Midas79

I believe that Trump waiting until after January 1 means that the DTAs will be written down in Q1 2018, the losses and negative net worth would be reported in the Q1 filing in April, and the draw from Treasury would happen on June 30, 2018. If he were to sign the tax bill before January 1 the loss would be recognized in Q4 2017 and the draw would be March 31, 2018. I have mixed feelings about the timing of Trump signing the bill. I think overall the delayed signing is positive for shareholders: assuming that the draw happening in June means that Congress is less likely to pass a knee-jerk bill (probably bad for shareholders imo) before the administration can work out their own reform. Is it possible for HR 4560-type language (extension of Jumpstart) to be put into the upcoming spending bill? Isn't that how we ended up with the first Jumpstart? That possibility really has me worried.

Good find. But Cohn says that the administration has $200B that they can "lever into well over $1T", and I don't see how the warrant can be "levered." The Moelis plan involves $100B from sale of shares obtained with the warrant and that is over the course of several years.

I agree that turning on junior pref dividends hurts recapitalization, at least in the short term. The only circumstance in which it would help is if the companies want to issue new common shares to rebuild capital and want to offer a common dividend (for more attractive pricing), thus forcing a reinstatement of junior pref dividends. I still think it is probable we get a voluntary conversion to common offer in the near future. I have now rebalanced 100% to prefs and all in Fannie, whose circulars do not allow any amendments without approval from 2/3 of shareholders. FNMAT is a good bit more liquid than most other pref series, but FNMAS is far more liquid (using 30-day volume averages as a measure of liquidity). The liquidity gap between FNMAS and FNMAT greatly exceeds that between FNMAT and the other series. That's why I include FNMAT but not FNMAS when looking at correlation between price as a % of par and dividend yield. The R^2 value is well down in the last few days, sitting at 0.72 (0.75 on the bid and 0.69 on the ask). To me this signals an increased probability assumed by the market that we see a conversion offer or redemption as opposed to a reinstatement of dividends, though it is an increase off a low base.

Agreed. The biggest risk of zero, imo, was Congress eliminating the companies and giving shareholders the middle finger by keeping the SPS on the balance sheet. It is much harder to screw shareholders when the companies themselves are preserved, and there is less incentive to do so.

https://www.wsj.com/articles/government-shifts-gears-on-fannie-mae-freddie-mac-1513515600 I'm guessing that "wind down" has become "revoke the charters and invite competitors" for Corker and Warner. Will it be enough for Hensarling?

am i correct in saying that the bull case for the prefs now is that because of this tax bill the DTAs are worth less and thus they will have to take a write down and thus this will force trump/mnuchin to act to "set them free"? There is a ton more reason behind the bull case for prefs, but the direct and immediate impact of tax reform is that it forces Mnuchin/Watt to address the capital buffer issue with actions and not merely words (paraphrased... Watt: "dangerous to have no capital buffer." Mnuchin: "No more bailouts. GSE's won't be killed, aren't going anywhere."). Don't mistake that with being the entirety of the bull case for prefs. Well put. If Trump signs the bill before Dec 31 then the GSEs will have to immediately write down the DTAs and the clock for the Mar 31 draw starts ticking for Mnuchin and Watt. Part of the bear case, or at least the not-so-bull case, was that the whole process could be dragged out much longer and it would depress the annualized ROI on the junior prefs, even if they recover to par. That is mostly off the table now imo. Aside: a quick search of the tax bill for terms like "GSE", "Fannie", "Freddie", "preferred" etc. gave no results.

"Early on" was a year ago. Given that Congress has gone 9 years without addressing the issue, how much longer is Mnuchin expected to wait? I can see him making one concerted push to get something through Congress, but if it falls apart, especially since it only takes 2 Senate Rs to vote a bill down, he would need to act administratively to ensure that anything at all gets done before the midterms.

In the past I have commented on the R^2 value of the linear regression using dividend yields of the junior prefs to predict their price as a percentage of par. I found a pretty serious error in my spreadsheet so I feel I should give an update. I had reported R^2 values around 0.55 before, implying that the market wasn't taking the dividend yield seriously and thought that there was a relatively low chance that dividends would be turned back on. After correcting the error the value jumps to 0.87 as of right now. I left FNMAS and FMCKJ out of the regression so that it should only account for dividend yields and not liquidity. The series I am using are FNMAG, FNMAI, FNMAJ, FNMAK, FNMAL, FNMAM, FNMAN, FNMAT, FMCCT, FMCKI, FMCKL, FMCKM, FMCKN, FMCKO. I have not accounted for a potential market preference for Fannie vs Freddie prefs (or vice versa), but their relative strength tends to go back and forth (right now Freddie prefs are strong vis a vis Fannie's) so I lump them together. I have a small personal preference for Fannie given the language in the circulars about a 2/3 vote needed for a forced conversion to common, while that language is absent in Freddie's. This R^2 value of 0.87 is still somewhat low compared to the last year, when it would normally be in the 0.9-0.92 range. Still, my premise that the market doesn't care much about dividend yield is flawed. I doubt we would see correlation this strong if the market thought dividends would not be turned on for a long time if ever.

that information could be stale, but most likely the 44mm shares is a subset of the 115mm; 44mm owned in the long term publicly traded investment vehicle and the rest in his traditional private hedge fund. I also thought there was a reason Ackman didn't go over 10%, either a poison pill or some regulation.

it looks like it is stand alone. it has just been reported out of committee. still needs to be passed by house (likely) and senate (if 60 votes needed, as i think it needs, then who knows) If this is true I see it as great news. Any administrative reform/4th amendment would come at Trump's request, and he would hardly sign this bill into law in that case. I can't see it passing, getting vetoed, and passing again with 2/3 happening before January 1. If this bill passes and Trump does sign it....well, at that point it's likely "abandon ship" for me.

