COBFInfinity

That's awfully optimistic given Senior Prefs remain and liquidation pref keeps increasing. I think it would be a pleasant surprise if we're not red. The only thing I know for sure is that there will be massive volume and volatility in both the common and preferred. And while I have close to 0% success predicting security price movements, I actually wouldn't be surprised if the preferred does even better than +30%. Because here is what Mnuchin's punitive blueprint provides for options right now*: Fast Recap or No Recap. So given those two choices, Fast Recap is the one that preferred investor plaintiffs and the companies will choose. I think a settlement occurs before SCOTUS ruling and then capital raise begins. *Based on the assumption that SCOTUS ruling is uncertain. Some, of course, think it's a lock, but we've been disappointed too many times for me to take that view. You'd have to assume Yellen is eager to get on with this process to take this view imo (or be super confident on collins constitutional which i'm not). bc she could stall for years if she wanted, although the bankers would likely be pushing for her to settle so they can raise big $$ and collect fees. I did a simple balance sheet analysis a few weeks back that no one commented on, but it broke me out of my inertial thinking that started in 2014, which was: "We have to win the lawsuits and get paid the overage." But when it became clear that Mnuchin was not going to settle, I had to rethink what may happen. And when I did, I understood the dynamic clearly for the first time that since writing down the Sr Pfd mostly accrues to the Tsy-owned warrants anyway, what matters much more to preferred shareholders is that the NWS ends and that there is a method to pay down Sr Pfd. Any writedown of the Sr Pfd is cake, of course, but much of the benefit moves from one pocket of Tsy to the other pocket. Common shareholders are hurt badly without a writedown of Sr Pfd, but that's the reason most of us here are only or mostly in preferred. So if you are a big preferred holder plaintiff like Berkowitz, who has been in the trade for 6-7 years with little to show for it, are you willing to sacrifice a potential big legal win that is years away and only changes the timing of your upside to par, but not the magnitude, in order to get a recap done ASAP? I think Berko says, "Hell, yeah!"

That's awfully optimistic given Senior Prefs remain and liquidation pref keeps increasing. I think it would be a pleasant surprise if we're not red. The only thing I know for sure is that there will be massive volume and volatility in both the common and preferred. And while I have close to 0% success predicting security price movements, I actually wouldn't be surprised if the preferred does even better than +30%. Because here is what Mnuchin's punitive blueprint provides for options right now*: Fast Recap or No Recap. So given those two choices, Fast Recap is the one that preferred investor plaintiffs and the companies will choose. I think a settlement occurs before SCOTUS ruling and then capital raise begins. *Based on the assumption that SCOTUS ruling is uncertain. Some, of course, think it's a lock, but we've been disappointed too many times for me to take that view.

A few thoughts before dinner. A shout out to the chartist heroes who came out of the woodwork over the past two weeks with the viewpoint that if the share price was dropping, it meant Mnuchin was going to do nothing. Great help you all were! I bought preferred at the end of 2014 based on the legal angle, but I couldn't help but be convinced by ACG Capital's supposed "D.C. insider" info the last couple years about admin reform. They had been confident that not only would Sr Pfd be written down, but the excess earned by NWS over 10% dividend would be added as a tax credit. I thought the latter part was pie-in-the-sky, but hey, they supposedly had the inside track. So much for that. Did Mnuchin ever have that view? Perhaps, but it obviously wasn't firmly held. One reason Mnuchin waited til the last minute was to develop a plan that Yellen would give the stamp of approval. Good move. Completely meaningless predictions for tomorrow: Common -25%, Preferred +30%.

This is good. If anyone was somehow underweight preferreds, you might want to buy a few at the open tomorrow.

