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

[Luke 532]

OK, so what are the odds Obama allows the gravy train of stolen money to benefit Trump and his administration while simultaneously putting part of the fate of his legacy in Trump's hands?

 

It seems to me he has 3 options to consider over the next 2 months prior to Trump being sworn-in:

(1) settle the lawsuits

(2) recap/release

(3) do nothing and pass it on to Trump

 

Discussion on these options...

(3) To me, it seems like a big risk for Obama to allow the lawsuits to continue and give Trump the power over what to do as the defendant.  Trump could very easily admit the government was wrong and say it was all Obama's fault, all the while Trump would get the credit for righting the wrong.

 

(3) It also seems very risky for Obama not to settle or recap/release before Trump is sworn in because those documents would be available to Trump and it would give him plenty of ammunition to "drain the swamp," so to speak.

 

(1) or (2) By recap/release or settle, Obama could still save part of his legacy by "saving" the housing market and making taxpayers a bunch of money.

 

(1) or (2) By recap/release or settle, Obama would also be potentially killing the possibility of all those documents being released to the public... at least in the near future.

 

So, my question for the board is, what do you think the odds are that Obama gives Trump the lawsuits and NWS to deal with during his term as the next President?  I personally don't think that's very likely and I'd be absolutely shocked if this isn't mostly resolved by mid-January.

[Sunrider]

I've learned few things in life, and I keep not remembering the lessons, like the one I thought I learned on Brexit and promptly forgot heading into last night. However, this one, I think stuck:

 

Never underestimate the power of inertia. The current administration not doing anything is, in my view, much more likely than any of the other outcomes for the simple reason that "Shit takes effort, shit takes time".

:o

 

OK, so what are the odds Obama allows the gravy train of stolen money to benefit Trump and his administration while simultaneously putting part of the fate of his legacy in Trump's hands?

 

It seems to me he has 3 options to consider over the next 2 months prior to Trump being sworn-in:

(1) settle the lawsuits

(2) recap/release

(3) do nothing and pass it on to Trump

 

Discussion on these options...

(3) To me, it seems like a big risk for Obama to allow the lawsuits to continue and give Trump the power over what to do as the defendant.  Trump could very easily admit the government was wrong and say it was all Obama's fault, all the while Trump would get the credit for righting the wrong.

 

(3) It also seems very risky for Obama not to settle or recap/release before Trump is sworn in because those documents would be available to Trump and it would give him plenty of ammunition to "drain the swamp," so to speak.

 

(1) or (2) By recap/release or settle, Obama could still save part of his legacy by "saving" the housing market and making taxpayers a bunch of money.

 

(1) or (2) By recap/release or settle, Obama would also be potentially killing the possibility of all those documents being released to the public... at least in the near future.

 

So, my question for the board is, what do you think the odds are that Obama gives Trump the lawsuits and NWS to deal with during his term as the next President?  I personally don't think that's very likely and I'd be absolutely shocked if this isn't mostly resolved by mid-January.

[onyx1]

Ichan could explain the best course of action in 5 minutes to Trump.  A win-win-win for all. 

 

1.  Reverse NWS

2.  Use proceeds to pay down Sr. preferred

3.  Release from conservatorship.

4.  Set course for recapitalization.

5.  Enjoy UST windfall by selling govt warrants for $100-200 billion.

[Steve_Berk]

My thinking is that it's going to be really tough to accomplish this in the next few months and I don't know that it's really going to be a big priority when there are so many other things to do. Also, some presidents take their last months to be lame ducks, although bill Clinton didn't do that.

 

I also think that our board is way too overconfident to predict that trump is good for our position. Traditionally republicans hate the GSE's and want to get rid of them. I think there is a good chance that trump won't really care about this issue and will just let other republicans take the lead on it. I certainly don't think that Obama will just assume that trump will settle and blame him when republicans largely want to eliminate the GSE's.

 

Trumps campaign was very much about blaming Obama and Washington but now that he's been elected he's going to have to pivot to doing the things that he promised to focus on. And those things require political capital. Why would he spend that capital on something he's never demonstrated an interest in?

[investorG]

my take, fwiw, is that there is little / no chance for a full release by Obama in the lame duck; it's too important of a policy decision.

 

I do think he might settle the current major outstanding lawsuits with some large 1-time dividend payments / tender offers.   

 

Alternatively he could allow the companies to build capital as an intermediate step to jumpstart reform in 2017.

 

Regarding trump, it's a wild card, but given his advisers, I think the risk reward at the current price levels is very favorable.  Also, he should want to monetize the 80pct warrants because he's going to have a lot of deficit holes to fill to pay for his infrastructure and tax cut plans. 

[merkhet]

Well, the election was personally a gut punch for me, but my guess is that it's a positive here. Many people have pointed out that both Icahn & Paulson have been very dedicated Trump supporters from the beginning, and the full sweep of Congress makes it unlikely that President Obama hands things over to President-Elect Trump.

