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

[rros]

I don't know if this has any significance, but FNMAS and FMCKJ are right at their 52-week highs, while the less liquid prefs are around 10% under, and the commons 18% under.

Perhaps a matter of liquidity. When they all broke out in March-April 2013 the illiquid ones had the largest gains that month and upon profit taking one month later the most liquid ones closed the lowest literally losing all their gains. The illiquid, instead, lost half (I confess, I only looked at fnmas, fmckj and fnmat). Less players may mean large breakouts and -proportionally- less profit taking. But a poor run just before take off. Maybe what you are seeing is 2 trades getting crowded.

[Guest cherzeca]

fnmas at a 5 year high

 

@muscleman...is this a buy or sell signal

 

edit:  another thought:  over last three months (ie since notion that some sort of Admin reform might be forthcoming), fnmas is up 41% and fnma is up 18%.  anyone think this informs what we can expect the admin reform plan to be? (ie conversion of junior to common...which depending on terms may not be disadvantageous to common)

[Midas79]

I can't understand why FMCKJ trades below FNMAS. They both have call protection in that they can only be called once every 5 years, but FNMAS's call date is at the end of 2020 and FMCKJ's is at the end of 2022. Perhaps it's the same reason that FNMA trades above FMCC, even though I don't think there's a reason to prefer one over the other at the moment.

 

What we're seeing here is a flight to quality, and higher dividends in particular. The Fannie 25s are starting to distance themselves from the Freddie 25s and Fannie 50s, at least compared to the compression we have seen recently. FNMAT had been trading near parity with FNMAJ a few months ago, too.

 

FNMAI and FNMAJ trading at parity right now still confuses me, though. FNMAI trades above the Fannie 50s, ostensibly due to its higher dividend rate. Therefore FNMAJ should be a clear preference, but it isn't. If I had any FNMAI shares, I would sell them to buy FNMAJ easily.

[Luke 532]

Adolfo Marzol to be Calabria's principal deputy director.

[DRValue]

I can't understand why FMCKJ trades below FNMAS. They both have call protection in that they can only be called once every 5 years, but FNMAS's call date is at the end of 2020 and FMCKJ's is at the end of 2022. Perhaps it's the same reason that FNMA trades above FMCC, even though I don't think there's a reason to prefer one over the other at the moment.

 

What we're seeing here is a flight to quality, and higher dividends in particular. The Fannie 25s are starting to distance themselves from the Freddie 25s and Fannie 50s, at least compared to the compression we have seen recently. FNMAT had been trading near parity with FNMAJ a few months ago, too.

 

FNMAI and FNMAJ trading at parity right now still confuses me, though. FNMAI trades above the Fannie 50s, ostensibly due to its higher dividend rate. Therefore FNMAJ should be a clear preference, but it isn't. If I had any FNMAI shares, I would sell them to buy FNMAJ easily.

 

I own mainly fnmaj.  They've always generally been cheaper.

[muscleman]

fnmas at a 5 year high

 

@muscleman...is this a buy or sell signal

 

edit:  another thought:  over last three months (ie since notion that some sort of Admin reform might be forthcoming), fnmas is up 41% and fnma is up 18%.  anyone think this informs what we can expect the admin reform plan to be? (ie conversion of junior to common...which depending on terms may not be disadvantageous to common)

 

Strong sell! Sell all your positions to me!  ;)

 

Based on the price actions, I think we would expect preferred on par or close to par and a lot of dilution for the common. Don't under estimate the power of efficient market hypothesis. I don't agree with it, but I do think it has a lot of merits.

 

[Guest cherzeca]

fnmas at a 5 year high

 

@muscleman...is this a buy or sell signal

 

edit:  another thought:  over last three months (ie since notion that some sort of Admin reform might be forthcoming), fnmas is up 41% and fnma is up 18%.  anyone think this informs what we can expect the admin reform plan to be? (ie conversion of junior to common...which depending on terms may not be disadvantageous to common)

 

Strong sell! Sell all your positions to me!  ;)

 

Based on the price actions, I think we would expect preferred on par or close to par and a lot of dilution for the common. Don't under estimate the power of efficient market hypothesis. I don't agree with it, but I do think it has a lot of merits.

