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

[ValueMaven]

Trump was just shot at a rally in PA - he lived.  His polls will spike now.  

I'm guessing FnF preferreds will move higher in the coming days.

[sleepydragon]

10 minutes ago, ValueMaven said:

Trump was just shot at a rally in PA - he lived.  His polls will spike now.  

I'm guessing FnF preferreds will move higher in the coming days.

Poll is up to 67/68% from 60

 

[COBFInfinity]

On 7/12/2024 at 12:00 PM, Mephistopheles said:

I just listened to this. Learned stuff I hadn’t known. It seemed hopeful until it got to the part where he discussed the end of the NWS and how the lawyers at Treasury wanted to increase the liquidation preference in exchange. He stated he doesn’t agree with this and said it would be something to watch for in a second Trump term. Seems like we had a well meaning FHFA and Secretary of Treasury, but the career lawyers at Treasury got their way….

I don't know that we can claim Calabria was "well meaning" considering his ongoing motivation to claim that the GSEs lost massive amounts of money in 2008, and he now throws in 2020 for good measure. He may have had an interest in privatizing the companies, but his ideologically driven inaccuracies didn't make it easy.

[sleepydragon]

Looks like trump may very well win.

what will happen to FNMAS if he does?

I have a small position. Wondering if I shall be adding aggressively next week
 

[Wiggins]

On 7/14/2024 at 1:15 AM, sleepydragon said:

Looks like trump may very well win.

what will happen to FNMAS if he does?

I have a small position. Wondering if I shall be adding aggressively next week
 

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

[sleepydragon]

1 hour ago, Wiggins said:

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

 I didn’t add to my position but it was a nice gain and I am holding on to my shares.

i just don’t understand this trade enough. What would be the downside if trump doesn’t get elected? 

[TwoCitiesCapital]

40 minutes ago, sleepydragon said:

 I didn’t add to my position but it was a nice gain and I am holding on to my shares.

i just don’t understand this trade enough. What would be the downside if trump doesn’t get elected? 

 

 back to where they traded a year ago - if not lower

[COBFInfinity]

Speaking of the past year, Fairholme Funds has liquidated almost all of its already greatly reduced GSE preferred position (maybe all of it since the May 31, 2024 holdings show just a sliver left over.) One of the great believers has finally thrown in the towel.

[orthopa]

On 7/30/2024 at 9:10 PM, COBFInfinity said:

Speaking of the past year, Fairholme Funds has liquidated almost all of its already greatly reduced GSE preferred position (maybe all of it since the May 31, 2024 holdings show just a sliver left over.) One of the great believers has finally thrown in the towel.

Berkowitz's main thesis was the legal route which was crushed with the Supreme court verdict. Im surprised it took him this long to get out. 

 

I have unfortunately been a long time holder of the preferred. I held after Trump lost in 2020 with prospects at another bite at the apple with the SC verdict. My holdings have been in purgatory since. With the race looking a lot closer then before Biden dropped out I have to come to a decision with what to do with the shares before the election. I have a decent amount of holdings in illiquid preferred shares I will take a loss in and move to FNMAS or FMCKJ.  This is because if Trump loses you can expect the day after to be a blood bath.  Being in the most liquid at least gives you a chance out the door. That being said if Trump loses I'm going to leave the trade completely. As much as I believe Trump will get them released in a second term via Paulson I still think that chance is below 100%(maybe 90%?) . The chance of that happening under Kamala is near if not 0%. In the 4 years of a Harris presidency I believe you will be able to buy shares in the preferred at literal pennies on the dollar. Shares traded to $1.50 after the SC ruling under $1 would be expected in this scenario IMO. 

 

Fannie and Freddie will continue to build capital and I believe around 2032?(correct me if Im wrong) they will meet minimum requirements but then the NWS turns back on. Sure Paulson et al could court the new republican candidate in 4 years but Id rather watch that unfold on the sidelines then hold 4 more years and pray. That being said its rumored Paulson still holds Billions in face value of preferred shares. If true that guy has balls/unbelievable conviction assuming he accumulated the shares prior/during Trumps '16 run. Ackman FWIW still has non insignificant position first purchased in 2013 at around $2.75 a share in common. Its been 11 years and he's down 50%. Im not sure if he is insane or in the end brilliant. 

