SnarkyPuppy

Uncertainty != Risk

Trickle of information is incredibly calculated. Contrary to others view- Calabria is an extremely thoughtful and intelligent guy. They are going through the motions here. I'm stunned at some of the negative comments here. We have the head of the FHFA stating end of net worth sweep and IPO in the next 12 months with lawsuits naturally going away. Yet prices within 10% of 2014 highs when a) original terms had not been paid off b) both tsy and FHFA anti recap You can argue semantics of whether this classifies as speculation or investing - but the classification won't matter when the inevitable outcome plays out

isn’t it funny that value investors are disbelievers of efficient market hypothesis, while at the same time complain that the price is not trading at the correct value right away? Fair point

the path is long and uncertain. Calabria intimates that it is 3 years. will juniors hit say 90% of par at beginning, middle, end or never in that three year process? how can the capital raise fail? countless ways, from china trade destroying capital market confidence to POTUS firing Mnuchin in a fit of irrationality. I like the bet, but let's admit it is a speculation. Speculation on what your CAGR is sure - downside? not sure. Some of the illiquid $50 prefs with decent coupons trade at $18. That's a 10.5% cagr if it takes 10 years to recapitalize.

How the fuck do these still trade at 40% of par? I have a dangerously large and irresponsible position and am still contemplating adding more - but am worried of my own ignorance.

the frigging last thing you want before a large capital raise is to have a decision maker spouting off. I will say however that Bethany will be great as a questioner. Bethany is fantastic. It's not clear she is pro-shareholders. https://washingtonmonthly.com/magazine/maraprmay-2016/mend-dont-end-fannie-and-freddie/ Thanks. I stand by what I said. While she is clearly pro-Gses in a twisted type of way, she is not being straightforwardly pro-shareholders. Simply trying to tell all sides of the story in the most possible unbiased way (like in all of her interviews) does nothing to support the rights of shareholders. Specially, with a 'Bloomberg' type of remark like this: There is, however, a fourth option: fix the flaws in Fannie and Freddie and let them operate, as they did—effectively—for more than half a century, as the main public-private guarantors of the thirty-year mortgage. This idea might sound sensible to most Americans. But in Washington it is considered, if not completely insane, then at the very least a political nonstarter. Yet it does have some backers, including certain reform-minded financial analysts, think tank scholars, civil rights groups, lobbyists for small banks, and, curiously, a few hedge fund billionaires who bought Fannie and Freddie stock low and stand to make a killing if the companies are revived. While this odd assortment of players isn’t getting much of a hearing right now, their idea has one advantage over all the others: it would actually work.

the frigging last thing you want before a large capital raise is to have a decision maker spouting off. I will say however that Bethany will be great as a questioner. Bethany is fantastic. It's not clear she is pro-shareholders. https://washingtonmonthly.com/magazine/maraprmay-2016/mend-dont-end-fannie-and-freddie/

In Calabria's mind, his role is not to determine outcome. He will act appropriately in line with his role as conservator, which everyone over the age of 5 would agree that the NWS in antithetical to. He will also, as regulator, draft and require capital requirements to be met. Whoever is a "GSE" will have to fulfill those capital requirements, in their own capacity, as private entities. Including Fannie and Freddie. This is all agnostic to whether there are 2 or 10 and whether they have a special charter. With the very important exception that I can't figure out, that if administration wants to be in the drivers seat of a recap (as opposed to simply releasing them and making the board/mgmt figure it out), it likely will need to be clear on future state.

A roadmap with milestones? Like the Moelis plan has? I view his Congress commentary as placating to Congress, but pretty clear they will move forward administratively with a timeline with dates on recap process beginning -> ending -> end of conservatorship. Congress can do what they want. With that said, I can't see how this reconciles with trying to raise $150bn of capital in the face of an uncertain prospective business model.

Imagine Watt saying any of this. We're at similar prices to where we were at before FHFA and Treasury making this very strong statements. Market mistaking uncertainty with risk.

lol @ stock price. nobody looking at this because cobf pgs >1000 and all of the hair on it... but lol at the current price.

