenario where you would change your mind - and if so what specifically would cause you to change your mind? In this scenario, is it possible risk prevention and mitigation would be orders of magnitude more difficult than in previous weeks?

Just wanted to say thanks for taking the time to write this, I appreciated it. On a somewhat related note, what does everyone think of the following twitter thread? I'm simply an observer at this point and have no conviction in either direction - but am of the mindset that proper risk mitigation (and basic common sense) dictates to act in the most conservative manner in a scenario where there is 1) incomplete information 2) a non-0% probability of catastrophic scenario.

Quoting this because it is exactly the point. China fatality rates in the 2.3% range, Italy in the 3.4% range. Regardless of which you select the COVID-19 is much deadlier than the flu. I am not sure why some very intelligent people are not acknowledging this difference. This goes to the general point on poor leadership coming from the White House. Some people are whining that all this criticism of our government's response is "making this political". If you can't criticize a government's response to a viral pandemic, what can you criticize? The color of their (bio)suit jacket? Please, put your big boy pants on today. By any judgment, the federal government's efforts have already failed (in the previous few weeks where almost nothing was done) and are currently failing for reasons previously mentioned related to quarantines, communications, and testing. CDC needs to determine federal procedures under the assumption that we are 2-3 weeks in the future and Trump's administration needs to put those procedures in place yesterday. Testing kits need to be distributed on a much larger scale. Twitter rants cannot be the primary method of communication and Mike Pence needs to be replaced as the point-of-contact with someone who has medical knowledge. Well said

The arrogance of portions of the medical community to date is concerning. To think there are no *potential* second order effects in a scenario where hospitals have clear capacity constraints is just getting nonsensical. The US had a two month head start on this and as of 10:30am today only 35 people in nyc have been tested. Risk mitigation at this point restricted to tracking indirect contacts of positive tested patients & asking the general public to wash their hands are clearly insufficient. Why is this debatable?

Let's all take a breath lol - we're in the best position we've ever been in

Is there a reason you’re ignoring the obvious and key variable of the fact that he United States has been significantly undertesting potential cases? Why are intellectually sound people continuing to state: - LoLtHeFlUkilLsmOrEpEoPle (ignoring growth rates and unknown yet wide range of mortality rates) - US only has 15 reported cases (without mentioning the proportionally less testing - literally only 455 people tested as of yesterday) Definitionally a short term problem for markets and I’m buying today - but in terms of the spread of the virus why are these statements even being made lol

Let’s say every legal case was negated today- no potential legal success. How does the administration realistically recapitalize the entities w/ re-IPOs of the common equity without the junior preferred doing decent from here?

Well the article doesn't necessarily say that it's insufficient - it says that it is fundamentally vulnerable to future administrations (i.e. a future administration can say no more credit line). From a practical perspective, this logic is silly as if there would be disruption to the market (as the article states), the cause of the disruption would be directly the result of the future administration that unwinds the credit line - creating a natural disincentive to ever touch it. This also ignores the fact that these companies will be sitting on $150bn+ of capital, far more than they lost in a severe housing crisis and far more than they've ever historically had explicitly. To be honest, the only thing that gives me pause at all is why these lobbyists/journalists are still trying if the final outcome can't be stopped (as we believe). Makes me think that they believe they can still influence the outcome.

Craig Phillips now explicitly aligning to this threads views. Unbelievable how far things have come over the last year. This past weeks prices were a gift.

The catalyst I see is the only one that really matters to pref holders: settlement. Can happen at any moment without warning. Thanks, Luke. Sure, it's possible. But not likely over the near term. First, there's waiting for the SC ruling on whether it takes Collins. Second, why slow play the capital rule finalization (post comments) until 2h 2020+ if you intend to settle in 1h 2020? Calabria's more talented than taking 15 months from his start to get the capital rule in place -- it's clear to me that he's been told to slow play. Trump probably sided with the Kudlow and political wing during the summer. I'm guessing Calabria is sympathetic to us and has tried to soften the timing delay announcements over the past 2 weeks by a) including consent decree statement last week and b) scheduling the capital rule disappointment on same day of what he perhaps hoped was a good day with Sweeney. Our response due to the SC in Collins next Friday should be interesting. I wonder if our lawyers have tilted towards the higher risk higher potential reward outcome of directly or indirectly asking the SC to take the APA (and constitutional). Can you help me understand why any of this matters in the end? Maybe it gets addressed in 2021 instead of 2020. Has anything about the end game changed? Maybe I’m missing something. Obviously sooner the better but the IRR at current prices is attractive under essentially any timeline. The only tangible risk of delay that seems reasonable to me is the passage of time increases a risk of an acute downturn in credit markets which impacts IPO process

