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

[Capitalist World]

GSE Preferreds were up 20-25% last week and up 35% over the month. Something is up with Fannie & Freddie and it's about time..... Best ones to buy are $FNMAS $FNMAT $FMCKJ $FNMAJ $FNMAI

 

Latest piece by Gary Hindes http://delawarebayllc.com/images/There_is_no_legitimate_reason_for_keeping_Fannie_Mae_and_Freddie_Mac_in_conservatorship.pdf

[Midas79]

On 10/30/2021 at 6:02 PM, Capitalist World said:

GSE Preferreds were up 20-25% last week and up 35% over the month. Something is up with Fannie & Freddie and it's about time..... Best ones to buy are $FNMAS $FNMAT $FMCKJ $FNMAJ $FNMAI

 

Latest piece by Gary Hindes http://delawarebayllc.com/images/There_is_no_legitimate_reason_for_keeping_Fannie_Mae_and_Freddie_Mac_in_conservatorship.pdf

 

It's been a while since I posted here, but I am finally checking in.

 

I run a pref-swapping model designed to take advantage of mispricings among the different series: results posted on the @midas79JPSmodel account on Twitter. Right now the liquid series (FNMAS, FMCKJ, FNMAT) are actually horrible buys relative to the others. When you can get a $50-par, albeit zero-dividend, series like FNMAP for only 10% more than the $25-par FNMAS (and they were almost at parity last week), buying FNMAS doesn't make sense at all. Par value is guaranteed to matter in the resolution of the conservatorships, while dividend rate is iffy at best.

 

If you care about liquidity then FNMAS/FMCKJ/FNMAT are the only games in town. But if you're a small enough player or are willing to hold for a while, literally any other pref series is a better buy.

 

Wiggins is correct above: the remedy in Lamberth's court would be based on par value and simple interest, not dividend rate.

[maude]

11 minutes ago, Midas79 said:

Wiggins is correct above: the remedy in Lamberth's court would be based on par value and simple interest, not dividend rate.

Thanks. Why do you think the remedy in the Lamberth court would be based on par value (plus interest) and not dividends?

[Sunrider]

6 hours ago, maude said:

Thanks. Why do you think the remedy in the Lamberth court would be based on par value (plus interest) and not dividends?

Because that's what the statute says is probably the answer. You've been robbed of something which is worth X (par), and to compensate you for waiting you get interest as prescribed by the statute.

 

Makes sense if you consider that you can get robbed of all sorts of different things and it would be a nightmare if each of these cases had to be evaluated separately for the rate to compensate you with. The prefs are only ever worth par by their nature, the dividend right is contingent.... avoids judicial complexity/simplifies litigation to have a statute crafted this way. 

[Wiggins]

Midas it is good to see you check in!

Are you actively trading the prefs? That seems like it could work but would take a lot of time and patience. That's great if it works though.

 

[Midas79]

On 11/4/2021 at 4:51 AM, Wiggins said:

Midas it is good to see you check in!

Are you actively trading the prefs? That seems like it could work but would take a lot of time and patience. That's great if it works though.

 

 

Yup, lots of time and patience. I'm lucky to have a work-from-home desk job that lets me both have the time to develop the model I made (been improving it for 4 years) and monitor prices. My success in this investment is no longer dependent on recap and release, though this wasn't true until recently.

 

Ironically for a member of this board, I'm not really a value investor. I don't like stock-picking at all. I have owned stock in precisely 4 individual companies in my life, and Fannie and Freddie are two of them. If I make enough money from this stock to retire I will happily index from there and enjoy life.

 

I also have the advantage (if you can call it one) of not believing in opportunity costs in the way that most people seem to, so I'm not bothered at all by other people making huge returns on things other than FnF. My method is working and I'm quite comfortable with it as opposed to either doing lots of research (classic value investing) or just jumping on the meme coin of the moment (FOMO-driven investing).

Edited November 8, 2021 by Midas79

[Wiggins]

On 11/4/2021 at 10:30 PM, Midas79 said:

 

Yup, lots of time and patience. I'm lucky to have a work-from-home desk job that lets me both have the time to develop the model I made (been improving it for 4 years) and monitor prices. My success in this investment is no longer dependent on recap and release, though this wasn't true until recently.

 

Ironically for a member of this board, I'm not really a value investor. I don't like stock-picking at all. I have owned stock in precisely 4 individual companies in my life, and Fannie and Freddie are two of them. If I make enough money from this stock to retire I will happily index from there and enjoy life.

 

I also have the advantage (if you can call it one) of not believing in opportunity costs in the way that most people seem to, so I'm not bothered at all by other people making huge returns on things other than FnF. My method is working and I'm quite comfortable with it as opposed to either doing lots of research (classic value investing) or just jumping on the meme coin of the moment (FOMO-driven investing).