So, Sr. preferred remain in place, but payments are suspended until GSEs retain capital upto previously stated levels. Every dollar of retained earnings increases liquidation preference, and there is still no mechanism to reduce it, and NWS payments have been amended to the lesser of increase in book value or 10% of liquidation preference. New capital can only be raised once lawsuits are ruled on, or settled. Let me see if I can read in between the lines: Common shares are screwed. Retained earnings are financed @ 10%, non-compounded, because they add to liquidation preference which gets priority payment after recap. Only other way to recap more cheaply is to offer shares quickly. Shares can only be offered quickly if there is a settlement. So, 1) Common gets screwed by dilution of Treasury's 80% AND new offerings coming in the near term with less emphasis on retained earnings And 2) we can expect those new offerings soon as companies and govt now have incentive to settle this quickly (companies to avoid 10% financing of retained earnings for liquidation preference that can never be reduced and govt to unlock the value of its 80% stake to fund new stimulus packages). Does that seem right to everyone else? Yes, as I guessed earlier today, preferred plaintiffs will be highly incentivized to drop the lawsuits (or settle for pennies). Keeping a 10% dividend and increasing liquidation preference is highly punitive. My view: modestly bullish for preferred, very bearish for common. It's going to take at least a few years to build up the 3% capital target, but at 20% of par there's a big IRR built in. Assumes, of course, that Biden/Yellen will play ball. If they can settle the lawsuits for pennies, I think they might.

+1 and if there is a pathway out of conservatorship how on earth SPdfs are not dealt? I think we are just getting nuked with pieces of misinformation. My best gin waiting in the fridge in case we have a happy ending LOL I suppose Mnuchin's pathway is to simply raise the retained earnings cap by another letter agreement. all hat no cattle for that putz. three or so months to wait for SCOTUS. I think we get good news on APA claim (and maybe const claim, though justices were squirming around on that). APA claim would go to summary judgment motion hopefully by summer, but god knows when decided by fed d ct cherzeca how does mnuchins comments that if SCOTUS rules for gov it would be easier to raise 3rd party capital? Rules for gov outright? NWS illegal but no damages? Whats your read on that? He merely said it simplifies things. As in, he expects all plaintiffs will throw in the towel on all lawsuits. no, why we would we trade in lamberth? It's $40 potential. Ideally we'd settle that at some point in future for some value. Like an earlier conversion to common or even better some ratio of paydowns as capital is built -- half sr pref half jr pref. Because plaintiffs have the weak hand. The upcoming Treasury is never going to settle on fair terms, preferring to just let the lawsuits play out over many more years. Depending on what the PSPA amendment consists of (i.e., whether it would allow for a capital raise if not for the lawsuits), I actually think there's a possibility that preferred shareholder plaintiffs will be incentivized to drop all lawsuits quickly in order to allow for a recap to occur. That would be bad for common shareholders, but preferreds likely get paid off much faster in that scenario. But again, it will all depend on the details in the agreement...

+1 and if there is a pathway out of conservatorship how on earth SPdfs are not dealt? I think we are just getting nuked with pieces of misinformation. My best gin waiting in the fridge in case we have a happy ending LOL I suppose Mnuchin's pathway is to simply raise the retained earnings cap by another letter agreement. all hat no cattle for that putz. three or so months to wait for SCOTUS. I think we get good news on APA claim (and maybe const claim, though justices were squirming around on that). APA claim would go to summary judgment motion hopefully by summer, but god knows when decided by fed d ct cherzeca how does mnuchins comments that if SCOTUS rules for gov it would be easier to raise 3rd party capital? Rules for gov outright? NWS illegal but no damages? Whats your read on that? He merely said it simplifies things. As in, he expects all plaintiffs will throw in the towel on all lawsuits.

You're just making stuff up here. Trump is still POTUS. If he wants to pardon people, you think the WH lawyers are going to refuse? Highly unlikely. But again, what does that have to do with Mnuchin, who can sign off on PSPA amendment on his own? Anyway, I'm done with the back and forth. Time to just wait and see what Mnuchin does, or doesn't do.

Lol, I just opened the Bloomberg.com page. The bold headline is "Trump is Planning to Stage a Defiant Last Week". Seems consistent to what I just wrote above. His entire existence revolves around amplifying his base, not appeasing to his detractors.