[onyx1]

Well, the election was personally a gut punch for me, but my guess is that it's a positive here. Many people have pointed out that both Icahn & Paulson have been very dedicated Trump supporters from the beginning, and the full sweep of Congress makes it unlikely that President Obama hands things over to President-Elect Trump.

 

 

Other pluses I see:

• Gene Sperling out of the picture.
  
• Smaller chance judges will fear executive branch intimidation for ruling against government.
  
• Fresh start with no administrative misdeeds to hide gives Trump flexibility.
  
• Any ruling being held until after election are now clear for release.  Perry appeal?
  
• Trump is deal & transaction oriented, and he responds to money.  Sale of warrants might prove irresistible.
  

Minuses:

• Corker is influential and has been floated as potential SoS.
  
• Republicans in general have bought the Big Lie that GSEs are evil and must go.
  

[Luke 532]

Well, the election was personally a gut punch for me, but my guess is that it's a positive here. Many people have pointed out that both Icahn & Paulson have been very dedicated Trump supporters from the beginning, and the full sweep of Congress makes it unlikely that President Obama hands things over to President-Elect Trump.

 

Excellent points, onyx.

 

 

Other pluses I see:

• Gene Sperling out of the picture.
  
• Smaller chance judges will fear executive branch intimidation for ruling against government.
  
• Fresh start with no administrative misdeeds to hide gives Trump flexibility.
  
• Any ruling being held until after election are now clear for release.  Perry appeal?
  
• Trump is deal & transaction oriented, and he responds to money.  Sale of warrants might prove irresistible.
  

Minuses:

• Corker is influential and has been floated as potential SoS.
  
• Republicans in general have bought the Big Lie that GSEs are evil and must go.
  

[Guest cherzeca]

 

"Never underestimate the power of inertia."

 

or my favorite saying:  inertia is the most powerful force in the universe.

 

i dont think this gets settled by obama.  i think he has alot of other things he wants (now needs) to do, and GSEs are low on his totem pole.

 

but if you think there is remand, and eventually some kind of settlement, then the chance of this goes way up during the early part of the trump administration.

 

also, suddenly you will have a potus who doesnt give a crap whether all of the 11,000 docs get produced in ct claims...

[Guest cherzeca]

"Corker is influential and has been floated as potential SoS."

 

i think trump was just being courteous to corker (yes, i think he can be courteous if he wants to).  i think corker walked away from trump and trump will not reward corker.  trump will work with guys who thought he was a third rail, like ryan and corker, but he wont reward them.

 

so i dont see corker sticking his neck out very far to restrain any action on GSEs.

[Grenville]

Don't forget that Ackman owns FNMA common and Icahn is surely aware of that.

[Mephistopheles]

I think Icahn and Paulson own the common...I wonder if they may even go further and get Trump to repeal the Govt warrants, which would mean 100 baggers for the common. In either case, if their influence is at all helpful to us, then it may mean the common now are better than the preferred, as that is what they own. I can't imagine a scenario in which they get Trump to reverse the 3rd amendment, but allow a deal that is worse for the common than the preferred. On the other hand the preferred are still a better bet in regards to the Court of Claims case as merkhet and others have pointed out.

 

Thoughts anyone?

[doughishere]

I think Icahn and Paulson own the common...I wonder if they may even go further and get Trump to repeal the Govt warrants, which would mean 100 baggers for the common. In either case, if their influence is at all helpful to us, then it may mean the common now are better than the preferred, as that is what they own. I can't imagine a scenario in which they get Trump to reverse the 3rd amendment, but allow a deal that is worse for the common than the preferred. On the other hand the preferred are still a better bet in regards to the Court of Claims case as merkhet and others have pointed out.

 

Thoughts anyone?

 

 

I think its interesting how you can have 2 large guys come to two different conclusion on things(HLF,VRX, yadda yadda) and then they hold similar positions in things such as F&F......seems like life to me. And its not just the large guys but even on fintwit....so its interesting. And they could very well be wrong on all of them. So who knows.

 

 

I really dont think much will change other than there may be slightly greater chance of these documents get released for public consumption then we will see exactly how the decision to enact the  NWS was handled and thats just the transparency that share holders have wanted the entire time. I could be wrong. Bruce, IMO, doesnt give a shit about where the common goes or what...he just wants his contractual obligations. Thats what I really think this is about.  I dont give a sh*t where the entities fannie and freddie go to be honest.

 

 

One of the problems with this business is we all become forecasters. Some guys think the markets are going down with a Trump win(certainly thats what the futures said last night) but I suspect generally Americans will be better 4,10, 15, years from now..but a lot of people dont think so...and You would think that everyone would sit back and say well Brexit happened, the Cubs happened, XYZ happened. Crazy shit happens all the time and that theres really no prognosticating about things. Partly thats why i dont get gloating about your prognostications....but such is life and people like to be right.

 

 

Im just fascinated by how human beings act.

