FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[Guest cherzeca]

 

scotus ruled yesterday afternoon that SEC administrative law judges have been appointed in violation of the Appointments Clause.  those cases that were adjudicated by unconstitutionally appointed SEC judges must be retried. if you read the transcript of judge schlitz in the bhatti oral argument, you heard him struggling with the remedy that he would have to grant were he to find likewise re fhfa acting director Demarco (which would be invalidating NWS).  this case should help him understand that a constitutional violation requires invalidation of the decision made by the unconstitutionally appointed officer. 

[Luke 532]

you heard him struggling with the remedy that he would have to grant were he to find likewise re fhfa acting director Demarco (which would be invalidating NWS).

 

This would be beautiful.  Thanks for your comments, cherzeca.

 

[Luke 532]

https://www.cnbc.com/video/2018/06/22/freddie-mac-ceo-wont-see-company-out-of-conservatorship-in-my-tenure.html

Donald Layton (Freddie CEO) this morning: "A legislative solution is not in the near term. The quiet alternative, which is administrative reform, is being talked about a lot, including by elected officials. That's the up and coming thing where people are focusing."

 

A Moelis guy is in the interview and offers his thoughts.  And he mentions the Mulvaney plan released yesterday. If you read his body language, he seems happy.

 

I'm sure this interview taking place about 20 hours after the report coming out is all just a coincidence and not coordinated at all. ;-)

[SnarkyPuppy]

Pure speculation but the very coordinated slow "leakage" of news as opppsed to one overwhelming announcement may be an attempt to smooth the securities prices trend upwards as opposed to creating a one day +400% spike which would definitely cause a lot of media attention.

 

Purely speculating and aware of my bias here

[rros]

Where is my Joe Light article? Joe?

[Guest cherzeca]

you heard him struggling with the remedy that he would have to grant were he to find likewise re fhfa acting director Demarco (which would be invalidating NWS).

 

This would be beautiful.  Thanks for your comments, cherzeca.

 

further re lucia:  note language in fn 5 to justice kagan’s opinion, pointing out that a remedy to an appointments clause violation should “incentivize” challenges to the clause’s violation:  "But our Appointments Clause remedies are designed not only to advance those purposes directly, but also to create “[]incentive to raise Appointments Clause challenges.” Ryder v. United States, 515 U. S. 177, 183 (1995). "

 

Should judge schlitz find the appointments clause violation in bhatti, lucia is very instructive as to how he should fashion the remedy: invalidate the NWS

 

[DRValue]

Where is my Joe Light article? Joe?

 

Have you seen Charlie Gasparino on #Fanniegate twitter?

 

Now there's a guy I wanna see eat crow.

[orthopa]

Still of course no mention of what will happen to the shareholders.

 

They are giving a major hint, possibly.  Mentioning that they are private companies repeatedly is encouraging.

 

Explicitly stating that they are privately-owned, and then completely wiping out shareholders (instead of just massive dilution to common), would seem to set the White House up for lawsuits that could come back to hurt them.  I think they are smarter than that. 

 

It reads to me that they are making a concerted effort to mention that they are privately-owned companies.

 

"However, this system is challenged by the operation of two privately-owned Government sponsored-enterprises (GSEs), Fannie Mae and Freddie Mac..." (page 75)

 

"Competition to the duopolistic role played by the two privately-owned GSEs

would be an essential element..." (page 75)

 

"In order to propose changes in the Federal Government’s role in housing finance, this proposal outlines policies related to the privately-owned GSEs and ending their conservatorship." (page 75)

 

"Under the current system, Fannie Mae and Freddie Mac, two privately-owned GSEs, buy and guarantee..." (page 76)

 

I know I get it. Im just to the point now that I'm ready to hear the damn plan for those holding shares. I think its been laid out pretty clearly that they are not going away, out of conservatorship etc etc. How many more times do we have to be told that? My observation seems to be the markets...what the remedy? Until that is set out in stone prices of preferred will trade at a small % of par and common like options no matter what the leak, innuendo, etc. We are past that stage.