You keep implying that Trump is all of a sudden going to be a respectful, honorable guy in the last 10 days. Not going to happen. When has he ever cared about what his detractors think? You really think he's not going to pardon anyone now because some people won't like it? Lol, I expect a pardon Pez dispenser in the coming days. If anything, Trump's history implies he is willing to be even more aggressive in offending his opponents right now. I don't think the GSE's is going to rile up anyone, though. And, believe it or not, the WH has continued to put out executive actions since the 6th (see https://www.whitehouse.gov/presidential-actions/). I don't know if there's any controversy with these, but your assumption that everyone has just stopped working appears to be false.

Side note: performance attribution analysis of FAIRX implies that Berkowitz still had a substantial position in GSE preferreds last week. He has a large position, so even if he did change his mind based on last week's events we wouldn't be able to tell how he was reacting. But it's pretty clear that he did not throw in the towel late in 2020 when many others said it was already too late.

Just so everyone doesn’t think I’m a hater, this seems like a reasonable counter argument at first glance although again I haven’t done any work on the stock. I just think people saying that the chance is still greater than 50/50 because SM said he would do it before the coup happened aren’t updating their beliefs correctly. Lots of people are saying/implying this, but can someone clarify WHY they think Mnuchin would choose not to sign a PSPA agreement based on what Trump did this week? I accept that there might be a reason, but I'm not sure what it would be. Mnuchin's job ends in 11 days, he's fabulously wealthy, and it's unclear if he has any interest in running for any office in the future, so I honestly see ZERO concern that he would have if a few Democrats don't like what he does - they were never going to like it anyway. A large number of Americans including many republicans consider that coup just occurred incited by president Trump. Trump has lost legitimacy as president even by many in his own party as evidenced by the many resignations. While I agree it doesn’t really effect SM monetarily, passing controversial legislation at this point in time persona non grata for the foreseeable future. If you don’t buy that, consider what the repercussions for Trump and the GOP. Trump incites the coup. When it’s contained instead of doing nothing, which is the best he can do, he passes this controversial legislation which is counter to Biden’s agenda. You know how many people on both the left and the right would pummel the republicans and Trump for having no shame and continuing to undermine the Biden administration even after trying to stage a coup? Is it possible, yeah. Is it likely after what happened this week, probably not. Edits (additional thoughts): Also priority number 1 (as well as 2,3,4...) is to ensure a smooth transition to Biden’s presidency. I would imagine this falls down on the list of priorities, considering how far behind they are in transitioning, given the new additional spotlight on making sure this is smooth. Thanks for the thoughts, although I disagree. Here's why. Most Republicans are sticking with Trump (even though they shouldn't), particularly those in Congress who, with very few exceptions, are not asking for Trump to be removed. This may change the day he leaves, but for now it has changed less than you imply. His approval rating among Republicans outside of D.C. has fallen, but is still pretty high (see https://morningconsult.com/2021/01/08/trump-approval-rating-capitol-riot-poll/). Next up is the fact that the Republicans in housing oversight already approved of ending the conservatorships. I can't imagine they will be outraged if it happens. And as I said, the Democrats already opposed it, so what else is new? Next up, you are calling this legislation. It is not legislation. Trump will not be directly involved. The 3rd Amendment in 2012 was not a hot topic in D.C. at all. I don't think another amendment will be either, particularly with impeachment dominating the news for weeks to come. As others have implied, if Mnuchin was waiting until the last minute because of potential blowback, this is actually the best possible scenario because it will get 2 minutes of coverage and then be gone from the news. Now, if Mnuchin has to actually ask Trump one last time whether he should sign off, I have only 2 possible thoughts. 1) Trump absolutely doesn't care or 2) ending the conservatorships has been the plan all along to thank John Paulson and possibly other donors for their support. If it's the latter, then Trump says "yes" because he will want to keep his rich friends on his side, if possible. The one real concern I have is that it has been reported that Mnuchin discussed the 25th Amendment and I have to assume Trump has seen that reporting. I would imagine Mnuchin would just say "fake news" or "yeah, someone brought it up, but I disagreed with it" and he's been loyal to Trump for many years now. If Trump believes that Mnuchin is trying to undermine him, though, he would fire Mnuchin. But as of now, Mnuchin is still on the job and has said he will stay to the end. And he will reportedly meet with MBS before returning the U.S., which most likely includes some discussion that will personally benefit Trump, so it looks like Mnuchin is safe for the moment. Then again, Trump can no longer fire people on Twitter, so who knows?! I don't think an amendment impacts the transition to Biden's team materially. Treasury is just an investor here. FHFA provides oversight to the GSE's and there should not be any continuity issues as Calabria isn't going anywhere. As for last minute executive actions - guess what? Trump has already been pushing through a bunch in the past 2 months that Biden won't like. You know who else did that before his term ended? Yup, Obama. Of course the other side doesn't like it, but that's just how the game is played. So my take on your views is that you think certain things should matter, but I'm not sure any of them actually do matter.