 

right, I think market sees juniors diluting common, then govt warrants diluting everyone. it may be so but that sets up for a possible surprise when some kind of plan comes out.  I think if you want to trade around a mostly junior position it makes sense at these levels to have some exposure to common

[muscleman]

fnmas at a 5 year high

 

@muscleman...is this a buy or sell signal

 

edit:  another thought:  over last three months (ie since notion that some sort of Admin reform might be forthcoming), fnmas is up 41% and fnma is up 18%.  anyone think this informs what we can expect the admin reform plan to be? (ie conversion of junior to common...which depending on terms may not be disadvantageous to common)

 

Strong sell! Sell all your positions to me!  ;)

 

Based on the price actions, I think we would expect preferred on par or close to par and a lot of dilution for the common. Don't under estimate the power of efficient market hypothesis. I don't agree with it, but I do think it has a lot of merits.

 

right, I think market sees juniors diluting common, then govt warrants diluting everyone. it may be so but that sets up for a possible surprise when some kind of plan comes out.  I think if you want to trade around a mostly junior position it makes sense at these levels to have some exposure to common

 

Well, I am a momo "investor" now, so I wouldn't touch anything that goes down. Value investing is doing the opposite, so that's why you may be excited about buying a falling common, but I would not do that. I have my strict entry rules. So strict that sometimes I had to pass on good opportunities. On March 22nd 2019 for example, I messaged another member about the bottom likely in, but I didn't buy there because it hasn't fit all of my rules for an entry point. Later it did turn out to be the bottom but that's ok.

In the past when I was a value investor, I'd be upset and swearing why the hell I miss the bottom, and since it is up so much from the bottom, I would not touch it now unless it goes back down there. A lot of times it just never comes back down, and I would see the stock going up 100% without me. Eventually I decided to give up value investing because it is so out of sync with my genetics.

 

[Luke 532]

In the past when I was a value investor, I'd be upset and swearing why the hell I miss the bottom, and since it is up so much from the bottom, I would not touch it now unless it goes back down there. A lot of times it just never comes back down, and I would see the stock going up 100% without me. Eventually I decided to give up value investing because it is so out of sync with my genetics.

 

To be fair, trying to time the market and catch the bottom is not value investing.  Value investing doesn't care what previous price action took place (i.e. the bottom).  It cares about what the stock trades at compared to the intrinsic value of the underlying company.  That's it.

[Luke 532]

In the past when I was a value investor, I'd be upset and swearing why the hell I miss the bottom, and since it is up so much from the bottom, I would not touch it now unless it goes back down there. A lot of times it just never comes back down, and I would see the stock going up 100% without me. Eventually I decided to give up value investing because it is so out of sync with my genetics.

 

MM, re-read what you said in this paragraph.  I think you DO have the makings of a successful value investor if you are able to overcome the emotional struggle of not catching the bottom.  Look, I've been there.  It stinks paying more today for something I could have had cheaper yesterday, but it is what it is. Why not pay 10% or 20% more over and above the bottom price when the stock, as you've experienced a lot of times, would double from the low?  Is that additional 80%+ not worth trying to work on the emotional discipline of getting over the disappointment of not catching the bottom?  I would think you'd agree that it is a worthwhile discipline to try to get a handle on given you were in the right place at the right time a lot of times... but missed it because of something that you can work on with some effort.

[Guest cherzeca]

MM/Luke

 

I find framing to be an important concept in investing, as it is in negotiations.  any investing action is an opportunity to make a mistake or to be "right".  if you go through a careful process. that you think is diligent and thoughtful, and that is consistent with your emotional makeup  and financial wherewithal, then your action is not a "mistake" even if the outcome is negative. so the key is to find a process that is about as rigorous as you can make it and stick to it. 

[hardincap]

the problem with value investors is 99% of them think they have an edge and know better than others, when they are really deluding themselves (most often by copying other "value investor" ideas). the other 1% sit on their ass and do nothing but read. they become world class experts in their sectors. be honest, are you part of the 1%? (id argue that no one in this thread are true honest to god value investors). and if you're not, you need to be humble and incorporate some technical analysis - a fancy term that just means take heed of what the whales and smart $ is doing.

