Wiggins

More prior comments from this user: "it’s a lottery ticket", "It’s not an investment ". Is that analysis too? If you think this "investment" is such a POS then please tell me why you're here discussing this "investment"? What do you hope to gain?

If you're very negative about this investment then offer actual analysis about that and then move on. Repeating "hopium" and "suckers" is not analysis, it's just insulting.

John Paulson recently made a comment that the Treasury's stake in the GSEs is 90-95% of their equity. Do you realize what that means for JPS?!!!!!!

Kaoboy has indeed spilled a lot of ink on this topic. He's extremely knowledgeable and experienced in the areas of restructuring, no doubt. This is a great read. But does he have experience in the restructuring of massive Federally-chartered institutions that cannot be changed or replaced easily? I noticed his whole restructuring thesis is predicated on changing the GSEs' charters (e.g., creating an explicit guarantee, etc.), which cannot be done without an act of Congress. That's a huge problem with his thesis, IMO. Let's set that possibility aside for a moment. If the Trump administration wants to release the GSEs administratively without Congress -which Trump has already said he would do-, then how can the JPS be restructured without the JPS's explicit 2/3rds vote approval? I see how common dilution can occur without a Congressional act, but I don't see how for JPS. The only relevant question that Kaoboy seems to address with respect to administrative release is the legality of the SPS taking a haircut. He cites Calabria's book. Really? What law? Which Federal Statute? Moreover, since the SPS liquidation preference is higher than the book value of the GSEs, then the SPS would already be taking a haircut. I think what Mnuchin was referring to is that the Government cannot give its property away for free. Fine, but that's a different problem and isn't it in fact favorable to existing shareholders? In administrative release doesn't the Government extract more value by respecting current shareholders? How about receivership? This can be done without Congressional approval, and JPS can indeed be wiped out in this scenario. But there are a whole bunch of reasons this seems unlikely. First, how would the Government get paid anything near what they would make with administrative release? They cannot sell the GSEs with their charters intact. They cannot even sell their SPS. They can only liquidate the GSEs assets. And the GSEs' greatest value is not in their assets, it's in their Congressionally-chartered business models. They used to have valuable portfolios but those are relatively small at this point. It would also create major havoc in the financial system. Back to the act of Congress scenario. Anything under the sun is possible here. Who the hell knows? But I'm in full agreement with Kaoboy here on the chances of that. First, the R's would most likely need to control both the House and the Senate, and even then there are many priorities that would come first. So in that scenario it's likely not happening until 2026 or later, whereas administrative action can occur very quickly. And I'd bet that Trump, now a one-termer, would have little interest in the huge amount of work required on Congressional action. Does anyone envision an 80-year-old Trump putting his nose to the grindstone in hashing out a new mortgage system in 2026? And for what, so he can shaft his major donors, some of whom could be serving in the administration? Here's another question for anyone worried about the act of Congress scenario. What would JD Vance do? I think it's an important question because if Trump wins and accomplishes even half of what he sets out to do, then I'd bet Vance is president in 4 years. In 2026 JD Vance is young and burnishing his political chops, not Trump. And Vance strikes me as a practical dude who definitely understands poverty and the importance of owning a house. Does anyone think he would expend his political capital to destroy "two great American companies" -to use Trump's parlance-, while tanking the US economy?

More catalysts re: Trump win: 1) https://www.racket.news/p/election-exclusive-british-advisors 2) https://nypost.com/2024/10/22/us-news/trump-books-joe-rogan-podcast-interview-in-final-election-push/

I don't believe the FT article for the reason stated in the article itself. It's too expensive to "buy" this election by buying the betting markets. It would be better to just buy ads, and even that doesn't work. As far as what's moving the markets and what's moving Trump's chances, I'd put far more weight on Musk catching a rocket and stumping in Pennsylvania. He's reaching a lot of young voters who otherwise might vote for Harris. That's huge.

Agreed. But perhaps it's even better when you believe as many do that in either situation it will go up from there. The win scenario goes up 100% and then likely increases to par in the next 1-2 years. The lose scenario goes down 50% and then, eventually, goes up likely to par. As far as whether it should be a "small" bet. I agree but that's of course a personal decision to each investor depending on risk and volatility tolerance. An adherent to the wisdom in "The Intelligent Investor" by Benjamin Graham likely would stay far away from this investment, and Graham would call this speculation, not an investment. I've heard comments here in the past of limiting this investment to only a few percentage points of your portfolio. But, there are all types, and at least one investor is 100% in with leverage. Not for me but more power to him.

