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

[muscleman]

@muscleman

 

I haven't seen any evidence that everyone thinks TA is voodoo. I think many don't understand what you do is all. What I have seen is that some people are curious about it, myself included. And I generally enjoy your posts.

Why don't you ever explain what you're doing, or provide a link to some illustrative instructional info?

 

 

Everybody relax... The big picture: back in the days of the Berko run from end of 2012 through Lamberth 2014 the 5 monthly ma contained all retracements. A history of 23 months. Today's 5 MMA for fnmas stands at $11.43, for fmckj at $11.31 and for fnmat at $10.74. We are well within normal retracement territory and likely July will test these levels. Preferreds just ran too fast, too strong. Nothing has changed.

 

No intention for insult, but if this is the kind of technical analysis you do, no wonder why you guys all think TA is just non-sense and voodoo.  :o

 

I think all investors (especially in GSEs) are trying to predict future events under conditions of uncertainty.  I typically use my research and life experience to make this analysis...very subjective.  I suppose reading charts is more objective, until you hear all of the subjective discussion about what is the right why to do TA.  I have seen TA that makes very precise assertions about future action and this is the part that seems delving into black magic.  but if it keeps you sane and even makes some money for you I'm all for it...for you

 

If you check all my prior posts, it tells you all.

But I can give you a summary here. I don't buy/sell a stock because a magic fast moving average crosses a slower moving average. That's complete non-sense.

What I do is to read the news and the FA, see who are bashing and pumping the stocks, and how the stock reacts.

 

I had high confidence when white house published the paper in March because no way white house would be involved in pumping the stock. Then a few days later, there was a big bash by Gaparino, and I was watching that closely. At the end of the day, the stock completely recovered, and later that week, I noticed that the volume happened to be the lowest that week on the Gapirino bashing day. So I was even more bullish on the stock.

Later it had a reasonable run, and I was still quite bullish, until the whack job Bill Maloni started spreading rumors that the Collins ruling was coming on Friday afternoon. That obviously didn't materialize, even on Monday. So that's a clear sign of warning. I waited for a few more days, and turned very bearish. I later decided to get out completely a few days after the Bloomberg sucker article with all kinds of false narratives came in. I thought that article was another bashing attempt like Gaspirino, which means stock should promptly recover and go to high grounds, but that didn't happen, so something else was going on. I sold out. Then Calabria changed his tune from "IPO in the 1st Quarter next year" to "Hopefully sometime next year". So that's a clear sign of negativity.

 

I still think a lot of discussions here make sense, so I am still closely watching this, hold a lot of cash, and be ready to get in again.

 

[DRValue]

Because of my confirmation bias, I sometimes like what Charlie says.

 

This is one of those times.

 

[muscleman]

Because of my confirmation bias, I sometimes like what Charlie says.

 

This is one of those times.

 

 

JP Morgan..... Isn't this the tbtf bank that tries to kill FnF?

 

Keep in mind that this is the exact reverse of what happened two months ago.

Back then, Gaspirino was bashing and stock was moving up. Now Gaspirino is pumping and stock is sliding down.

 

With that said, I actually agree with all the analysis you guys did, so I still personally believe the story will work out.

[DRValue]

Because of my confirmation bias, I sometimes like what Charlie says.

 

This is one of those times.

 

 

JP Morgan..... Isn't this the tbtf bank that tries to kill FnF?

 

Keep in mind that this is the exact reverse of what happened two months ago.

Back then, Gaspirino was bashing and stock was moving up. Now Gaspirino is pumping and stock is sliding down.

 

With that said, I actually agree with all the analysis you guys did, so I still personally believe the story will work out.

 

All we had to do with this is separate the facts that are reported and exclude the opinions of those with an axe to grind. Charlie doesn't matter, only the circumstance he reports.

 

But net positive I'd say.

 

As to why they met, could be a road show or moelis working with a book runner or scoping investor appetite. Any number of things.

