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

[merkhet]

I dunno, Argentina and several other south american countries seem to take a new bite of private capital every decade or so.  :D

I played around with this thought too - that private capital has a short memory.  The rejoinder, I think, may be that the required return demanded by private capital and the available quanitity are the conditions (at attractive terms) you only get one bite at.

 

Argentina is actually a pretty good comparison because, correct me if I'm wrong, it has around $200B of public debt, right? And it pays a pretty punishing interest rate on that sovereign debt.

 

Imagine if you had to raise that amount of risk capital? And importantly, you'd have to raise it immediately after you just told the last group of private capital to shove off...

[cubsfan]

 

 

Merkhet - thanks or the detailed post today. The Bloomberg video with Jim Millstein was excellent.

[CorpRaider]

Yeah but Congress is comprised of reactive simpletons who haven't the foggiest idea what cost of capital is; nor do they care so long as the polling is strong on killing fannie with the base for the next cycle and the PACs care enough to write checks to support it.  Cue the national anthem.

 

Then again, maybe the realtors can power through some support. 

[merkhet]

I think either Congress or the Administration can act in this case.

 

Yeah but Congress is comprised of reactive simpletons who haven't the foggiest idea what cost of capital is; nor do they care so long as the polling is strong on killing fannie with the base for the next cycle and the PACs care enough to write checks to support it.  Cue the national anthem.

 

Then again, maybe the realtors can power through some support. 

 

All true, but the fact of the matter remains that either (1) Fannie & Freddie stay nationalized, and losses remain the liability of Treasury or (2) they don't stay nationalized, and the preferred shareholders of Fannie & Freddie participate in some way with a recapitalization.

 

Now, while I think (1) might have some incentive misalignment (cash flow now, losses later), there's two problems with it. The first one is that, since Fannie & Freddie are the only game in town, you're seeing mortgage rejections at origination because of nit-picky crap that John Stumpf has mentioned previously. If the housing market starts to weaken, they're going to start wondering if the nationalized twins are the reason. The second one is that, since Fannie & Freddie are under Treasury control, their lives depend on the whims of whoever sits at 1600 Pennsylvania Avenue. Right now, it's a Democrat. Will a Republican preserve affordable housing?

 

As a side note, a Republican win during the mid-terms to overtake the Senate would probably force the Administration to move on this given that (A) it'll be seen as a referendum on Democrats re 2016, and (B) they might be able to push through unfavorable housing reform legislation.

[bmichaud]

Awesome work merkhet - great stuff.

[Mephistopheles]

FNMAT should be "8.25% Non-Cumulative Preferred Stock, Series T, stated value $25 per share."

 

Thanks. So am I right to assume that "Series T" corresponds to FNMAT, "Series S" to FNMAS, etc.?

 

I was thrown off by the $5 price, so I assumed it was a cheap selling $50 one, but I guess it's a really expensive $25 one.

 

These are good reference (and I'm sure in this thread someplace else):

 

http://www.freddiemac.com/investors/preferred_stock.html

http://fanniemae.com/portal/about-us/investor-relations/stock-information.html

 

Great, thanks.

 

[hyten1]

here is a good place for all this info

 

http://www.quantumonline.com/

[merkhet]

Perry's document deadlines have been set for appeal

 

http://www.valueplays.net/2014/10/08/perry-appeal-timeline-set/

[Grenville]

Enjoyed the Millstein interview! Thanks for posting that.

 

Also thanks for posting the Perry Appeal timeline.

[Mephistopheles]

here is a good place for all this info

 

http://www.quantumonline.com/

 

Thanks that helped.

 

I made a spreadsheet with all the tickers that I found and their discount to par linked to the internet, if anyone is interested. I know someone had this on Google spreadsheets but I've just updated to include all relevant tickers and delete the ones that are not traded. Let me know if there are any errors.

GSE_Tickers.xlsx

[brker_guy]

More good stuffs from Tim Howard today:

 

http://timhoward717.com/2014/10/09/key-developments-the-seeds-are-sprouting/

 

 

[leeway]

Bill Ackman adds to Fannie, Freddie stakes

 

http://nypost.com/2014/10/09/bill-ackman-adds-to-fannie-freddie-stakes/

[merkhet]

Interesting reply from Mr. Millstein on Twitter (attached).

 

The two referenced links are as follows:

http://seventeenmile.com/2014/10/10/special-situations-fannie-mae-millstein-co-proposal-october-2014/

http://blog.metrotrends.org/2014/05/time-administrative-reform-gse-conservatorships/

[muscleman]

Interesting reply from Mr. Millstein on Twitter (attached).