Moments like this make it explicitly clear why this opportunity exists and why there is a mispricing.

Everyone needs to calm down. - If capital rules come out in Q1 nothing about the timelines change. It’s highly likely Calabria knows what the rule looks like already. - it’s been known for a month now that the risk-based requirements would be re proposed. How was the market not aware of this...? Thesis hasn’t changed. Practical constraints involved in setting capital requirements, resolving liquidation preference to raise private capital, outstanding shareholder litigation, etc Maybe some year end selling for those who wanted P&L on their year end statements from a PSPA amendment but for those playing a different game- no change and potentially positive news if to cherz point there is a financial advisor involved in affirming to practicality of capital requirements

Onyx- interesting points but I think cherz is on the money. They will have significantly more capital and will also potentially have an explicit line of credit standing behind it. In my informal notes I have the following: - combined f&f cash losses during financial crisis = $64bn. Could add $18bn on top for DTAs currently on the books as of 9/30/2019 - 2019 2-year stress testing results = $43bn Minimum Capital will almost definitely be $104-$140bn, and minimum+risk based will likely be $160-$220bn.

my lord, what were the ethical issues? I talked about this on the Fannie Mae thread before but everyone yelled at me lol, but I’ll try again. I see the trade an opportunistic way for a bunch of hedge funds to steal money from US taxpayers. While investors may or may not have the letter of the law on there side, I see this as clearly violating the spirit of the law. Government bailed out the two companies when no one else would. When you bail out a company that no one else wants to bail out you own the company and even if you make a profit, it’s still your company. In fact if we made it so the government couldn’t make a profit on the companies it was forced to nationalize that seems like a huge kneecapping of the federal government especially after this action helped save a lot of wall street’s ass. Again the funds that are investing in Fannie Mae may not be the same wall street people, but it leaves a bad taste in my mouth when the government saves your ass in the Great Recession and then you turn around and try to extract as much money from the government as possible. I suppose on some level this is consistent with what I wrote above - people who have only spent maybe 1-2 hours on this come away significantly misinformed. You must not be invested in any of the large banks for similar reasons? And you must also feel that all of the large bank shareholders should be wiped today, despite paying back the governments loan including interest?

This is certainly one perspective shared by many who aren't involved and one of the many reasons the opportunity exists. I wouldn't be involved if I thought it was reliant on a political outcome.

FNMAS are the best risk adjusted reward I'm aware of right now - and as another user mentioned the thread is consistently active and engaging. I think the dichotomy comes from the fact that other users have long passed on FNMAS and for a variety of reasons (length of thread, extrapolating length of time passed into a never-ending saga, perceived complexity, perceived risk) refuse to take a look again / take a closer look. For those who are acutely aware of the details of FNMAS, it's difficult to find a special situation with this setup with such obvious reasons for mispricing. Within the first few hours of research it's likely people come away from FNMAS thinking that there is a decent probability of 100% loss and/or think there are unknowns which can't be solved for - it took me a while to look at the situation from a different perspective which changed my mind in how I initially perceived this to be a highly speculative special situation consistent of legal/political unknowns to a highly attractive low probability of permanent loss of capital situation. None of this is bad - just my thoughts from someone who actively reads across the both of the main sections of the forum. And I could also be wrong: 1) There are almost definitely other opportunities out there better than FNMAS 2) Thesis on why FNMAS has low probability of loss could be entirely wrong.