 

[merkhet]

Paulson owns preferreds (as of two years ago), and Icahn AFAIK owns the common.

[waynepolsonAtoZ]

In terms of pay to play politics, finan recap with $200 billion going to recapitalize the GSEs would involve considerable I banking fees, say at a four percent rate to make it simple. That's what, $8 billion? Not to mention selling Treasury's warrants with the $ flowing to Tsy, that could be many billions for I bankers.

 

It's also full employment for "experts," consultants, lawyers, bankers, public interest and I don't know who else.

 

Also, there is the question of what to do with the Senior Preferred Stock that can never be repaid.

 

There's also the court case and so on.

 

Gridlock in Congress so treasury would be at the wheel.

[Guest cherzeca]

Paulson owns preferreds (as of two years ago), and Icahn AFAIK owns the common.

 

from today's WSJ:

 

"John Paulson, a hedge-fund billionaire, was tapped as an adviser [to trump] because of his understanding of housing, one adviser said. Mr. Paulson, who made a spectacularly well-timed bet shorting the U.S. subprime mortgage market in 2007, has more recently taken large stakes in the mortgage-finance companies Fannie Mae and Freddie Mac, which have been in a government-run conservatorship since the 2008 financial crisis. Shares of Fannie Mae were up nearly 17% to their highest levels of the year on Wednesday."

[Mephistopheles]

What happens to the lawsuits once Obama leaves? Is Trump's Treasury going to pick up the fight? I can't imagine that happening...

[Luke 532]

What happens to the lawsuits once Obama leaves? Is Trump's Treasury going to pick up the fight? I can't imagine that happening...

 

Bingo.  I see almost nil chance of Trump taking up the fight against preferred shareholders especially when one of his advisors (Paulson) owns preferred and others he knows well (Icahn, etc) are invested. 

[Mephistopheles]

What happens to the lawsuits once Obama leaves? Is Trump's Treasury going to pick up the fight? I can't imagine that happening...

 

Bingo.  I see almost nil chance of Trump taking up the fight against preferred shareholders especially when one of his advisors (Paulson) owns preferred and others he knows well (Icahn, etc) are invested. 

 

Yep, so we can't assume he does nothing because by doing nothing he will have to continue to fight (which he won't), so by merely pulling out of the lawsuits is a big win for us.

 

Question, the FHFA on the other hand is independent, correct? Mel Watt and co may continue the fight on their own?

[Guest cherzeca]

the litigation is pursued by career attorneys in DOJ. fhfa hired its own private counsel.  these counsel are on cruise control unless something happens.  inertia would imply that nothings happens.

 

nothing will happen until the perry appeal decision is announced, and the federal circuit's mandamus ruling is decided, both of which i expect before trump is president.

 

once the lay of the litigation land becomes clearer, and after 1/20/17, i think Ps would be wise to initiate the process to have a 4th amendment that would among other things roll back the 3rd amendment and give economic effect to the last 4+ years as if 3rd amendment did not exist.  i dont think the corker reconciliation language would prohibit this.

 

 

[hardincap]

+1 we still need to get a remand or reversal in perry

[Guest cherzeca]

+1 we still need to get a remand or reversal in perry

 

i have consistently viewed an investment in fnma to be all about handicapping the litigation, and have generally discounted political machinations regarding reform proposals.

 

and in the last two days, fnma common is up over one third.  on a purely political, nonlitigation event move.

 

it is startling to see a president-elect who has as informal economic advisors mnuchin (and he may become formal after inauguration), paulsen (who advises on housing issues!), and icahn, all of whom have a very predictably shareholder-favorable orientation.

 

who knew?

[Luke 532]

+1 we still need to get a remand or reversal in perry

 

i have consistently viewed an investment in fnma to be all about handicapping the litigation, and have generally discounted political machinations regarding reform proposals.

 

and in the last two days, fnma common is up over one third.  on a purely political, nonlitigation event move.

 

it is startling to see a president-elect who has as informal economic advisors mnuchin (and he may become formal after inauguration), paulsen (who advises on housing issues!), and icahn, all of whom have a very predictably shareholder-favorable orientation.

 

who knew?

 

Keep in mind Mnuchin is on the Board of SHLD.  Berkowitz is on the Board of SHLD.  Berkowitz had also publicly endorsed Trump prior to the election.  Preferred shares will be thought of kindly in Trump's administration.

 

And don't forget Ken Blackwell who is on the transition team.  He was Director of the pro-GSE shareholder group Coalition for Mortgage Security back in the day.

http://blogs.wsj.com/moneybeat/2014/04/07/in-washington-friends-of-fannie-freddie-are-multiplying/

 

There are at least a handful of influential people that are pro-GSE shareholders that will be directly advising Trump.

[Eye4Valu]

Hensarling being floated for Treasury Sec. That can't be good.

[hardincap]

Fwiw Ackman said on CNBC he will try to meet with trump and make a deal on Fannie