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

[rros]

4,000,000 shares of FMCKM just traded hands.

 

https://www.otcmarkets.com/stock/FMCKM/quote

 

Another 2,300,000 of FMCKM traded today and 2,000,000+ FNMAS.

 

These trades look like a wash. Could be inter-MM. Can't tell.

650 k @ $5.37 (10:53:03)

 

Then,

 

200 k @ $5.40 (10:53:09)

250 k @ $5.40 (10:53:13)

200 k @ $5.40 (10:53:17)

 

Note it is 650k and trades are 4 seconds apart. Looks like a machine (or 2 buying and selling between them). A little later, same pattern:

 

500 k @ $5.37 (11:29:50)

 

Then,

 

250 k @ 5:40 (11:29:54)

250 k @ 5:40 (11:29:59)

 

Someone wants to show volume at the end of the day.

 

The FNMAS trades are more worrisome because the volume is all at the lowest price consistently, as in someone selling. Then, jacking up the price for the next sale. But it is always difficult to tell. Someone with clout could be trying to get in at the bid. Unusual, but in OTC strange things happen.

[Luke 532]

4,000,000 shares of FMCKM just traded hands.

 

https://www.otcmarkets.com/stock/FMCKM/quote

 

Another 2,300,000 of FMCKM traded today and 2,000,000+ FNMAS.

 

These trades look like a wash. Could be inter-MM. Can't tell.

650 k @ $5.37 (10:53:03)

 

Then,

 

200 k @ $5.40 (10:53:09)

250 k @ $5.40 (10:53:13)

200 k @ $5.40 (10:53:17)

 

Note it is 650k and trades are 4 seconds apart. Looks like a machine (or 2 buying and selling between them). A little later, same pattern:

 

500 k @ $5.37 (11:29:50)

 

Then,

 

250 k @ 5:40 (11:29:54)

250 k @ 5:40 (11:29:59)

 

Someone wants to show volume at the end of the day.

 

rros, thank you for the added detail.

[rros]

4,000,000 shares of FMCKM just traded hands.

 

https://www.otcmarkets.com/stock/FMCKM/quote

 

Another 2,300,000 of FMCKM traded today and 2,000,000+ FNMAS.

 

These trades look like a wash. Could be inter-MM. Can't tell.

650 k @ $5.37 (10:53:03)

 

Then,

 

200 k @ $5.40 (10:53:09)

250 k @ $5.40 (10:53:13)

200 k @ $5.40 (10:53:17)

 

Note it is 650k and trades are 4 seconds apart. Looks like a machine (or 2 buying and selling between them). A little later, same pattern:

 

500 k @ $5.37 (11:29:50)

 

Then,

 

250 k @ 5:40 (11:29:54)

250 k @ 5:40 (11:29:59)

 

Someone wants to show volume at the end of the day.

 

rros, thank you for the added detail.

I try not to worry too much. It is difficult to assess intention. There is a lot of arbitrage between some of the classes, including commons. And machines are specifically good at it, and easy to program on that specific trade. On FNMAS you may see trades at the ask @ $6.94 for 247 shares, then seconds later someone drops a grenade of 26k shares @ $6.91. Same 100 shares bought @ $6.93, minutes later a bomb drops @ $6.91 for 30k shares. Obviously, someone is selling and hiding it. But, what if the trader is raising money to buy the cheaper FMCKJ? Or commons? So...  given not every sell is a negative and given intention is impossible to assess the best is not to worry (too much).

 

Machines trade. And have been programmed to "think" like a trader, not an investor. Good traders buy and sell same shares to disguise and confuse other traders and tape readers. Specially, when holding large positions. And they could do this throughout the day or days...

[Sunrider]

Is that a serious question that you expect anyone on this board to have an answer to  (an answer with some actual predictive value)?

 

Mnuchin said that once tax reform is done, GSE's will be handled. I read that there is not much chance of tax legislation to make it by year end and may even never make it. What would be the implications on GSE's?  Does that mean GSE's would remain in limbo? They could resolve this in a day with an administrative action.

[Midas79]

Mnuchin said that once tax reform is done, GSE's will be handled. I read that there is not much chance of tax legislation to make it by year end and may even never make it. What would be the implications on GSE's?  Does that mean GSE's would remain in limbo? They could resolve this in a day with an administrative action.

 

This shouldn't be surprising. Tax reform was always a higher priority, and the Jumpstart rider really limits Treasury's options before Jan 1 2018.

[Midas79]

As an aside, I have noticed a big compression in the junior pref prices over the last few weeks. As recently as a few months ago when doing a linear regression using dividend yields to predict pref prices (as a % of par), the r^2 value was almost 0.9. It is now around 0.41.

 

I have joined the crowd somewhat; I have sold out of some of the higher dividend series (FNMAJ, FNMAT) in favor of the lower ones in search of more stated value for the same price.

 

Does anyone see a material difference between Fannie and Freddie preferreds? I have been treating them as basically equal so far, though the Fannie ones (especially the $50 par series) trade a bit higher relative to their dividend yields.