[Wiggins]

in addition to Moelis also "top stock and bond holders"

 

Wow, who is that? Anyone here go?

[Luke 532]

Video...

https://video.foxbusiness.com/v/6053642882001/#sp=show-clips

[Guest cherzeca]

"JP Morgan..... Isn't this the tbtf bank that tries to kill FnF?"

 

I suppose that this meeting was with the investment banking folks at JPM, not there commercial lending folks...as in capital raise/stucturing...

[Guest cherzeca]

in addition to Moelis also "top stock and bond holders"

 

Wow, who is that? Anyone here go?

 

I'm peeved I was not invited

[muscleman]

"JP Morgan..... Isn't this the tbtf bank that tries to kill FnF?"

 

I suppose that this meeting was with the investment banking folks at JPM, not there commercial lending folks...as in capital raise/stucturing...

 

 

These guys help each other out though. The great wall between these departments is just fake.

I’d rather trust more if they are talking to Goldman for this IPO, but it is also possible that they need all banks to work together for such a huge raise.

 

I have a feeling that today maybe the low of this prolonged slide, but I don’t trade on feelings.

[Guest cherzeca]

@MM

 

nope.  these underwriting fees will make the investment bankers' decade. 

[orthopa]

I think the more important read through here is how granular the WH plan will be that is released and how fast things move. I think bringing in investment banks to discuss about an IPO is pretty telling about both. If things were going to take a while/drag and we were going to be playing more guessing games WH could easily put out a generic framework and leave us hanging once again. Talking with investment banks before the plan is out IMO says the plan will include "mile markers" for recapitalization as well as probably more specifics then we think about how much and when the captial raise will all happen.

[orthopa]

...and Moelis is essentially Paulson. Paulson is close to getting his payback for supporting Trump early before the election.

 

https://www.vanityfair.com/news/2016/11/john-paulson-trump-favor-to-ask

 

This and Mnuchin has been why this will happen since the day after the election.

[Guest cherzeca]

I think the more important read through here is how granular the WH plan will be that is released and how fast things move. I think bringing in investment banks to discuss about an IPO is pretty telling about both. If things were going to take a while/drag and we were going to be playing more guessing games WH could easily put out a generic framework and leave us hanging once again. Talking with investment banks before the plan is out IMO says the plan will include "mile markers" for recapitalization as well as probably more specifics then we think about how much and when the captial raise will all happen.

 

agreed.  I cant imagine JPM would hold this kind of meeting unless it has gotten a mandate, guessing from treasury. 

[orthopa]

I think the more important read through here is how granular the WH plan will be that is released and how fast things move. I think bringing in investment banks to discuss about an IPO is pretty telling about both. If things were going to take a while/drag and we were going to be playing more guessing games WH could easily put out a generic framework and leave us hanging once again. Talking with investment banks before the plan is out IMO says the plan will include "mile markers" for recapitalization as well as probably more specifics then we think about how much and when the captial raise will all happen.

 

agreed.  I cant imagine JPM would hold this kind of meeting unless it has gotten a mandate, guessing from treasury.

 

What just came to mind for me, and this has probably already been long decided, but does Mnuchin look across the table to Moelis (Paulson) and tell them they are getting unfavorable terms for their preferred shares? Whats the answer that best compensates Paulson for his early support/donations/and advisement? Now true we do not know if Paulson has bought common and is working that angle but he was only prfd when his quarterly report circulated a couple years back. Moelis is Paulson. Notice Ackman, Berkowitz dont have an inside seat the table. True they both stand to benefit and may put more capital to work in the offering but IMO this is an agreement between Paulson/Trump/Mnuchin that was made a long time ago finally coming together.

