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

[Guest cherzeca]

https://livestream.com/accounts/1028220/events/8561696/videos/187617124

+1

[rros]

Looks like everybody is piling on the most liquid ones fmckj and fnmas.

 

Planning for an abrupt parachute drop, I suppose. It will be D-day!!

 

D for $dolla$

 

or :) Donald :)

[muscleman]

Looks like everybody is piling on the most liquid ones fmckj and fnmas.

 

Planning for an abrupt parachute drop, I suppose. It will be D-day!!

 

D for $dolla$

 

or :) Donald :)

 

FNMAS is going up way more than anything else, including FMCKJ, which makes me think it is because of that video https://www.realvision.com/tv/shows/trade-ideas/videos/a-new-fannie-mae-play

Probably lazy funds saw that and started buying FNMAS without researching other preferred.

[Guest cherzeca]

Looks like everybody is piling on the most liquid ones fmckj and fnmas.

 

Planning for an abrupt parachute drop, I suppose. It will be D-day!!

 

D for $dolla$

 

or :) Donald :)

 

FNMAS is going up way more than anything else, including FMCKJ, which makes me think it is because of that video https://www.realvision.com/tv/shows/trade-ideas/videos/a-new-fannie-mae-play

Probably lazy funds saw that and started buying FNMAS without researching other preferred.

 

if you are buying into GSEs only now, you will want to be able to get out fast.  LIFO.  late comers dont know the trade intimately, lazy or not, and will take a short term profit, so the most liquid series is the best. 

[rros]

Looks like everybody is piling on the most liquid ones fmckj and fnmas.

 

Planning for an abrupt parachute drop, I suppose. It will be D-day!!

 

D for $dolla$

 

or :) Donald :)

 

FNMAS is going up way more than anything else, including FMCKJ, which makes me think it is because of that video https://www.realvision.com/tv/shows/trade-ideas/videos/a-new-fannie-mae-play

Probably lazy funds saw that and started buying FNMAS without researching other preferred.

 

if you are buying into GSEs only now, you will want to be able to get out fast.  LIFO.  late comers dont know the trade intimately, lazy or not, and will take a short term profit, so the most liquid series is the best.

The LIFO crowd may also not be aware how difficult it is to fool a market maker. I wonder if MMs will really sell inventory at $10 to later have to buy it back at $20...

 

In a way, I am happy with my illiquid preferreds. Nobody who wants out fast seems to be interested in them. Will market makers have less incentive to cut the price in half on exit day when nobody shows up at the door to sell?

[muscleman]

Looks like everybody is piling on the most liquid ones fmckj and fnmas.

 

Planning for an abrupt parachute drop, I suppose. It will be D-day!!

 

D for $dolla$

 

or :) Donald :)

 

FNMAS is going up way more than anything else, including FMCKJ, which makes me think it is because of that video https://www.realvision.com/tv/shows/trade-ideas/videos/a-new-fannie-mae-play

Probably lazy funds saw that and started buying FNMAS without researching other preferred.

 

if you are buying into GSEs only now, you will want to be able to get out fast.  LIFO.  late comers dont know the trade intimately, lazy or not, and will take a short term profit, so the most liquid series is the best.

The LIFO crowd may also not be aware how difficult it is to fool a market maker. I wonder if MMs will really sell inventory at $10 to later have to buy it back at $20...

 

In a way, I am happy with my illiquid preferreds. Nobody who wants out fast seems to be interested in them. Will market makers have less incentive to cut the price in half on exit day when nobody shows up at the door to sell?

 

Market makers will have no problem selling at 10 and later buying back at 20. But there will be millions of trades before that happens. Usually this thing is like bid 9.98 ask 10.01, so they'll keep buying at 9.98 or slightly higher, and keep selling at 10.01 or slightly lower, and do this thousands of times per day.

[rros]

Looks like everybody is piling on the most liquid ones fmckj and fnmas.

 

Planning for an abrupt parachute drop, I suppose. It will be D-day!!

 

D for $dolla$

 

or :) Donald :)

 

FNMAS is going up way more than anything else, including FMCKJ, which makes me think it is because of that video https://www.realvision.com/tv/shows/trade-ideas/videos/a-new-fannie-mae-play

Probably lazy funds saw that and started buying FNMAS without researching other preferred.

 

if you are buying into GSEs only now, you will want to be able to get out fast.  LIFO.  late comers dont know the trade intimately, lazy or not, and will take a short term profit, so the most liquid series is the best.

The LIFO crowd may also not be aware how difficult it is to fool a market maker. I wonder if MMs will really sell inventory at $10 to later have to buy it back at $20...

 

In a way, I am happy with my illiquid preferreds. Nobody who wants out fast seems to be interested in them. Will market makers have less incentive to cut the price in half on exit day when nobody shows up at the door to sell?

 

Market makers will have no problem selling at 10 and later buying back at 20. But there will be millions of trades before that happens. Usually this thing is like bid 9.98 ask 10.01, so they'll keep buying at 9.98 or slightly higher, and keep selling at 10.01 or slightly lower, and do this thousands of times per day.