Do we know yet whether HR 4560 is stand-alone or will be attached to another bill? I don't know enough about the process here. I didn't think something that would be attached to other legislation would need to pass committee or be voted on separately.

A link to HR 4560 (Jumpstart extention to 1/1/2019): https://www.congress.gov/bill/115th-congress/house-bill/4560/actions Given that this is a stand-alone bill it would have to be either eventually signed by Trump or gather a 2/3 majority to override a veto, neither of which seems very plausible. If the House actually votes on it we will get a good idea of who FnF's friends and enemies are in the House, and if the Senate ever takes it up we will see their stripes too. The original Jumpstart was attached as a rider to a spending bill, right? Do such riders usually start as stand-alone pieces of legislation? I don't know the answer but I would doubt it: riders like Jumpstart seem to be part of the negotiations and try to stay under the radar.

Thanks. I looked for an ignore option at one point but couldn't find it and gave up. I like iHub's ignore feature better: both posts by the ignored member and replies to ignored member's posts are completely hidden in the message list. You would never even know they existed if it wasn't for skipped message numbers. Here, though, I suppose it's better. At least the replies to an ignoramus are generally well thought-out.

"Made whole" = par for junior prefs? "Some shareholders" = junior pref holders? Those are the obvious bull conclusions to jump to, but "made whole" = "only compensated for losses, if any" and "some shareholders" = "those who have continuously held shares since before the NWS (or even conservatorship)" also fit.

it's likely one of the reasons we're at these low levels, his views that we found out today have likely been distributed to industry players in recent weeks The bolded part isn't right. We have known that Hensarling wants to kill the GSEs and get the government completely out of housing finance for a long time. I think this is why the market had little to no reaction: it isn't news. https://hensarling.house.gov/media-center/press-releases/hensarling-re-introduces-legislation-to-end-taxpayer-funded-bailout-of

"Undone" is a more appropriate word than "blocked." Administrative reform would start immediately upon issuance, while Congress would have to draft a bill, get it through both houses, and then have it signed by Trump to get their way. Ostensibly Trump would approve anything Mnuchin does so then Congress would need a 2/3 majority to override a veto, which is highly unlikely given how hard it has been to get anything passed this term.

To me it's bullish to the extent that it makes Congress less likely to pass a bill before Hensarling and Corker retire. I don't think there's nearly enough "get rid of the GSEs" sentiment in Congress to actually pass something to that effect. I don't trust any legislative reform to be friendly to shareholders. It is also somewhat bullish in that an explicit government guarantee is actually unnecessary in the presence of enough hard equity capital. I don't want an explicit guarantee. Now it would certainly be better if Hensarling was a GSE cheerleader. But I don't think his staunch opposition is a terrible thing.

Then what explains the RNC resolution? The fact that it seems to be toothless?

The tax bill the Senate is voting on is their own version, right? I know there were differences between the House and Senate so if each of them passes their own version, we will need a third bill to get it past both chambers. That unfortunately might give Corker another chance to add his preferred language.

Good point that they changed it later. They snuck in the "without his support" bit, which wasn't there when you posted. I'm glad they did change it because it provides vital context to the piece. I wish they had put "updated at XX:XX am" or some such.

The next two sentences are better news: I would love for the bill to pass with Corker voting no. That means he didn't get his preferred language in.

What are the odds that Corker's "trigger" includes anything specific to the GSEs? https://www.washingtonpost.com/news/business/wp/2017/11/29/sen-bob-corker-is-running-out-of-time-to-stop-the-republican-tax-bill-from-driving-up-deficit/?utm_term=.2bb4720492ab I can't find anything GSE related in these stories, but that doesn't mean it isn't there. Sneaking through more anti-recap and release legislation would be a rather bad turn of events for shareholders.

It seems that things are coming to a head. We have three things happening very close together: Fannie and Freddie both past the 10% IRR point; under the original SPSPA the seniors would just have been repaid (end of Q3 2017) Expiration of Jumpstart (end of Q4 2017) Zero capital (end of Q1 2018) It is most likely coincidence that all of these are happening in a ~6-month timeframe, but each is an incentive to get something done and collectively there might be just enough oomph.

This just goes to show that the courts can find any reason to dismiss, however tortured and convoluted. I would hope SCOTUS is different but at this point how can we be sure? Ginsburg found a way to affirm Lamberth's dismissal against all odds and logic. If this happens for one or two SCOTUS justices then all judicial avenues could be closed off.

ok, i'm prepared for someone to wake up tomorrow and sell the preferreds I own trading at 18-19pct of par closer to zero. for this investment, 2017, 'yikes' is spot-on! Am I the only one who thinks the less cases the better? No cases, no more hand grenades in our faces. And by now we know lawsuits have been -for whatever reason- ineffective. Either way, 2018 will bring legislation or potentially administrative reform. if this gets resolved judicially, this will only be done by scotus. This is the only way things were ever going to end up, right? Either shareholders or the government was going to appeal any decision all the way up to SCOTUS.