 

Still many questions to be answered. What happens to preferred? Is it redeemed at par? When? Dividend? Convert to common? etc. Reading the tea leaves was 2-3 years ago. What determines this investment is not whether or not shareholders are compensated (Im speaked preferred). Its how much and how long will it take to get it. That's the investment thesis for this now. Both are unanswered and why still trading at ~20 of par for some issues.

[rros]

Where is my Joe Light article? Joe?

 

Have you seen Charlie Gasparino on #Fanniegate twitter?

 

Now there's a guy I wanna see eat crow.

 

"With assistance by Joe Light" lol

https://www.bloomberg.com/news/articles/2018-06-21/fannie-freddie-privatization-urged-as-part-of-white-house-plan

[SnarkyPuppy]

The unanswered questions with respect to timing do not make a lot of sense to me as a reason to avoid buying these. Even if it took 10 years to hit par, your CAGR is likely to well exceed any reasonable hurdle rate. 

 

The big risks to me seem:

- whether privately owned mutualization model is in the cards - the banks collectively could easily throw $200bn of capital to meet the capital standards (yes this would create an ongoing contingent liability for the government, but I don't believe any resolution would happen while the current administration is still place so why would they care? look how slow the courts move)

- whether the current administration is around long enough to implement a shareholder friendly solution (clock is ticking to January 2021 and this isn't the most stable presidency.  Who knows what will happen tomorrow?)

 

Other than that... lol @ current prices

[SnarkyPuppy]

If the constraints truly are:

- Fannie/Freddie still around

- privately owned

- out of conservatorship

 

Removing any legal compensation from the equation, what scenarios would cause the preferred to go to 0 other than:

- wiping old capital and IPOing new capital (irrational/unlikely)

- bank owned mutualization model

 

There are scenarios where the upside may not be as high as we think (onerous dividend reinstatement terms), but are there any other scenarios where the preferreds can actually go to $0 under the above constraints?

 

If not - the only other variables we have to worry about are:

- administration is lying about the above 3 variables

- administration is removed from office

 

Thoughts?

[rros]

If the constraints truly are:

- Fannie/Freddie still around

- privately owned

- out of conservatorship

 

Removing any legal compensation from the equation, what scenarios would cause the preferred to go to 0 other than:

- wiping old capital and IPOing new capital (irrational/unlikely)

- bank owned mutualization model

 

There are scenarios where the upside may not be as high as we think (onerous dividend reinstatement terms), but are there any other scenarios where the preferreds can actually go to $0 under the above constraints?

 

If not - the only other variables we have to worry about are:

- administration is lying about the above 3 variables

- administration is removed from office

 

Thoughts?

I think by their own certificate preferreds have a $1 or $2.50 face value no matter what scenario, including nuclear war. So that would be the minimum amount of money that needs to be redeemed, by law. Someone correct me, please. My information is 8 years old, when I digged this up. As for a co-op, for us to be toast, banks should recapitalize the companies fully and therefore get the largest share. This may leave current shareholders with little. But it really doesn't sound like the OMB is pointing towards anything like this. What is worrisome: Coker and David Stevens happy statements since these two have always been enemies of shareholders. We just don't know what they are so happy about. Yes, someone from the Administration (WH specially) should come out and say something precise and meaningfully specific about shareholders' future.

[SnarkyPuppy]

If the constraints truly are:

- Fannie/Freddie still around

- privately owned

- out of conservatorship

 

Removing any legal compensation from the equation, what scenarios would cause the preferred to go to 0 other than:

- wiping old capital and IPOing new capital (irrational/unlikely)

- bank owned mutualization model

 

There are scenarios where the upside may not be as high as we think (onerous dividend reinstatement terms), but are there any other scenarios where the preferreds can actually go to $0 under the above constraints?

 

If not - the only other variables we have to worry about are:

- administration is lying about the above 3 variables

- administration is removed from office

 

Thoughts?

I think by their own certificate preferreds have a $1 or $2.50 face value no matter what scenario, including nuclear war. So that would be the minimum amount of money that needs to be redeemed, by law. Someone correct me, please. My information is 8 years old, when I digged this up. As for a co-op, for us to be toast, banks should recapitalize the companies fully and therefore get the largest share. This may leave current shareholders with little. But it really doesn't sound like the OMB is pointing towards anything like this. What is worrisome: Coker and David Stevens happy statements since these two have always been enemies of shareholders. We just don't know what they are so happy about. Yes, someone from the Administration (WH specially) should come out and say something precise and meaningfully specific about shareholders' future.