P.S. If anyone was going to back out of a PSPA amendment, I would think it is Calabria, not Mnuchin. He's the one who could plausibly hurt his career by doing it. But as with Mnuchin, none of us here know whether Calabria has had any reason to change his mind.

Just so everyone doesn’t think I’m a hater, this seems like a reasonable counter argument at first glance although again I haven’t done any work on the stock. I just think people saying that the chance is still greater than 50/50 because SM said he would do it before the coup happened aren’t updating their beliefs correctly. Lots of people are saying/implying this, but can someone clarify WHY they think Mnuchin would choose not to sign a PSPA agreement based on what Trump did this week? I accept that there might be a reason, but I'm not sure what it would be. Mnuchin's job ends in 11 days, he's fabulously wealthy, and it's unclear if he has any interest in running for any office in the future, so I honestly see ZERO concern that he would have if a few Democrats don't like what he does - they were never going to like it anyway.

I know you're just here to troll and if the preferreds are up 150% next week, you won't be back to talk about it, but I'll humor you because you are trying to give the impression that you're doing some real second level thinking, but can't actually see the obvious. The email to Fannie Mae staff said that it was "possible" that the conservatorship would be ended imminently, and if so, they would need some people to work over the holidays. So did they work over the holidays? Probably not, because, duh, the conservatorship was not ended in late December. We all know this. You logic is about as good as this: Mnuchin only believes in ending conservatorships during Hannukah, and now that it's January, he can't do it for religious reasons. What you fail to recognize is the importance of Fannie Mae senior management having reason to believe the conservatorship would end imminently. Is it fair to assume they know more about what is happening than you? Do you think maybe they've had many discussions with Mark Calabria about what they might expect? Do you really think they would notify staff if absolutely nothing was expected to change? So it's blatantly obvious that Mnuchin intended to sign a PSPA agreement. Exactly what changes, none of us here know. Is it possible he has had a last minute change of heart? Sure, it's possible, but HE has definitely not said that. The last public comments said he was likely to sign. But if your whole argument is, "It didn't happen two weeks ago, therefore it will never happen," then perhaps you shouldn't be casting stones at how anyone else evaluates this investment.

I assume you saw Gasparino float this on Twitter last night. I don't think anyone here knows for sure what would happen to PSPA amendment, but the odds that it occurs clearly plummet if Mnuchin is no longer Secretary, whatever the reason. Mnuchin was kind enough to put us at ease overnight (https://www.timesofisrael.com/netanyahu-calls-rampage-in-dc-disgraceful-doesnt-mention-trump/): "Mnuchin indicated that he would not be resigning from his position in light of the attack on the Capitol, as Deputy National Security Adviser Matt Pottinger did Wednesday. “I look forward to getting back to Washington, DC, with our continued work on the transition,” he said.