[Guest cherzeca]

interestingly, I think GSE prefs are a prototypical value investment.  which I think makes us value investors.  disjunction between intrinsic and market value.  I dont think I have spent 1% of my time analyzing the GSE business as a business, so in a sense GSEs are a different kind of value investment (although I think most value investors would take comfort in the GSEs consistency, at least post FC).  here the disjunction is either real (legal/political/TINA) or not, but I dont think we are fooling ourselves or following smart money (if you are you are real late).  which is why I have been thinking about MM's approach in this name.  I dont get it but it seems to work for MM.

[orthopa]

lots of volume early in the morning in FNMAS FWIW.

[locutusoftexas]

interestingly, I think GSE prefs are a prototypical value investment.  which I think makes us value investors.  disjunction between intrinsic and market value.  I dont think I have spent 1% of my time analyzing the GSE business as a business, so in a sense GSEs are a different kind of value investment (although I think most value investors would take comfort in the GSEs consistency, at least post FC).  here the disjunction is either real (legal/political/TINA) or not, but I dont think we are fooling ourselves or following smart money (if you are you are real late).  which is why I have been thinking about MM's approach in this name.  I dont get it but it seems to work for MM.

 

I am confident that your understanding of the business and the legal aspects is world class and perhaps unique. The business itself, as described by Peter Lynch many years ago, has very high intrinsic value, and owning these equities was a significant contributor to his reputation. However, after the government took the companies, the equities (common or preferred) were in no way a value investment. While we could argue the details, the easiest way to see this is that, if the equities had been a true value investment, Warren Buffett would not have sold out. Based on what I read,  he obviously computed the expected value of the equities to be far below his selling price. He would certainly have accounted for the time value of money and the massive political uncertainty in coming to this decision. Viewed from the present, he was absolutely faithful to his credentials as the greatest value investor in history.

 

Rather, this was a rank speculation of the smelliest kind. It failed every standard criterion of value investing. Given the continuing political and legal uncertainty, predicting the payoff and time frame still has a very low probability of success. More power to rros for holding the winning lottery ticket, but it only pays off if it is sold. In a rank speculation, greed is often a very bad attribute. A 10+ bagger in hand seems far more valuable than a potential 25+ bagger in the bush, so to speak.

[Luke 532]

BREAKING: Treasury Dept & Dept of Housing & Urban Development are expected to deliver reports on their ideas for overhauling Fannie Mae & Freddie Mac in “weeks, not months,” Andrew Olmem, deputy director of the National Economic Council, says Wednesday #FannieGate $FNMA $FNMAS

[hardincap]

big purchases near open, then big sale post news during last few minutes of trading. hmm

 

[Guest cherzeca]

interestingly, I think GSE prefs are a prototypical value investment.  which I think makes us value investors.  disjunction between intrinsic and market value.  I dont think I have spent 1% of my time analyzing the GSE business as a business, so in a sense GSEs are a different kind of value investment (although I think most value investors would take comfort in the GSEs consistency, at least post FC).  here the disjunction is either real (legal/political/TINA) or not, but I dont think we are fooling ourselves or following smart money (if you are you are real late).  which is why I have been thinking about MM's approach in this name.  I dont get it but it seems to work for MM.

 

I am confident that your understanding of the business and the legal aspects is world class and perhaps unique. The business itself, as described by Peter Lynch many years ago, has very high intrinsic value, and owning these equities was a significant contributor to his reputation. However, after the government took the companies, the equities (common or preferred) were in no way a value investment. While we could argue the details, the easiest way to see this is that, if the equities had been a true value investment, Warren Buffett would not have sold out. Based on what I read,  he obviously computed the expected value of the equities to be far below his selling price. He would certainly have accounted for the time value of money and the massive political uncertainty in coming to this decision. Viewed from the present, he was absolutely faithful to his credentials as the greatest value investor in history.

 

Rather, this was a rank speculation of the smelliest kind. It failed every standard criterion of value investing. Given the continuing political and legal uncertainty, predicting the payoff and time frame still has a very low probability of success. More power to rros for holding the winning lottery ticket, but it only pays off if it is sold. In a rank speculation, greed is often a very bad attribute. A 10+ bagger in hand seems far more valuable than a potential 25+ bagger in the bush, so to speak.