 

Two potential reasons why they are happy:

- political reasons for posturing to uninformed as to why they were "successful" (even if they weren't actually successful).  Although explicit MBS, removal of govt charters, multiple guarantors would indicate partial success (although we all know they are personally upset if shareholders who personally attacked them get rich)

- bank mutualization model incoming 

[rros]

If the constraints truly are:

- Fannie/Freddie still around

- privately owned

- out of conservatorship

 

Removing any legal compensation from the equation, what scenarios would cause the preferred to go to 0 other than:

- wiping old capital and IPOing new capital (irrational/unlikely)

- bank owned mutualization model

 

There are scenarios where the upside may not be as high as we think (onerous dividend reinstatement terms), but are there any other scenarios where the preferreds can actually go to $0 under the above constraints?

 

If not - the only other variables we have to worry about are:

- administration is lying about the above 3 variables

- administration is removed from office

 

Thoughts?

I think by their own certificate preferreds have a $1 or $2.50 face value no matter what scenario, including nuclear war. So that would be the minimum amount of money that needs to be redeemed, by law. Someone correct me, please. My information is 8 years old, when I digged this up. As for a co-op, for us to be toast, banks should recapitalize the companies fully and therefore get the largest share. This may leave current shareholders with little. But it really doesn't sound like the OMB is pointing towards anything like this. What is worrisome: Coker and David Stevens happy statements since these two have always been enemies of shareholders. We just don't know what they are so happy about. Yes, someone from the Administration (WH specially) should come out and say something precise and meaningfully specific about shareholders' future.

 

Two potential reasons why they are happy:

- political reasons for posturing to uninformed as to why they were "successful" (even if they weren't actually successful).  Although explicit MBS, removal of govt charters, multiple guarantors would indicate partial success (although we all know they are personally upset if shareholders who personally attacked them get rich)

- bank mutualization model incoming

And I would add for Stevens at least.. His thing against shareholders was based on his belief shareholders (investors) wanted no government guarantee at all, not even a paid-for, which would be a major obstacle for his allies to get in the business. It appears from OMB's plan this is in the cards so in his view shareholders have been defeated. At least, in that respect. Corker, as you say, may spin the positive narrative that OMB is actually Corker 2.0 (as TH also mentioned) and take credit. As for us, we need to know if we are going to have a seat at the table or will be part of the menu.

[SnarkyPuppy]

Right - asoneone referended berkowitz "win, win, win".  Who happened to be quoting Michael Scott. 

[Sunrider]

Backside cover for court cases that are ongoing

This footnote. ..What exactly are they implying?

 

“In order to propose changes in the Federal Government’s role in housing finance, this proposal outlines policies related to the privately-owned GSEs and ending their conservatorship. Nothing in this paper should be construed as implying that the GSEs are agencies or instrumentalities of the Government nor that FHFA as conservator is operating as an agency of the United States.”

 

https://www.whitehouse.gov/wp-content/uploads/2018/06/Government-Reform-and-Reorg-Plan.pdf

[orthopa]

One would have to wonder if we have met or coming very close to the all in moment if one is inclined to do so. Best would be to hold out till midterms later this year then go for the gusto. Seems like time is the biggest impediment to ROI at this point. If you were willing to put 5-10% etc of your portfolio with what we as investors knew 2-3 years ago it seems like a significant increase in exposure would be in order relative to what is thought/known now.

 

I was willing to put up to 10% of my portfolio with a coin flip of whether or not they were going to be "wound down". Where we sit now an increase in exposure should be in order no?

[DRValue]

One would have to wonder if we have met or coming very close to the all in moment if one is inclined to do so. Best would be to hold out till midterms later this year then go for the gusto. Seems like time is the biggest impediment to ROI at this point. If you were willing to put 5-10% etc of your portfolio with what we as investors knew 2-3 years ago it seems like a significant increase in exposure would be in order relative to what is thought/known now.

 

I was willing to put up to 10% of my portfolio with a coin flip of whether or not they were going to be "wound down". Where we sit now an increase in exposure should be in order no?