Just had some thoughts - curious to hear if there's something missing in the below logic- Is it not beneficial to us for them to hold off on modifying the SPSA for as long as possible? The future SPSA amendment (if done in one shot) will likely eliminate the outstanding liquidation preference ending the net worth sweep, but it will also introduce a periodic commitment fee for the existing explicit backstop. Said another way, $x of earnings today go to building capital. Once the commitment fee is introduced for some amount $y, incremental capital build will be = $x minus $y, effectively slowing down the speed of building capital. Of course, the liquidation preference today is being increases 1 for 1 with $x, but if I understand correctly we've actually surpassed the "10% moment", so there is room for further increases in liquidation preference while remaining above the "10% moment". In fact, if you have the exact math behind how the administration is calculating the 10% moment, you can probably back into the timing of the SPSA amendment we're all looking forward to.

The clown is probably getting his “scoop” from this thread

+1. +1 I agree that the last 12 months have been positive however does current situation has more risk or less risk compare to 12 months ago? Do we have more variables now that has to go right compare to 12 months ago? Literally everything about this has been directionally derisked relative to 12 months ago. I think the current situation is a combination of continued terrible reporting/analysts, uncertainty on specific timelines, and movements in quotes affecting opinions. Long term investors who own these securities are not touching their positions. The remaining effective “free float” is volatile given the free float is dominated by LIFO investors and short term traders who aren’t able to look out 3-5 years, and are unfamiliar with the practical constraints involved in removing F&F from conservatorship. Add in some uncertainty and confusion caused by scotus cert request, uncertainty on specific capital requirements, uncertainty on specific mechanics of recap, and the initial scary optics associated with the short term increase in liquidation preference on top of the fact that we are late cycle- and it’s not difficult to understand why there’s been an impact to the quotes. But it’s important to understand whether any of these are critically impactful to solving for the practical constraints involved in raising private capital and ending conservatorship. FNMAM ($50 par value, 5.81% fixed) closed with a quotation of $18.00. I think sellers are absolutely nuts if they are selling these things because there is uncertainty regarding whether this is resolved in 2022 or 2023. At $18, if it takes 5 years your cagr is 22.6%. If it takes 10 years your cagr is 10.8%. Risk = permanent loss of capital, which isn’t relevant to whether this is resolved 3, 4 or 5 years from now.

I think everyone needs to take a step back and realize how directionally positive the last 12 months have been

Another alternative (idea stolen from a twitter thread) - SPS reduced by JPS litigation remedy bringing SPS down to $70bn - $70bn SPS converted to common + warrants exercised - UST new common stake sold to the market in a secondary Two questions - does bullet point 2 not work because it would bring UST ownership >80% temporarily? - under this method could current common shareholders receive the ability to do a rights offering allowing ability to not be diluted by the governments shares?

Agreed that this the junior conversion scenario is normally how things are determined. But I am thinking of worst case scenario. ie wiping out existing shareholders, junior holders and giving 100% of the company to new holders. Maybe I'm too cynical but are they capable of doing that and if so what would stop them? This scenario does not remove the significant contingent liability for the companies resulting from the ongoing jr pref lawsuits. The easiest solution continues to be significantly diluting the existing common shares + eliminating the lawsuits through natural course of action (= ending nws (done) + eliminating SPS preference + either converting jr pref at fair terms or keeping them in the stack). Win + win. I'd imagine if raising private capital through an IPO has operational risk (it does), then eliminating the lawsuits would be a necessary requirement in reducing that risk (elimination of contingent liability)

yup. I think treasury understands that scotus will most likely tell it to come back with a final order, and Tim is pointing out that might not be a disappointing result for treasury's plan. I think this is the most plausible theory tbh. The primary reason being that even if Collins loses Supreme Court, there remain multiple other litigation cases outstanding which impede raising capital in a similar way in which Collins impedes raising private capital

Looking at this by inverting- UST has effectively documented that the 5th circuit ruling has significant and immediate impacts on admins ability to execute housing reform. Therefore, if UST denies cert, UST must eliminate the lawsuit (settle) in order to move forward on housing reform. If you agree UST is genuine in its desire to enact housing reform, then SCOTUS cert denial = requires settlement.