I understand how MMs make money and I understand they are not, most at least, speculating on a stock. Neither they may care about the enterprises they make markets for. But they also manage "inventory". And sometimes lose. Which they hate. And they often lose when faced with long term investors with strong hands because they are never able to replenish inventory at convenient prices. They are not going to be holding the bag on these ones.

[Luke 532]

https://livestream.com/accounts/1028220/events/8561696/videos/187617124

 

Snarky, rros, orthopa... thank you for posting those recent video links.  Good stuff!

[Guest cherzeca]

SBC committee vote on calabria 2/26.

 

[muscleman]

SBC committee vote on calabria 2/26.

 

I see some twits that if passed, full Senate vote could happen as early as next Friday? That sounds like a very fast track!

 

[DocSnowball]

Just catching up with Calabria confirmation and statements. It is clear that capital raise is coming. It is not clear what the status of current shareholders will be. We all agree to that with varying hopes of what will happen.

 

FWIW. I'm imagining a current shareholder at the negotiating table with Treasury, FHFA and various flavors of current shareholders. My prior bias was that the administration has been kind to its supporters to date, but when I reflect carefully on people involved in administrative roles or campaign they are either out the door or some of them are on their way to prison. Therefore one cannot bank on the kindness of these strangers without solid legal representation. I sold all individual holdings and placed a very small amount with Fairholme which has the best legal standing. There is no ten bagger here, but a good long term investment especially after enterprises have a plan to be well capitalized and risk of zero is very low.  I'm sure most of this board disagrees with me, if I'm wrong I'm more than happy to miss a double from here.

 

 

[Fat Pitch]

Fairholme has burnt all their credibility. If Bruce has any sense of fiduciary duty to his investors he'd close up shop and stop incinerating their capital.

 

Just catching up with Calabria confirmation and statements. It is clear that capital raise is coming. It is not clear what the status of current shareholders will be. We all agree to that with varying hopes of what will happen.

 

FWIW. I'm imagining a current shareholder at the negotiating table with Treasury, FHFA and various flavors of current shareholders. My prior bias was that the administration has been kind to its supporters to date, but when I reflect carefully on people involved in administrative roles or campaign they are either out the door or some of them are on their way to prison. Therefore one cannot bank on the kindness of these strangers without solid legal representation. I sold all individual holdings and placed a very small amount with Fairholme which has the best legal standing. There is no ten bagger here, but a good long term investment especially after enterprises have a plan to be well capitalized and risk of zero is very low.  I'm sure most of this board disagrees with me, if I'm wrong I'm more than happy to miss a double from here.

[Guest cherzeca]

I dont see treasury negotiating with any Ps.  T's value is in warrants.  it has been paid off on senior prefs. so what if they lose collins? they will have get rid of senior prefs to recap anyhow.

 

what people dont seem to understand is that if treasury truly wants to recap GSEs, it is indifferent to the litigation re NWS.

[Wiggins]

I dont see treasury negotiating with any Ps.  T's value is in warrants.  it has been paid off on senior prefs. so what if they lose collins? they will have get rid of senior prefs to recap anyhow.

 

what people dont seem to understand is that if treasury truly wants to recap GSEs, it is indifferent to the litigation re NWS.

 

then why the robust defense of NWS in the courts?

[DocSnowball]

All in the pool, 79.9% belongs to Treasury, the remaining 20.1% (plus retained capital) will account for capital raise. Either heavy dilution is coming for current shareholders (even if preferred convert to commons in some ratio) or receivership with ultimate release as New Cos. Moelis plan may represent aspiration value but not necessarily base case scenario. All I'm saying is that this remains a very high risk proposition until the capitalization plan is clear.

 

I dont see treasury negotiating with any Ps.  T's value is in warrants.  it has been paid off on senior prefs. so what if they lose collins? they will have get rid of senior prefs to recap anyhow.

 

what people dont seem to understand is that if treasury truly wants to recap GSEs, it is indifferent to the litigation re NWS.

[investorG]

I dont see treasury negotiating with any Ps.  T's value is in warrants.  it has been paid off on senior prefs. so what if they lose collins? they will have get rid of senior prefs to recap anyhow.

 

what people dont seem to understand is that if treasury truly wants to recap GSEs, it is indifferent to the litigation re NWS.

 

if we win collins, depending on appeals, Tsy's forward value might be in the warrants.  If we lose, the sr pref has material cramdown risk into billions of common shares, on top of the warrants. 

[Guest cherzeca]

I dont see treasury negotiating with any Ps.  T's value is in warrants.  it has been paid off on senior prefs. so what if they lose collins? they will have get rid of senior prefs to recap anyhow.

 

what people dont seem to understand is that if treasury truly wants to recap GSEs, it is indifferent to the litigation re NWS.

 

if we win collins, depending on appeals, Tsy's forward value might be in the warrants.  If we lose, the sr pref has material cramdown risk into billions of common shares, on top of the warrants.