Thanks for sharing these thoughts. I'm glad the arbitrage and/or trading of the prefs is working for you. Please keep us posted.

Fannie is trying to buy back CAS notes in a tender: https://www.prnewswire.com/news-releases/fannie-mae-announces-tender-offer-for-any-and-all-of-certain-cas-debt-notes-301424020.html

I would like to think now that the infrastructure bill is out of the way that they're trying to clean up the balance sheet in preparation to exit conservatorship, though I'm not counting on it. My plan is to keep holding and hope that Lamberth helps us.

[allnatural]

https://www.wsj.com/articles/fannie-mae-freddie-mac-to-back-home-loans-of-nearly-1-million-as-prices-soar-11637071380?mod=breakingnews

 

GSEs should see a nice uptick in underwriting starting in Dec based off this, which should helpfully translate to more retained earnings in the year to come.

Edited November 16, 2021 by allnatural

[allnatural]

pretty big development...

 

https://twitter.com/moonsooncapital/status/1465694717161590793?s=20

[buffetteer1984]

9 minutes ago, allnatural said:

pretty big development...

 

 

https://twitter.com/moonsooncapital/status/1465694717161590793?s=20

Is this letter real?

[allnatural]

31 minutes ago, buffetteer1984 said:

Is this letter real?

Looks like multiple sources confirming..

[allnatural]

Relevant article: https://www.realclearpolitics.com/articles/2021/11/30/trump_fights_fanniefreddie_battle_from_outside_the_wh_146802.html

[DRValue]

2 hours ago, allnatural said:

Relevant article: https://www.realclearpolitics.com/articles/2021/11/30/trump_fights_fanniefreddie_battle_from_outside_the_wh_146802.html

I thought one of you mad lads made a fake but wow that seems legit. 

[Wiggins]

The verbiage of this letter is breathtaking (e.g. "steal the retirement of hardworking Americans"). Any press is good press. This is good press and will get at least some traction in the courts and in the news. Expect court filings soon

[allnatural]

4 minutes ago, Wiggins said:

The verbiage of this letter is breathtaking (e.g. "steal the retirement of hardworking Americans"). Any press is good press. This is good press and will get at least some traction in the courts and in the news. Expect court filings soon

They don't waste any time in the 5th circuit https://t.co/gY8GBNbg0a

[COBFInfinity]

19 hours ago, Wiggins said:

The verbiage of this letter is breathtaking (e.g. "steal the retirement of hardworking Americans"). Any press is good press. This is good press and will get at least some traction in the courts and in the news. Expect court filings soon

 

I know some are excited about the actual legal relevance of this, but I'm not sure it's worth much. Is a court really going to just accept this after-the-fact declaration without depositions of many of the relevant players? Ultimately, we know that Treasury punted, not FHFA. So is Mnuchin going to provide testimony that he really would have agreed to end the conservatorships if he had more time, even though he did actually have the chance to set them on that path at the end of his term and he chose not to? Seems pretty weak.

 

Separately, is there going to be an inquiry as to how many shares of GSE securities Trump & friends accumulated before this letter was written?

[Sunrider]

Trump style. However, given Cooper&Kirk's prompt tie-in to the Supreme Court language one has to wonder ... but then again, why did Mnuchin 'take a powder' rather than 'getting it done' (as was quoted here somewhere before)? 

 

Anyway, if anything it served as a prop to remind the court of what the SC said. If they are inclined to believe the orange-faced guy then it should also perfectly tick the box as to what the SC said was required ... the only thing standing in the way of this is the choice of language 'had the president' is past tense, and Trump pontificated after the fact, so I'm sure there will millions spent on lawyers just arguing this in front of a court ... and given that 'may' can mean whatever you want it to ... well, we'll see I guess. Plus ça change...

[Wiggins]

On 8/18/2021 at 12:36 PM, muscleman said:

The whole market is doing a top building right now. Liquidity is being drained from small caps each day. Without any catalyst, I expect FNMAS to drift down along the rest of the small cap stocks.

How is everyone doing? Did anyone else buy post Jun 23rd SCOTUS?

[allnatural]

2 hours ago, Wiggins said:

How is everyone doing? Did anyone else buy post Jun 23rd SCOTUS?

tripled up sub $2. yolo life

 

(and took advantage of the tax benefits by realizing losses and swapping into other pfd lines) .. double whammy

Edited December 2, 2021 by allnatural

[Mephistopheles]

But Mel Watt's term ended, and Trump appointed Calabria who proceeded to do nothing. Mnuchin also did nothing. So it's a little rich for him to be writing a letter on how decisive he would have been. Well, he had the opportunity to place in somebody he wanted, and that person did nothing! Why did it take this long to write the letter after the SCOTUS ruling? Is it because the shares are so illiquid and it takes that long to accumulate a big position? lol, joking; not joking

[Wiggins]

10 hours ago, allnatural said:

tripled up sub $2. yolo life

 

(and took advantage of the tax benefits by realizing losses and swapping into other pfd lines) .. double whammy

Nice work!