Charters and paid-for government guarantee may require legislation. Modifying PSPAs doesn't (commitment fee, nws, etc.). "Charters and paid-for explicit government guarantee may require legislation". I think Calabria's willingness to do an interview on day 1 is good, as is his desire for Treasury to lead off the festivities with its plan. recapping and releasing GSEs will be done w/o congressional action, but congress will be pissed and will want to be told by Calabria all of the things it can do post release (ie competition), none of which can be expected to happen given current political polarization. so Calabria is wise to this (former senate staffer) and will keep talking about future plans while recap and release proceeds administratively This goes back to the point I was trying to raise a couple of weeks ago. How the hell do you (efficiently) recapitalize ~$150bn when you're also pitching removal of one of the most important advantages of this business (charters)? I can't figure this one out. Seems entirely contradictory for these guys to try to raise significant amounts of money while also diminishing the business prospects. Even if these clowns do believe removing charter is important - why not wait until fnma/fmcc are recapitalized? Congress can't stop them. Why not just raise the capital first and then go to congress and say ok lol time to remove charters. Congress hasn't and can't do shit - but with a level headed and intelligent leader (Calabria) steering their direction it's possible he brings all of the clowns of Congress together to do something that hasn't been done before. Why not be silent on the charters until capital has been raised?

MM, re-read what you said in this paragraph. I think you DO have the makings of a successful value investor if you are able to overcome the emotional struggle of not catching the bottom. Look, I've been there. It stinks paying more today for something I could have had cheaper yesterday, but it is what it is. Why not pay 10% or 20% more over and above the bottom price when the stock, as you've experienced a lot of times, would double from the low? Is that additional 80%+ not worth trying to work on the emotional discipline of getting over the disappointment of not catching the bottom? I would think you'd agree that it is a worthwhile discipline to try to get a handle on given you were in the right place at the right time a lot of times... but missed it because of something that you can work on with some effort. Thank you for your kind words. I have tried this for 8 years and in the end, realized that I am not suitable for it. I've known lots of kind people who were willing to help, including an analyst from Lu Li's fund, but that's ok. I really like what I am currently doing with technical analysis and trading, and happy with it. How did you get in contact with an analyst from Li Lu's fund?

Got it. So the notion of using his written views against him in court is basically a non starter. Would just have to hope he still feels the same way. Interesting then that we are bullish on the fact that his views at Cato won't align to his practical approach (basically- receivership), yet we feel the one area where he agrees with us (legality of NWS) is where he will be consistent with his prior thoughts. Are we just hearing what we want to hear?

Yeah- cherz would you mind commenting on this? From a layman's perspective seems like this is a pretty hard thing to defend against.

One thing I'm having trouble wrapping my head around- Capital seems to be a fundamental goal of the admin and FHFA - effectively confirmed through multiple statements now (Calabria testimony, Otting leaked comments, Mnuchin written testimony a while back re: any solution requires capital, and today's Carson comments). I'm struggling with how they will efficiently raise capital with "outstanding" legislative uncertainty regarding "new competition/guarantors", changes to charters, and other uncertainties regarding the economics of paying for the government guarantee. I previously have arrived at the answer of - this has quite literally always been the case pre-conservatorship in that congress could have theoretically passed legislative modifying charters and creating a paid-for guarantee structure. But the reality is that anyone posting capital will want some certainty regarding the economic viability and potential returns of a more terminal/long term state for the GSEs. How are you guys squaring the ability to efficiently raise capital with the longer term legislative uncertainty? I understand that we all believe legislation isn't happening - but we also have variant views from the market on this investment. Average participant in whatever IPO is going to want to some closure on potential legislative paths, no? Is this not a realistic roadblock to raising capital?

My screens yesterday showed a triple reverse monthy python which today has turned into a massive bull. But wait, it's starting to look like the bull is sitting on some object... a toilet?

https://video.foxbusiness.com/v/6019111648001/#sp=show-clips 5:06 and ownwards. Pretty much confirms Moelis/recap.