Both commons and JPS are seriously underpriced at this point. I took a position in commons to add to my JPS stake. I continue to believe that these securities are seriously underpriced for technical reasons, not economic reasons. The main issue is the pool of investors who are willing to spend the time understanding this asset and to take the risk is very small, and those that are willing are already doing so. Still, I think there are a substantial number of investors in watch and wait mode, and when it's clear Trump will win they will jump in. We're on the cusp of that. So what will Paulson, or whomever is in charge for the Trump team do? Specifically, how will they approach the commons? Will they wipe them out with some sort of cram down, or will they do a Moelis-type plan? I favor the latter because I think Treasury would make more ROI by giving value to existing commons than wiping them out. Also, keep in mind that Bill Ackman, major commons holder, has endorsed Trump. Ackman will likely be involved, and his "bet on America" narrative would resonate with Trump and Vance.

You're correct. I misspoke because I meant 18-19% of current share prices, not of par. Sorry about that. Of par, the damages are approximately 2% for Freddie and 2.7% for Fannie, and both are accruing post-judgment interest.

Have had both but now 100% JPS. I stopped holding common after the 2021 SCOTUS verdict, which legalizes a wipeout of commons via SPS conversion.

If Trump loses the share prices will fall a lot, and I will buying.

This is a good discussion. I have been holding a long time also, and the opportunity cost has been significant. Money managers such as Berkowitz had to sell because they cannot have too many years managing clients' funds with no gain while the market has been this hot. If you are managing your own money, the question is: can you wait some more? Simply put, no government, D or R, is going to wait until 2032. Why? Because the cash sitting on the GSEs' balance sheets will be calling to them, ever more loudly with each passing quarter. Even if they DID wait until 2032 they would still release the GSEs because the realized capital upon release would dwarf a 10% dividend. Almodovar reported an $86.5 billion net worth for Fannie Mae in the most recent quarterly filing. And since -as Jared Bernstein put it- the "tear it down crowd has lost", the only viable mechanism for Treasury to access this capital is to release the GSEs. Pulling some shenanigans like wiping out JPS risks additional court cases, which would be particularly risky given that JPS are already due damages currently at 18-19% of par. The pending appeal could result in even higher damages, while you wait. Release is the reality staring us in the face. It's been a long dark road, but it's darkest before dawn.

Hopefully you bought some and have enjoyed the last couple of days.

Key article. According to this WSJ article out today, there is indeed an "administrative state", and the Project 2025 transition team even has a class for prospective administrative candidates called "..."Conservative Governance 101" that teach potential appointees about the "dangers of the administrative state"..." Most of the article talks about Trump disavowing much of Project 2025 and his history of tossing out well-laid plans in the past and doing his own thing, which may come as comfort to those worried about the plans for the GSEs in Project 2025, although in reality it's plan is incoherent and contradictory. https://www.wsj.com/politics/elections/project-2025-donald-trump-election-2024-b89ed4dd?mod=hp_lead_pos7

I awoke with this exact thought today but hadn't seen sholland's comment about it from last Saturday until this morning. Covid was a huge disruptor. It's hard to imagine getting this done during that time when everything was shut down for months on end. If you read Trump's letter to Rand Paul, it really lays out his thinking from a business perspective, with two points being that investors were screwed and the government can make billions of dollars off of their investments. Trump may not be a good businessman, but he is a businessman. I think this will carry the day. The great impetus for the administration to prioritize this is to unlock the $100 billion dollars or more going in to the coffers of his administration's Treasury.

OK. Why not buy a lottery ticket? That'll impact your portfolio a lot more.

I appreciate the discussion and feel the frustration, but if you really feel Trump will not do anything and this is a "lottery ticket" you might want to consider unwinding the investment because that's not a great investment strategy. Anyone wondering about the power of the "administrative state" in the face of a president getting things done, may I suggest the book Confidence Men by Ron Suskind? The history of FHFA conservatorship is replete with administrative perfidy. Hank Paulson started it with conservatorship itself, that was supposed to be a "temporary time out." Insiders then lied to get the NWS passed. And back when Calabria was at FHFA he even mentioned the difficulty of getting access to the "11,000 documents" as they were stored at the national archives and there was a lot of administrative hassle accessing them. Presently, look at the current example of Biden who is clearly not in charge. The corporate lawyers write the laws and peddle influence. For a politician who actually wants to get something done, their primary weapon is to shed light on the issue and then get popular support. And that's why the Trump letter is so important. Even regardless of how Trump actually feels, the letter's optics are incredibly powerful. It refers to Fannie and Freddie as "great American companies." Where have you heard that, and from a President, no less? I'm still a believer in this investment for quite a few reasons. I do believe Trump the businessman will see the value in unlocking ~$100 billion by exercising the warrants and selling common stock. That money is unallocated off budget, very powerful stuff for an administration. I do believe there's a sizable faction that want them released, some of them own JPS, and many of them have influence with Trump.There's also the overhang of lawsuits, principally Cacciapalle. On appeal there's the possibility the awarded damages could go far higher than the current $612.4 million (plus interest). So there we have the carrot and the stick. And in the meantime, the entities are too important to unwind.