 

I'm about 80/20 preferred to common. I'm expecting the recap to take some time and the dilution issue to put downward pressure on the common.

 

If we know for sure commons are ok then I'll go all in common if the price is weak enough for a multi bagger return on a sure thing.

[Guest cherzeca]

Defendants are quick to notify of any ruling that supports their case. When would plaintiff’s in all of the pending cases notify them of unconstitutionality of CFPB (and by corollary FHFA) ? of SCOTUS ruling ?

 

 

scotus ruled yesterday afternoon that SEC administrative law judges have been appointed in violation of the Appointments Clause.  those cases that were adjudicated by unconstitutionally appointed SEC judges must be retried. if you read the transcript of judge schlitz in the bhatti oral argument, you heard him struggling with the remedy that he would have to grant were he to find likewise re fhfa acting director Demarco (which would be invalidating NWS).  this case should help him understand that a constitutional violation requires invalidation of the decision made by the unconstitutionally appointed officer.

 

I imagine that bhatti's counsel will file a notice of supplemental authority with judge schlitz's court soon, especially regarding lucia, which is very helpful to obtaining the remedy the Ps seek

[rros]

There are so many tricks to be used to hide buying that only the MM can know this. And the MM will make sure you don't know using tricks of his own.

About the only hint for us will be MMs stop shorting at higher highs. Meaning, game over.

[Matson125]

The only person's buying pattern you all should be concerned about is Eddie Lampert.  Tell me when Eddie Lampert buys either the commons or preferred.  Whatever he buys, sell everything you own and buy that.

 

 

[rros]

The only person's buying pattern you all should be concerned about is Eddie Lampert.  Tell me when Eddie Lampert buys either the commons or preferred.  Whatever he buys, sell everything you own and buy that.

Sears?

[Luke 532]

Fannie and Freddie gone and replaced by other guarantors?  Other guarantors in the mix, sure, but GSE's gone and replaced?  That's not how I interpreted the Mulvaney report.  Thoughts? https://thenationalrealestatepost.com/trump-looks-to-dump-fannie-freddie/

[rros]

Fannie and Freddie gone and replaced by other guarantors?  Other guarantors in the mix, sure, but GSE's gone and replaced?  That's not how I interpreted the Mulvaney report.  Thoughts? https://thenationalrealestatepost.com/trump-looks-to-dump-fannie-freddie/

They also speculate D. Stevens might become FHFA's head. So...

 

From an investment perspective what matters is who will be the owners of the guarantors. Legacy shareholders? If so, what matters next is where to be, in commons or Jrs.? Their interpretation of the OMB plan is actually closer to Millstein's and/or Berkowitz original proposal as both converted the companies into guarantors/monoline insurers. Whereas Ackman's vision was of fully reviving them as utilities with no market competition. The MBA touch in all this is the paid-for government guarantee which Berkowitz (and I believe Millstein) rejected. Berkowitz is on record saying there is no need for a government guarantee. On the opposite side of the spectrum is David Stevens whose allies can't live without one. And that was the contention against shareholders he always had.

 

For us as investors, leaving aside personal opinions regarding the social benefits of the companies, the central question is how much equity will we receive, if any. Back in the days, with Millstein/Berkowitz, that would have been full face value of the Jrs. turned into equity. The "if any", in my view, now relies entirely on recapitalization. So any move towards eliminitating the NWS, canceling the Srs. or an FHFA request for the companies to produce a recapitalization plan will be good news and put us on the right track.

 

At this point, you know there are probably a lot of ongoing backdoor dealings. If David Stevens is able to get his paid-for guarantee, he may concede gains to shareholders and stop working against. The FHFA's head position seems to be highly sought after so most likely is on the table in exchange for something. Those invested with big bucks from the old days are likely too engage in talks. And the Srs. elimination will definitely be on the table. Since there is no legislation in sight, we can only assume that administrative action is really nothing but dealmaking behind the scenes.

[allnatural]

In what world is this guy (https://www.housingwire.com/blogs/1-rewired/post/43640-monday-morning-cup-of-coffee-ben-carson-backtracks-on-plan-to-raise-rents-for-poor) going to end up in any seat on the Trump admin???