Just going to leave this here

Seems the risk of "nothing happening for 10 years" is all but gone (ex tail risks which we cant predict). If the memo basically is a high level 3 sentences saying nothing and effectively defers to summer OMB- the obvious question is why this summer? Are they waiting for Collins?

https://www.marketwatch.com/story/fannie-freddie-reform-could-rewrite-a-familiar-washington-script-2019-03-25 "David Dworkin is president and CEO of the National Housing Conference, a nonprofit that advocates for affordable housing. Dworkin sees more nuance in Secretary Mnuchin’s intentions, and is among the very few housing-watchers in Washington who believe GSE reform is going to happen. “We have the first treasury secretary in American history who has professional experience running portions of the mortgage markets,” Dworkin said. “He appreciates their value and is highly committed to not leaving Treasury with the GSEs still in conservatorship.” But Dworkin interpreted the exchange as the introduction of a blueprint for how the administration could work in concert with Congress to get reform done. “They’re really telling us that if Congress doesn’t act, the administration has enormous powers, but that it’s better if they act together,” Dworkin said. “We’re beginning to see, with the nomination of Mark Calabria as FHFA director, and the actions and statements made by acting FHFA Director Otting, the beginning of this process unfolding.” Dworkin envisions reform unfolding in what he calls a “dual-track” approach, with the Administration and Congress goading each other along. And he thinks the outline for what reform looks like is also pretty well established. (The Housing and Economic Recovery Act, which put Fannie and Freddie into conservatorship), “which Calabria helped write, contains 80% of what we need to do to fix Fannie and Freddie,” Dworkin said. “We can make the rest of the changes if we can find agreement that this is the model we need going forward.” Dworkin believes that the next iteration of housing finance is what he calls “HERA-plus.” The “plus” would involve an explicit paid-for government guarantee on mortgage bonds issued by Fannie and Freddie, and stronger powers for the regulator of the two enterprises. Still, as Dworkin put it, “HERA-plus is a good place to be. We don’t really appreciate the changes we made because the crisis evolved so fast. There are some things we missed but we’ve spent 10 years trying to come up with an alternative path to the 30-year fixed-rate mortgage that precludes the GSEs and we have not been able to do it. After 10 years, it’s not unreasonable to say we should go back to first principles, not back to the drawing board.” Having Calabria, someone many Washington-watchers respect for his ability to find common ground on this thorny topic, at the helm of FHFA, could also help ensure this finally gets done, Dworkin thinks. “Sometimes you need a Nixon to go to China and a Paulson to save the banks,” he said. “Calabria could be that person who’s uniquely qualified to find the middle ground on the GSEs.” https://www.housingwire.com/articles/42307-former-treasury-official-david-dworkin-joins-national-housing-conference-as-ceo The National Housing Conference, a nonprofit fair housing advocate, announced this week it hired David Dworkin to serve as the organization’s new president and CEO. Dworkin comes to NHC from the Department of the Treasury, where he most recently served as a senior housing policy advisor in the Office of Domestic Finance. In this role, Dworkin advised Treasury Secretary Steven Mnuchin’s housing team on “regulatory reform, affordable housing tax credits and modernization of the Community Reinvestment Act.” Dworkin also spent 12 years at Fannie Mae, serving in various roles, including leading community lending partnerships, managing the company’s Hurricane Katrina Task Force and opening and leading the company’s Detroit office. https://themreport.com/daily-dose/11-30-2018/looking-for-bipartisan-solutions "Fix What’s Wrong With Our Housing Finance System Leaving Fannie Mae and Freddie Mac in conservatorship is not the answer. The parts of our housing finance system that remain broken can be fixed without creating an entirely new system out of whole cloth that no one will capitalize. “If you build it, they will come,” is not a strategy for repairing nearly one-fifth of the world’s largest economy, it’s a tagline for a movie. Congress will follow if Treasury Secretary Mnuchin leads. America has never had a Treasury Secretary who understands the complexities and opportunities of the housing market as well. Mnuchin should put together the same kind of nonpartisan and diverse group of housing leaders to consult with and offer a plan for administrative as well as statutory reform that worked well for him with Dodd-Frank Reform" https://www.housingwire.com/blogs/1-rewired/post/46096-housing-finance-reform-should-fix-whats-broken During my tenure at the U.S. Treasury Department, I was part of the housing finance reform team under three secretaries and two presidencies. Under the leadership of Dr. Michael Stegman, Antonio Weiss and Craig Phillips, we met with hundreds of experts, read countless papers, and developed three unreleased white papers. We explored the utility model, the Ginnie Plus and half a dozen variations of Corker-Warner and Johnson-Crapo. It was like Policy Wonk Speed Dating: Sit down at the table, have a great conversation, go on a couple of promising dates, learn about some daunting flaws, go back to the table, repeat. The fact is that anyone could redesign our housing finance system on the back of a napkin as long as you don’t care about the long-term, fully-amortizing, pre-payable, fixed-rate mortgage. But if you want a housing finance system that preserves the fundamental element that sets us apart from the rest of the world while providing the only meaningful wealth creation tool available to low- and moderate-income Americans, then it’s going to be an incredibly complex exercise, with enormous transition and counterparty risks and incalculable unintended consequences. Unfortunately, the law of unintended consequences is never repealed. An important first step is allowing Fannie Mae and Freddie Mac to exit conservatorship as private companies with access to a federal guarantee that is paid for rather than implied. We need to finish the work we began in the Housing and Economic Recovery Act of 2008, which made the government rescue of the mortgage market possible. We need to fix what is broken in the current system, not tear it down and hope that if we build a new one it will work for everyone, or at all. Field of Dreams was a great movie, but it is not a viable economic theory; if we build a new system, they won’t come. If they would, investors would be filling the halls of the Capitol insisting on passage of legislation like the Corker-Warner bill that envisions five or more GSEs. It’s not happening. In this market, more competition is not the answer, utility pricing is, and with utility pricing comes rates of return that do not attract capital in a competitive equity market. One alternative would be to have only one GSE, but then you lose the competition over execution that has worked well in the mortgage market. Five years of working at Treasury with some of the smartest people I know has taught me this: Much of what we need in a new system already exists in Fannie Mae and Freddie Mac.