As a reminder, not EVERYTHING is based on Mnuchin. Spike in interest rates will reduce refi activity, reducing GSE profits. Price drop may not be unreasonable based on that.

Yeah, but those were OUR dates, based on assumptions that sometimes turned out wrong. The question is whether Mnuchin ever had a "date" other than last minute. We may never know, but while time is running out, the last minute has not yet arrived. What makes you believe something will happen at the last minute? That’s another one of OUR dates? These papers are like call option that on January 20, imo. At least the executive action part of the value will expire. I am not sure what the lawsuit part is worth. Even if executive action were to occur, there is a strong likelihood that it will just be reversed. Yep. Now Dems control House, Senate, and presidency. Nothing will be done in the next 4 years at least. Or Mnuchin will say, "I don't want to leave this up to Dems" and he'll sign the PSPA amendment.

Yeah, but those were OUR dates, based on assumptions that sometimes turned out wrong. The question is whether Mnuchin ever had a "date" other than last minute. We may never know, but while time is running out, the last minute has not yet arrived. What makes you believe something will happen at the last minute? That’s another one of OUR dates? These papers are like call option that on January 20, imo. At least the executive action part of the value will expire. I am not sure what the lawsuit part is worth. Even if executive action were to occur, there is a strong likelihood that it will just be reversed. No, January 20 is clearly Steve Mnuchin's deadline, not mine, and he started talking about ending the conservatorships before he even started the job 4 years ago. If he had no interest in actually doing something, why did he bring it up then and then keep telling everyone for 4 years that he wanted it to happen? Now, I don't believe he's going to give investors anywhere near what they hoped for, but he can do enough to set the path for a recap to occur. We'll all find out soon enough.

Yeah, but those were OUR dates, based on assumptions that sometimes turned out wrong. The question is whether Mnuchin ever had a "date" other than last minute. We may never know, but while time is running out, the last minute has not yet arrived.

That's at least two interviews Calabria has lined up for the next 3 weeks, the other being with Tim Rood. It sure does look like a signal that he wants to talk about something positive. If not, he would just take a call on Jan 20 from WSJ or Bloomberg and explain that Mnuchin didn't want to play ball anymore. But yet again, Mr. Market says F your wishful thinking and sends the preferreds a few percent lower.

You might be surprised to learn that many investors have different preferences than you and Bill Ackman. There are dozens of mutual funds and ETFs that have a dividend focus. There are trusts and endowments that have dividend mandates. Lots of investors look to their stocks for cash flow, not appreciation. Simply put, it is not debatable that having no dividend reduces the pool of investors for the GSE's. So if you are correct that dividends don't change the intrinsic value (which can't be perfectly true, but I agree it's close enough for this argument), then you should expect a lower stock price at which capital is raised by excluding a large block of potential investors. I'm sure Calabria will be given that message - what decision he makes on whether to allow dividends early on, I can't predict.

I don't understand what you mean. Tsy already has 79.9% ownership, so if any of the Sr Pfd is converted to common, they go above 79.9%. Unless you're implying the warrants are cancelled, which I don't think will happen. If Tsy is going to write off an investment, it will be the Sr Pfd, not the warrants. As to the 79.9% number, it's been a long time and I don't remember who said what or when, but it's been established that the reason that number was used was because if they go to 80%, the U.S. Gov't has to consolidate the companies on its balance sheet. This would cause both the assets and liabilites to increase significantly, but of course people would freak out because the debt side would go up and this would be seen as a "really bad thing".

Then Tsy owns more than 80% of common and GSE liabilities get added to U.S. Gov't debt. Is that a plausible scenario?

Quickly skimmed through the list of variables on QuantumOnline. FNMAO has the worst terms, paying 2-Year Tsy - 0.18%, which results in -0.06%, but luckily with a floor of 0%, of course. If FNMA preferreds were recapped and paying dividends right now, how much would you pay for this one? Yet, the most recent trades have been at the same level as other series with rates of 4.5-6.0%. I don't get it.