I think the answer is basically yes. We need to differentiate between Mnuchin and Trump. Mnuchin was clearly a liar on the GSEs saga for precisely the reasons you cite. He kept up the hideous legal attack and then passed the hideous 4th amendment. Moreover, it was Treasury's defense (i.e. Mnuchin) who blabbered on an on about "windfall" for investors, which was a disgusting comment given the losses investors had suffered for years and years. Contrast that with the Trump letter quote: "...they allowed the Federal Housing Finance Agency (FHFA) to steal the retirement savings of hard working Americans who had invested in Fannie Mae and Freddie Mac." So, not only did Trump say he would release the GSEs but he spoke very supportively and directly about the cause of investors who got screwed. That's huge, and it's a first from any president. Now, is it for real or is it just Trump BS? Well, it's actually a physical letter written to Rand Paul that can and will be brought up in a 2nd administration by people like Bartiromo. I see him as generally following through on policy statements he makes. And this time everyone knows this is the last chance (i.e., only one term) in contrast to his prior administration.

Probably most of us are aware of that mechanism and that it's still bad. But it's not the same because the money is not actually being spent. That's a huge difference IMO because it shifts the financial incentives. The only way to get the money is to ACT.

Will have to disagree quite a bit since the Trump administration DID stop the NWS spend, and this was after the Democratic FHFA head sucked up two years of time. This was a critical step. He also wrote an important letter to Rand Paul. These acts are far more than any other president has done. Going forward, he would be in his last term and would have no reason to keep the GSEs in conservatorship. His buddies will be lined up holding JPS. I'm not holding my breath but I am holding lots of GSE JPS.

Catalysts: Welcome to Trump trade 2024. The New Hampshire primary is today. I expect Trump to win handily and GSE stock to continue its run. Tomorrow should be another catalyst as it will be the first trading day after Trump won NH, and there will be lots of talk about the inevitability of him winning the Republican primary. Then there will be another catalyst when Nikki Haley drops out of the race. I would be surprised if she does that before the SC primary. After all the primaries and it is inevitable that Trump will be selected, when will there be a pullback or plateau? It has to come at some point. Tim Pagliara has been making a lot of noise about R&R being worked on by Biden who won't want to hand this over to Trump to get credit. Regardless, there is a lot of discussion that either Biden or Trump will be moving the needle soon. Of course, the GSEs are holding a lot more capital now. Maybe even Maria Bartiromo will interview Trump and ask about it, which could be a good catalyst. I'm holding for now.

It's not over. There are a few lawsuits still pending. And there's still the issue of what to do with the GSEs.

All shareholders of Fannie and Freddie preferred, and Freddie common will get paid unless they specifically opted out of this class action suit. I have read that the plaintiffs are only asking for $1.6 billion in damages which would result in a cash payment for about what they're selling for today. I don't know what the jurors will decide and all I know is what I am reading in the newspapers and on Twitter

10 jurors were selected today. Likely they will all be sworn in and one is an alternate, so one will be dismissed if all 10 are there at the time of verdict and 9 will make the decision. This is a civil trial, so the jury does not have to agree unanimously. They just have to reach consensus according to the foreman they will select. Any damages paid to shareholders would be from the GSEs themselves.

There are a lot of sealed motions from defendants in the Lamberth trial. I suspect that they're trying to exclude a lot of damaging emails from Treasury and other government officials, stating they aren't official views. That's just a guess but what else could it be? Hopefully at some point some of this information makes it to the jury and gets released to the public. The ulterior motives we've already seen from officials such as Jim Parrot seem relevant to the plaintiffs' side given the "good faith" portion of the contract breach. I hope we can get some information about the trial as it unfolds. Someone will have to be there taking notes. Anyone that has seen a jury trial up close knows that juries are unpredictable; we have to hope the odds lean heavily toward the plaintiffs. I hope some investors are still monitoring these boards and also doing well otherwise. And I wish everyone good luck. I miss the great analysis that used to happen here and I hope we can get some more discussion going about the trial. This seems a good place to discuss trial matters and updates.