 

Anyone else have thoughts on how to handle this trade as a trapped long up to the election? Is selling out ahead of time crazy and buying back the preferred 25% higher the day after the election? There is still upside over 4 years in that scenario. If trump loses the exit door gets real crowded and its 4 more years of purgatory. 

[sleepydragon]

1 hour ago, orthopa said:

Berkowitz's main thesis was the legal route which was crushed with the Supreme court verdict. Im surprised it took him this long to get out. 

 

I have unfortunately been a long time holder of the preferred. I held after Trump lost in 2020 with prospects at another bite at the apple with the SC verdict. My holdings have been in purgatory since. With the race looking a lot closer then before Biden dropped out I have to come to a decision with what to do with the shares before the election. I have a decent amount of holdings in illiquid preferred shares I will take a loss in and move to FNMAS or FMCKJ.  This is because if Trump loses you can expect the day after to be a blood bath.  Being in the most liquid at least gives you a chance out the door. That being said if Trump loses I'm going to leave the trade completely. As much as I believe Trump will get them released in a second term via Paulson I still think that chance is below 100%(maybe 90%?) . The chance of that happening under Kamala is near if not 0%. In the 4 years of a Harris presidency I believe you will be able to buy shares in the preferred at literal pennies on the dollar. Shares traded to $1.50 after the SC ruling under $1 would be expected in this scenario IMO. 

 

Fannie and Freddie will continue to build capital and I believe around 2032?(correct me if Im wrong) they will meet minimum requirements but then the NWS turns back on. Sure Paulson et al could court the new republican candidate in 4 years but Id rather watch that unfold on the sidelines then hold 4 more years and pray. That being said its rumored Paulson still holds Billions in face value of preferred shares. If true that guy has balls/unbelievable conviction assuming he accumulated the shares prior/during Trumps '16 run. Ackman FWIW still has non insignificant position first purchased in 2013 at around $2.75 a share in common. Its been 11 years and he's down 50%. Im not sure if he is insane or in the end brilliant. 

 

Anyone else have thoughts on how to handle this trade as a trapped long up to the election? Is selling out ahead of time crazy and buying back the preferred 25% higher the day after the election? There is still upside over 4 years in that scenario. If trump loses the exit door gets real crowded and its 4 more years of purgatory. 

imo, it’s a lottery ticket, and shall be sized as such.  If Trump lose, just sell it. If Trump wins, just keep it. It’s not an investment 

[orthopa]

On 8/11/2024 at 4:32 PM, sleepydragon said:

imo, it’s a lottery ticket, and shall be sized as such.  If Trump lose, just sell it. If Trump wins, just keep it. It’s not an investment 

 

agree.

[adesigar]

On 8/12/2024 at 2:02 AM, sleepydragon said:

imo, it’s a lottery ticket, and shall be sized as such.  If Trump lose, just sell it. If Trump wins, just keep it. It’s not an investment 

If  I was a democrat I would buy. If I was a republican I would sell. That way whatever the election result I would be happy.  

[orthopa]

On 8/13/2024 at 12:34 PM, adesigar said:

If  I was a democrat I would buy. If I was a republican I would sell. That way whatever the election result I would be happy.  

A Harris administration would never release the GSEs unless left no alternative. Even if your a democrat you sell if she wins. 

[Wiggins]

On 8/11/2024 at 3:22 PM, orthopa said:

Berkowitz's main thesis was the legal route which was crushed with the Supreme court verdict. Im surprised it took him this long to get out. 