 

I have been thinking we could be setting up for another move up similar to that seen Dec '18 to Jan '19. I think there was heavy tax loss selling in '18 and then investors got back in with a new basis and there was additionally some optimism over releasing the GSEs at that time. Now, especially after the Drumpf letter my thesis is that Dec '21 to Jan '22 will be a repeat.

[allnatural]

On 12/2/2021 at 6:03 AM, Wiggins said:

Nice work!

 

I have been thinking we could be setting up for another move up similar to that seen Dec '18 to Jan '19. I think there was heavy tax loss selling in '18 and then investors got back in with a new basis and there was additionally some optimism over releasing the GSEs at that time. Now, especially after the Drumpf letter my thesis is that Dec '21 to Jan '22 will be a repeat.

 

Between the court cases (Collins, Takings, Lamberth) + GSEs continuing to retain capital, Biden lowering the capital requirements, expanding the GSE footprints to be more profitable, and wants to transition them to utility model (hinted at with the leak for FHFA pick Calhoun)... 2022 is setting up to be a interesting year

 

GSEs currently have $67b in capital, at the end of the year that will be closer to $75b. New minimum requirement is $180b and they are earning ~$30b a year (so ~3 years to organic earnings retention). But in Collins case, worst case the Judges don't agree privatization would have been completed in time if Trump could have fired Watt day 1, the GSEs at a minimum should get over $45b in cash back to balance sheet since the NWS suspension would have happened day 1 instead of 2 years later as Trump stopped the NWS immediately so no need for hypotheticals (Yes the liquidation preference would go up, but the government would still need to write a $45b CASH check in exchange back over to the GSEs which is definitely not a desired outcome and hopefully prompts some kind of resolution). This would cut ~3 years down to ~1.5 years to get to $180b of cash capital on the balance sheet. At some point the government should be forced to deal with this issue as not only have the GSEs been completely reformed for the better but now have their desired cash capital on the books.

[Wiggins]

6 hours ago, allnatural said:

 

Between the court cases (Collins, Takings, Lamberth) + GSEs continuing to retain capital, Biden lowering the capital requirements, expanding the GSE footprints to be more profitable, and wants to transition them to utility model (hinted at with the leak for FHFA pick Calhoun)... 2022 is setting up to be a interesting year

 

GSEs currently have $67b in capital, at the end of the year that will be closer to $75b. New minimum requirement is $180b and they are earning ~$30b a year (so ~3 years to organic earnings retention). But in Collins case, worst case the Judges don't agree privatization would have been completed in time if Trump could have fired Watt day 1, the GSEs at a minimum should get over $45b in cash back to balance sheet since the NWS suspension would have happened day 1 instead of 2 years later as Trump stopped the NWS immediately so no need for hypotheticals (Yes the liquidation preference would go up, but the government would still need to write a $45b CASH check in exchange back over to the GSEs which is definitely not a desired outcome and hopefully prompts some kind of resolution). This would cut ~3 years down to ~1.5 years to get to $180b of cash capital on the balance sheet. At some point the government should be forced to deal with this issue as not only have the GSEs been completely reformed for the better but now have their desired cash capital on the books.

I'm 100% JPS but thinking about taking a common stake in case there's a ruling or announcement causing preferential accumulation of common vs. JPS. So far I have been piling in to the JPS since they're still so ridiculously depressed (e.g. some are still under 10%), but seriously thinking about a common position.

[asterisk]

Sandra Thompson will be nominated by Biden. Shares sold off modestly yesterday and have continued today. The reality is admin hasn’t been on the table and likely never will be without being forced. I expect the shares to trade down and then we will rally up to Lamberth. 

[Wiggins]

Class certification by Lamberth was underrated. I think this should have been news.

There will be a trial in Lamberth's court next year regarding a breach of the implied covenant of good faith and fair dealing with respect to stock liquidation preference and dividend rights. I am getting the popcorn ready. How can there not be damages when the Treasury lied and then "siphoned" $300 billion out of the GSEs? In a case like AIG there was no money, but with the GSEs they have of course been highly profitable. I think Lamberth just may be the one to unwind the Treasury's Orwellian tales of greedy hedge funds awaiting a windfall or the Government "rescuing" the GSEs. Any shares bought today have the same rights as all others.