 

And no hope of recap. None of T’s stock represents capital. Only newly issued stock raises capital. Cram down of senior pref means no recap.

[Midas79]

And no hope of recap. None of T’s stock represents capital. Only newly issued stock raises capital. Cram down of senior pref means no recap.

 

Can't Treasury convert their seniors to common first and cancel the warrants, then allow themselves to be diluted by the equity raise afterward? They wouldn't get 80% of the companies in the end, but nobody really expects that to happen anyway, not even Moelis. The seniors and warrants have to be gone before anyone will help recap the companies.

[investorG]

I dont see treasury negotiating with any Ps.  T's value is in warrants.  it has been paid off on senior prefs. so what if they lose collins? they will have get rid of senior prefs to recap anyhow.

 

what people dont seem to understand is that if treasury truly wants to recap GSEs, it is indifferent to the litigation re NWS.

 

if we win collins, depending on appeals, Tsy's forward value might be in the warrants.  If we lose, the sr pref has material cramdown risk into billions of common shares, on top of the warrants.

 

And no hope of recap. None of T’s stock represents capital. Only newly issued stock raises capital. Cram down of senior pref means no recap.

 

while converting sr pref to (likely some far smaller $ amount vs. the $200bn) common wouldn't raise new capital, I don't see how it would prevent future capital from being raised.  it would just squeeze the ownership stake of existing shareholders. 

[orthopa]

I dont see treasury negotiating with any Ps.  T's value is in warrants.  it has been paid off on senior prefs. so what if they lose collins? they will have get rid of senior prefs to recap anyhow.

 

what people dont seem to understand is that if treasury truly wants to recap GSEs, it is indifferent to the litigation re NWS.

 

if we win collins, depending on appeals, Tsy's forward value might be in the warrants.  If we lose, the sr pref has material cramdown risk into billions of common shares, on top of the warrants.

 

And no hope of recap. None of T’s stock represents capital. Only newly issued stock raises capital. Cram down of senior pref means no recap.

 

Very true, None of Ts stock is capital. They will likely exercise and sell out over time  but how do you envision new capital coming in knowing they will get a 79.9% haircut in future? Is it just priced accordingly taking into account the 80% dilution?  What is the structure and flow of capital where new money doesnt get whacked by gov warrants?

[Guest cherzeca]

@IG

 

"it would just squeeze the ownership stake of existing shareholders." 

 

if T goes above 80%, first it would require consolidation of GSE's debt on US B/S.  but apart from that, it would crowd out both existing common and new common. 

 

man, if you are going to raise $150B in the capital markets, you sure dont want to be doing some of the things this board is suggesting.

[Midas79]

if T goes above 80%, first it would require consolidation of GSE's debt on US B/S.  but apart from that, it would crowd out both existing common and new common. 

 

This is why the warrants, or a senior-to-common cramdown, would have to happen before the equity raise. I'm also pretty sure that Treasury can structure their transactions to avoid the 80% threshold. Piecemeal sale of pre-raise common share to a buyer who knows they will be diluted later, etc.

 

It doesn't maximize Treasury's potential take, but the new commons won't even buy while the warrants or seniors exist at all. I don't think Treasury has a realistic path to anything close to $100B in warrant value, actually. Moelis is too optimistic.

[Guest cherzeca]

there comes a point where maximizing T's take is counterproductive.  T's existing 80% position won't become more valuable by increasing it to a say 90% position since the number and value of the shares needed to raise $150B of new capital is dependent on issuer's cash flow, which is not elastic like T's ability to cram down/dilute etc. there is an art to corporate finance which bankers like mnuchin/phillips understand. 

[Guest cherzeca]

my speculation would be that given dividend decision need not be made until 3/31 and Calabria may not be confirmed much before that and mnuchin is real busy on things Chinese right now and collins won't be decided for probably another 3 months, we are going into a multi-week lull now.  at least gasporino is tweeting...

[rros]

my speculation would be that given dividend decision need not be made until 3/31 and Calabria may not be confirmed much before that and mnuchin is real busy on things Chinese right now and collins won't be decided for probably another 3 months, we are going into a multi-week lull now.  at least gasporino is tweeting...

I have found Gasparino's article informative. Not that it says much, or is credible. But the fact that he mentions the WH moving into the lead. There is a chance this information is correct. Yet, a bit misunderstood.

 

That the WH is -or might be- getting involved is a first. Mulvaney, as WH chief of staff, and Calabria, a former WH person himself, both with strong positions on GSEs matters (one wrote a proposed bill, the other one HERA) make Gasparino's unofficial rumors believable.

 

What could be a misjudgment, in my view, is the idea that there is a conflict between Tsy and the WH regarding the direction this may go. Could Tsy instead voluntarily take a step back?

 

Given all we know I find it hard to believe that there is any friction between them and while Gasparino presented the article as somewhat negative, my bias aside, I see it in a positive light.