[Luke 532]

Probably just a coincidence this is taking place on the same day payment is scheduled (or not) to go from FHFA to Treasury.  It was just updated one hour ago (5 minutes after market close): https://www.treasury.gov/initiatives/fsoc/council-meetings/Pages/default.aspx

[Luke 532]

Just FYI, the FHFA report usually comes out mid-day (they don't wait until after hours).  Per my memory the one in June came out after lunch and I confirmed that with one of Joe Light's older tweets (1:35pm on June 30, 2017): https://twitter.com/joelight/status/880842136903700482/photo/1

 

For those that want to see what happens with the Q3 dividend payment...

 

FHFA payments: https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_2.pdf

 

Treasury receipts: https://www.fms.treas.gov/dts/index.html

[TonyG]

luke, was just gonna say usually joe light is writing an article about them making the paymentt by now or posting to twitter but nothing so far. than again, could be nothing.

[Luke 532]

Payment was made.

[Guest cherzeca]

share prices holding steady. mildly surprised. market may be taking distribution as indication things are good in 3Q.  seems like the prices here should be a floor, pending new news.

[rros]

share prices holding steady. mildly surprised. market may be taking distribution as indication things are good in 3Q.  seems like the prices here should be a floor, pending new news.

In the realm of speculations, perhaps the market believes Watt's agreement to pay means Watt has an assurance by Treasury that something is coming to alleviate the capital issue. We need Trump's executive pen!

[Luke 532]

In the realm of speculations, perhaps the market believes Watt's agreement to pay means Watt has an assurance by Treasury that something is coming to alleviate the capital issue. We need Trump's executive pen!

 

Perhaps.  Watt did write this letter today saying he's working with Mnuchin.  https://twitter.com/DoNotLose/status/913821295443415040

[rros]

In the realm of speculations, perhaps the market believes Watt's agreement to pay means Watt has an assurance by Treasury that something is coming to alleviate the capital issue. We need Trump's executive pen!

 

Perhaps.  Watt did write this letter today saying he's working with Mnuchin.  https://twitter.com/DoNotLose/status/913821295443415040

It is almost a foregone conclusion there will be a 4th amendment allowing for a small buffer, 3 to 10 bill my guess. The only progress made after the nws was established over 5 years ago is that the clause for achieveing zero net worth by January 1st, 2018 will be nuked. Not much progress I'd say. Maybe that is why IU is fishing for new candidates for new lawsuits. I wonder what Paulson may think now since a small buffer opens the door for a permanent conservatorship contrary to what Watt's and Mnuchin's stated desires are.

 

If Trump decides on his own that the Sr. preferred shares should disappear, the remaining of the commitment (258 bill) remains. BUT a new scheme has to cover Treasury's compensation for that line. This would be a great opportunity to advance a small commitment fee on the back of that remaining commitment. The original commitment used, then, Trump can declared paid off. Jrs. will instantly see par as the Damocles sword  above immediately disappears. I know. Nice dream.

[SnarkyPuppy]

Is there anything formally in the way of Mnuchin acting on 1/1/18?  I presume the only thing congress can do is write legislation to change the GSEs structure going forward and cannot block Mnuchin's actions.  Can FHFA block Mnuchin recap/release?

[beaufort]

I was thinking the same thing as Snarky re administrative reform.  Given the legislative sets backs thus far for the Trump administration, there is an argument to be made that administrative reform is the prudent way forward - in Jan 2018. 

 

If the legislature wants to act, there is as much time as legislators wish to devote to the problem moving forward.

 

Though I am disappointed, I see how maintaining pressure on FHFA and Tsy with dwindling capital levels could prompt more favourable, further action.

 

 

 

 

 

 

[Midas79]

Is there anything formally in the way of Mnuchin acting on 1/1/18?  I presume the only the co guess can do is wirte legislation to change the GSEs structure going forward and cannot block Mnuchin's actions.  Can FHFA block Mnuchin recap/release?

 

You know, I'm rather glad you asked this. Until now I have been assuming that Mnuchin can unilaterally end the NWS (actually the entire SPSPA). But that came from this paragraph in the original SPSPA:

 

      6.12.      Non-Severability. 

Each of the provisions of this Agreement is integrated with and integral to the whole and shall not be severable from the remainder of the Agreement.  In the event that any provision of this Agreement, the Senior Preferred Stock or the Warrant is determined to be illegal or unenforceable, then Purchaser may, in its sole discretion, by written notice to Conservator and Seller, declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate.

 

It appears Mnuchin would need some court (any court!) to rule that any part of the agreement is either illegal or unenforceable. To my knowledge this hasn't happened yet.

 

But I think rescinding and unwinding the entire agreement would entail a reset to before it was signed. Does that mean that Treasury would have to send back all dividend payments in excess of the original draw?

 

I will need to go back and read the agreement and amendments with a fine-toothed comb to get a better idea of this. I thought I had done so in the past, but in that case I would have been able to answer your question more thoroughly! Mnuchin could always refuse the NWS payments, but it will take Watt's cooperation to actually end the conservatorship and declare the companies adequately reformed and capitalized. This won't be an entirely administrative solution because as of right now, Trump cannot remove Watt and thus Watt (who isn't part of the administration) will need to be on board too.