 

The two referenced links are as follows:

http://seventeenmile.com/2014/10/10/special-situations-fannie-mae-millstein-co-proposal-october-2014/

http://blog.metrotrends.org/2014/05/time-administrative-reform-gse-conservatorships/

 

Who is Jim Millstein? Does he have enough political power to make the congress listen to him?

I want to understand the current situation better. If all of the law suits fail, what will happen next? I can't believe the current conservator ship will last forever.

[merkhet]

Millstein:

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/fnma-and-fmcc-preferreds-in-search-of-the-elusive-10-bagger/msg192150/#msg192150

[indythinker85]

FWIW - Ackman said he was buying more - Michael Price owns the prefs- Perry sounded a bit more downbeat but still decided to mention he's bullish at the conference- http://www.valuewalk.com/2014/10/gibi-conference-2014/

[Mephistopheles]

Wow, the common have come back nicely since the case was tossed out. I sold all my common for the tax loss and switched to prefs which also happened to be down more, but they haven't recovered nearly as much. :(

[Picasso]

Does anyone know if there is a way to short FNMA/FMCC?

[TwoCitiesCapital]

Wow, the common have come back nicely since the case was tossed out. I sold all my common for the tax loss and switched to prefs which also happened to be down more, but they haven't recovered nearly as much. :(

 

Here's to hoping it continues. Would love to roll my common shares into preferred and hoping this difference in momentum continues to maximize my preferred exposure. Theres been 50% difference in the performance between the twp since the drop.

[merkhet]

Does anyone know if there is a way to short FNMA/FMCC?

 

Depends on your broker.

[merkhet]

Wow, the common have come back nicely since the case was tossed out. I sold all my common for the tax loss and switched to prefs which also happened to be down more, but they haven't recovered nearly as much. :(

 

Here's to hoping it continues. Would love to roll my common shares into preferred and hoping this difference in momentum continues to maximize my preferred exposure. Theres been 50% difference in the performance between the twp since the drop.

 

Fannie Mae common:

On 09/30: $2.69

On 10/14: $2.49

 

Fannie Mae Preferred S:

On 09/30: $9.20

On 10/14: $4.25

 

I can't imagine a scenario where the preferred gets screwed but the common comes out unscathed.

[Mephistopheles]

Wow, the common have come back nicely since the case was tossed out. I sold all my common for the tax loss and switched to prefs which also happened to be down more, but they haven't recovered nearly as much. :(

 

Here's to hoping it continues. Would love to roll my common shares into preferred and hoping this difference in momentum continues to maximize my preferred exposure. Theres been 50% difference in the performance between the twp since the drop.

 

Fannie Mae common:

On 09/30: $2.69

On 10/14: $2.49

 

Fannie Mae Preferred S:

On 09/30: $9.20

On 10/14: $4.25

 

I can't imagine a scenario where the preferred gets screwed but the common comes out unscathed.

 

I thought about this. I think one reason the common have outperformed is because when Lamberth threw out the possibility of immediate injunctive relief, it meant that any positive outcome will take longer than expected, whether it be a year, 2 years, 5 years, whatever. The prefs have a ceiling on their value, while the common will continue to increase in value. It wouldn't matter so much if we won in a year, but the longer it is expected to take, the more of a differential in value there should be.

[merkhet]

The Sweeney trial, in the Court of Federal Claims, will be done by the end of next year -- if it even gets that far -- which I doubt.

 

http://www.bloomberg.com/news/2014-10-14/fannie-mae-common-shares-rally-rebounding-from-judge-s-ruling.html

 

An alternative thought is that me-too hedge funds are getting out of their preferred positions.

[Mephistopheles]

The Sweeney trial, in the Court of Federal Claims, will be done by the end of next year -- if it even gets that far -- which I doubt.

 

 

But wouldn't there be a long appeals process? I feel like this is one of those cases that lasts many years and ends up in the Supreme Court.

[Mephistopheles]

I know I've asked this before but am still not clear on the answer:

 

1. If I swap from FNMA common to FMCC common, I know the wash sale rule doesn't count.

2. If I swap from FNMA common to FNMA preferred, I am pretty sure it doesn't count.

3. If I swap from FNMA preferred to another series of FNMA preferred, I am not as sure.

 

Does anyone know #2 & 3 for sure? The SEC website's description is a bit vague.