 

Fair points although I think it is fair to say that it is very hard to find a value investment post graham cigar butt days without some speculative risk that the perceived catalyst won’t occur. One person’s rank smell is another person’s perfume

[muscleman]

big purchases near open, then big sale post news during last few minutes of trading. hmm

 

That's a strong sell signal. Sell all your positions to me.  ;)

 

Just kidding....

 

Nowadays more and more trades happened in the dark pool, and the volume is not reported in real time. However, due to regulations, they have to be reported some time after market close, so that's why on 1 minute chart, you'll see a sudden huge volume spike after market close, at a price that may not be meaningful. This is when the dark pool reports are aggregated. This is why daily chart is the minimum time frame I look at.

 

 

[rros]

Rather, this was a rank speculation of the smelliest kind...

Totally agree.

In a rank speculation, greed is often a very bad attribute.

Food for thought, Locus. Thank you.

[muscleman]

In the past when I was a value investor, I'd be upset and swearing why the hell I miss the bottom, and since it is up so much from the bottom, I would not touch it now unless it goes back down there. A lot of times it just never comes back down, and I would see the stock going up 100% without me. Eventually I decided to give up value investing because it is so out of sync with my genetics.

 

MM, re-read what you said in this paragraph.  I think you DO have the makings of a successful value investor if you are able to overcome the emotional struggle of not catching the bottom.  Look, I've been there.  It stinks paying more today for something I could have had cheaper yesterday, but it is what it is. Why not pay 10% or 20% more over and above the bottom price when the stock, as you've experienced a lot of times, would double from the low?  Is that additional 80%+ not worth trying to work on the emotional discipline of getting over the disappointment of not catching the bottom?  I would think you'd agree that it is a worthwhile discipline to try to get a handle on given you were in the right place at the right time a lot of times... but missed it because of something that you can work on with some effort.

 

Thank you for your kind words. I have tried this for 8 years and in the end, realized that I am not suitable for it. I've known lots of kind people who were willing to help, including an analyst from Lu Li's fund, but that's ok. I really like what I am currently doing with technical analysis and trading, and happy with it.

 

[SnarkyPuppy]

In the past when I was a value investor, I'd be upset and swearing why the hell I miss the bottom, and since it is up so much from the bottom, I would not touch it now unless it goes back down there. A lot of times it just never comes back down, and I would see the stock going up 100% without me. Eventually I decided to give up value investing because it is so out of sync with my genetics.

 

MM, re-read what you said in this paragraph.  I think you DO have the makings of a successful value investor if you are able to overcome the emotional struggle of not catching the bottom.  Look, I've been there.  It stinks paying more today for something I could have had cheaper yesterday, but it is what it is. Why not pay 10% or 20% more over and above the bottom price when the stock, as you've experienced a lot of times, would double from the low?  Is that additional 80%+ not worth trying to work on the emotional discipline of getting over the disappointment of not catching the bottom?  I would think you'd agree that it is a worthwhile discipline to try to get a handle on given you were in the right place at the right time a lot of times... but missed it because of something that you can work on with some effort.

 

Thank you for your kind words. I have tried this for 8 years and in the end, realized that I am not suitable for it. I've known lots of kind people who were willing to help, including an analyst from Lu Li's fund, but that's ok. I really like what I am currently doing with technical analysis and trading, and happy with it.

 

How did you get in contact with an analyst from Li Lu's fund?

[muscleman]

 

How did you get in contact with an analyst from Li Lu's fund?

 

The analyst is my buddy's MBA classmate.

Lu Li moved to Seattle last summer. I work in a company that rented a few floors in a big building that a few other companies share with. Lu Li rented one floor as well. I have even met him and his two daughters once in the elevator and shake hands with him.  :)

 

[Jcmeg35]

For those that have not seen it:

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

 

I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?

 

Excerpt:

"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation

 

“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"

[rros]

For those that have not seen it:

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

 

I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?

 

Excerpt:

"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation

 

“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"

Charters and paid-for government guarantee may require legislation. Modifying PSPAs doesn't (commitment fee, nws, etc.).