 

I have unfortunately been a long time holder of the preferred. I held after Trump lost in 2020 with prospects at another bite at the apple with the SC verdict. My holdings have been in purgatory since. With the race looking a lot closer then before Biden dropped out I have to come to a decision with what to do with the shares before the election. I have a decent amount of holdings in illiquid preferred shares I will take a loss in and move to FNMAS or FMCKJ.  This is because if Trump loses you can expect the day after to be a blood bath.  Being in the most liquid at least gives you a chance out the door. That being said if Trump loses I'm going to leave the trade completely. As much as I believe Trump will get them released in a second term via Paulson I still think that chance is below 100%(maybe 90%?) . The chance of that happening under Kamala is near if not 0%. In the 4 years of a Harris presidency I believe you will be able to buy shares in the preferred at literal pennies on the dollar. Shares traded to $1.50 after the SC ruling under $1 would be expected in this scenario IMO. 

 

Fannie and Freddie will continue to build capital and I believe around 2032?(correct me if Im wrong) they will meet minimum requirements but then the NWS turns back on. Sure Paulson et al could court the new republican candidate in 4 years but Id rather watch that unfold on the sidelines then hold 4 more years and pray. That being said its rumored Paulson still holds Billions in face value of preferred shares. If true that guy has balls/unbelievable conviction assuming he accumulated the shares prior/during Trumps '16 run. Ackman FWIW still has non insignificant position first purchased in 2013 at around $2.75 a share in common. Its been 11 years and he's down 50%. Im not sure if he is insane or in the end brilliant. 

 

Anyone else have thoughts on how to handle this trade as a trapped long up to the election? Is selling out ahead of time crazy and buying back the preferred 25% higher the day after the election? There is still upside over 4 years in that scenario. If trump loses the exit door gets real crowded and its 4 more years of purgatory. 

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.

[Wiggins]

On 8/11/2024 at 4:32 PM, sleepydragon said:

imo, it’s a lottery ticket, and shall be sized as such.  If Trump lose, just sell it. If Trump wins, just keep it. It’s not an investment 

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

[sleepydragon]

53 minutes ago, Wiggins said:

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

Do you currently own the common or preferred?

I have both, about 3x of commons than preferred. 

[Wiggins]

1 hour ago, sleepydragon said:

Do you currently own the common or preferred?

I have both, about 3x of commons than preferred. 

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.

[COBFInfinity]

On 8/17/2024 at 7:37 PM, Wiggins said:

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.

Wait...18-19% of par? Did I miss something? I thought there was one case with damages and it was like 1-2% of par.

[Wiggins]

On 8/23/2024 at 8:38 PM, COBFInfinity said:

Wait...18-19% of par? Did I miss something? I thought there was one case with damages and it was like 1-2% of par.

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.

[orthopa]

Older news but WSJ put out a piece a couple weeks ago that Trump administration working on plans to release FNF if Trump wins. Still remains to be seen but if Trump wins I bet Paulson doesn't F around this time. Freddie and Fannie combined may have near 160-175B of combined net worth by end of 2025. No need for Trump to worry about getting re elected. FHFA head serves at the pleasure of the president, etc. 

 

Trumps odd have surged in the betting markets as of late....3 weeks to go but this investments fortunes maybe turning finally. 

[Wiggins]

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.

[Mephistopheles]

But what if Trump loses? This seems like a coin flip. Maybe up 100% if he wins and down 50% if he loses? Ok so it’s a good bet mathematically but it would have to be a small bet.

 

Thoughts?

[sleepydragon]

On 10/16/2024 at 12:36 PM, Wiggins said:

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.

 

If Trump wins, it seems to me the preferred serves as a good hedge against the common. I think owning both at certain ratio is optimal 

[sleepydragon]

53 minutes ago, Mephistopheles said:

But what if Trump loses? This seems like a coin flip. Maybe up 100% if he wins and down 50% if he loses? Ok so it’s a good bet mathematically but it would have to be a small bet.

 

Thoughts?

Yeah, event based ideas are in sink hole this year. Too many leveraged money betting on these trades, imo. I have a small position 

[sleepydragon]

FT has a story about someone pumping the Trump odd on poly market. Here is another story from Yahoo:

 

https://finance.yahoo.com/news/mystery-trader-fredi9999-boosts-trumps-090850029.html

 

“Experts” are trying to guess what’s the motive. Well, he’s ID is Freddie9999. That seems obvious…to us? Is he trying to pump FNMA/FNMAS?

 

this sort of thing makes me nervous