[SnarkyPuppy]

Is there anything formally in the way of Mnuchin acting on 1/1/18?  I presume the only the co guess can do is wirte legislation to change the GSEs structure going forward and cannot block Mnuchin's actions.  Can FHFA block Mnuchin recap/release?

 

You know, I'm rather glad you asked this. Until now I have been assuming that Mnuchin can unilaterally end the NWS (actually the entire SPSPA). But that came from this paragraph in the original SPSPA:

 

      6.12.      Non-Severability. 

Each of the provisions of this Agreement is integrated with and integral to the whole and shall not be severable from the remainder of the Agreement.  In the event that any provision of this Agreement, the Senior Preferred Stock or the Warrant is determined to be illegal or unenforceable, then Purchaser may, in its sole discretion, by written notice to Conservator and Seller, declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate.

 

It appears Mnuchin would need some court (any court!) to rule that any part of the agreement is either illegal or unenforceable. To my knowledge this hasn't happened yet.

 

But I think rescinding and unwinding the entire agreement would entail a reset to before it was signed. Does that mean that Treasury would have to send back all dividend payments in excess of the original draw?

 

I will need to go back and read the agreement and amendments with a fine-toothed comb to get a better idea of this. I thought I had done so in the past, but in that case I would have been able to answer your question more thoroughly! Mnuchin could always refuse the NWS payments, but it will take Watt's cooperation to actually end the conservatorship and declare the companies adequately reformed and capitalized. This won't be an entirely administrative solution because as of right now, Trump cannot remove Watt and thus Watt (who isn't part of the administration) will need to be on board too.

 

This highlights the complexities of the legal situation and why we may have blind spots that have not been considered in our general "incentives" and "rational path forward" thesis. 

 

With that said (and not being a lawyer), the wording is "illegal OR unenforceable" and I'm not sure what can be contemplated to determine "unenforceable".

 

Regardless, cancelling the PSPAs per the above language seems to void the warrants as well:  "whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate."

[Luke 532]

share prices holding steady. mildly surprised. market may be taking distribution as indication things are good in 3Q.  seems like the prices here should be a floor, pending new news.

 

I'm not one for following price action, but the common stock of Fannie is up something like $0.26-$0.30 since the payment was made mid-day on Friday.

[Midas79]

share prices holding steady. mildly surprised. market may be taking distribution as indication things are good in 3Q.  seems like the prices here should be a floor, pending new news.

 

I'm not one for following price action, but the common stock of Fannie is up something like $0.26-$0.30 since the payment was made mid-day on Friday.

 

It's hard to see how the payment going through is a positive. It could be gambling on Watt saying something positive tomorrow in his meeting with the House.

 

Another 1.2M shares of FMCKM volume posted today. What is up with that one series?

[rros]

share prices holding steady. mildly surprised. market may be taking distribution as indication things are good in 3Q.  seems like the prices here should be a floor, pending new news.

 

I'm not one for following price action, but the common stock of Fannie is up something like $0.26-$0.30 since the payment was made mid-day on Friday.

 

It's hard to see how the payment going through is a positive. It could be gambling on Watt saying something positive tomorrow in his meeting with the House.

 

Another 1.2M shares of FMCKM volume posted today. What is up with that one series?

1.245M shares traded lower than Thursday's last trade at $5.50 ($5.42/$5.48/$5.43/$5.48). Sure enough, only 100 shares traded up at $5.59 after 1.245M. Someone conveniently hiding the activity?

[waynepolsonAtoZ]

"On Tuesday, October 3, 2017, at 10:00 am in Room 2128 of the Rayburn

House Office Building, the Committee will hold a hearing entitled “Sustainable

Housing Finance: An Update from the Director of the Federal Housing Finance

Agency.” The Honorable Melvin Watt, Director of the Federal Housing Finance

Agency, will be the sole witness.

The purpose of this hearing is to receive an update from the Federal Housing

Finance Agency (“FHFA”) on:

(1) measures the FHFA has taken as the conservator of Fannie Mae and

Freddie Mac;

(2) the FHFA’s current Strategic Plan for Fannie Mae and Freddie Mac;

(3) the current financial condition of Fannie Mae, Freddie Mac and the

Federal Home Loan Banks (“FHLBs”);

(4) the current state of private sector participation in the housing finance

market;

(5) whether adequate steps are being taken to encourage additional private

capital in this market;

(6) additional actions the FHFA has taken as regulator of Fannie Mae,

Freddie Mac and the FHLBs; and

(7) the Director’s views on housing finance reform." https://financialservices.house.gov/uploadedfiles/100317_fc_memo.pdf

[Midas79]

https://www.fhfa.gov//Media/PublicAffairs/Pages/Statement-of-Melvin-L--Watt,-Director,-FHFA,-Before-the-U-S--House-of-Representatives-Committee-on-Financial-Services.aspx

 

Mel Watt's prepared statement for today's meeting.

[orthopa]

Love campuano

[investorG]

watt suggested 2-3pct capital requirements to get out of conservatorship.  he also hesitated when asked if mnuchin was against a capital buffer.  both of these seem somewhat good news.