Yeah.... What you said is totally possible as well. The other possibility is that they want the plans to be leaked out, and share prices slowly ascending, so they don't get any headline risk of their plan helped push the stock up 150% in one day and enriching the evil hedge fund managers like John Paulson. We'll see. It's almost as if... this... is happening already...?

For shits and giggles how do you see/how would you raise capital here cherzeca? I'll give you my shits and giggles version. 1. admin comes out with a plan that has two parts: a) fhfa director sets capital standard, treasury eliminates senior pref (declaring correctly that it has been paid back as per original terms), and retains investment bank to represent govt in a recap of GSEs; and b) congress is encouraged to consider various additional reform proposals requiring legislation (likely competition and govt mbs guarantee). admin will want congress to be "involved" though admin will not wait for congressional action. while (b) may adversely affect (a), depending upon what congress might do, I think the market sufficiently discounts likelihood of (b) happening to not worry about it in recap. of course, potus can always veto anything that congress passes that is antagonistic to protect (a). wildcards: (a) collins en banc; while I think admin agrees to kill NWS, this ruling will provide impetus if Ps win. (b) does fhfa release GSEs from conservatorship before or after money is raised? you would think after, but this is where collins comes in...if Ps lose collins, market may not want an almighty conservator in charge of capital raise. Ps winning collins will make market more indifferent to GSEs remaining in conservatorship during capital raise. I think moelis blueprint discussed how primary and secondary offerings might play out, based upon AIG recap and sell out of treasury position. AIG is the roadmap that govt's investment banker will follow. While I generally agree that this is likely course of action, is it not a fair rebuttal to say congress actions TBD are a strong impediment to efficiently raising capital? I supppse this is quite literally no different than pre conservatorship where congress could amend charters and convert to explicit guarantee on a whim?

https://livestream.com/accounts/1028220/events/8561696/videos/187617124