[Guest cherzeca]

I imagine Moelis reps Paulson and Blackstone, who were identified as its backers funding the Moelis Blueprint.  there are likely more holders of preferred as well.  I also imagine that they have already made it clear to phillips in broad terms what kind of deal would be acceptable to them.  I also imagine that these discussions, involving JPM, are getting more granular.  if JPM is repping treasury, they can even be discussing the possible terms of a transfer of some of treasury's warrants as an inducement for putting up an initial slug of capital.  the longest journey begins with a single step, and I think there should be a first step before the hard lifting of a public offering should be contemplated. if treasury knows what this first step looks like, then it can approach FHFA in a more definitive manner.

 

More detail from gaspo:  https://www.foxbusiness.com/financials/fannie-freddie-ipo-wall-street

 

75 investors attend meeting...so says gaspo.  capital markets lawyer and the three Moelis guys (including Parsons) address them.  this now sounds more like an informational meeting than a negotiation

[hardincap]

Yep this means nothing, unfortunately. Moelis has hosted these types of info sessions before.

[Guest cherzeca]

Yep this means nothing, unfortunately. Moelis has hosted these types of info sessions before.

 

I dont disagree  but why at JPM?  still seems to me that JPM wouldn't be holding this meeting now if it didn't have some formal mandate

[hardincap]

Jpm hosts these kind of sessions for its institutional clients all the time. No one in Jpm side in attendance would be privy to engagements w treasury, if any

[Guest cherzeca]

Jpm hosts these kind of sessions for its institutional clients all the time. No one in Jpm side in attendance would be privy to engagements w treasury, if any

 

meh.  bankers put institutional investors together with issuers that the banker has a relationship with.  if JPM doesn't have a relationship with treasury/fhfa with respect to a prospective GSE deal then I dont see them setting this up.  you need a sniff of a fee to go to the trouble. on the other hand, the fee potential for this capital raise may be large enough for JPM to do some pure prospecting.  so more wait and see.

[muscleman]

It just occurred to me that a lot of you seem to have high hopes on the to be released treasury plan and expect price to sky rocket when it is released.

What puzzles me is why Calabria mentioned previously that there will be a separate negotiation with Treasury regarding the net worth sweep later this year around October? If that's the case, then doesn't that mean that the treasury plan to be released will either be after October, or it will be released in July without touching this hardest part of the game?

[Guest cherzeca]

It just occurred to me that a lot of you seem to have high hopes on the to be released treasury plan and expect price to sky rocket when it is released.

What puzzles me is why Calabria mentioned previously that there will be a separate negotiation with Treasury regarding the net worth sweep later this year around October? If that's the case, then doesn't that mean that the treasury plan to be released will either be after October, or it will be released in July without touching this hardest part of the game?

 

treasury plan may well be more general than specific.  both treasury and fhfa have to maintain the position that fhfa is an independent agency running the conservatorship, and running the exit from the conservatorship. fhfa will do its thing on capital, but the deal "to be" negotiated between treasury and fhfa I suspect has largely been agreed to...subject to market realities. as hardincap points out, the JPM meeting is getting market reaction and input to determine what those market realties might be.  I only differ from hardincap insofar as I think it strange that an investment bank like JPM would host a large market information meeting like this without have some mandate already given to it.

[orthopa]

It just occurred to me that a lot of you seem to have high hopes on the to be released treasury plan and expect price to sky rocket when it is released.

What puzzles me is why Calabria mentioned previously that there will be a separate negotiation with Treasury regarding the net worth sweep later this year around October? If that's the case, then doesn't that mean that the treasury plan to be released will either be after October, or it will be released in July without touching this hardest part of the game?

 

Of course the more specific the plan the better. The memorandum calls for liquidity requirement recommendations which may give a glimpse of what the capital raise may look like. That would more likely reflect on common price and assumption of dilution. The market may bid up the preferred once a road map is established as those who are impatient will feel more comfortable laying down money for a more concrete future. If the plan gives windows or aspiration for capital raise in light of the capital needed that should bump the price too.  Of course the more details the better but IMO it will take a combination of the specific capital raise numbers, NWS ending and assumed conversion plan for the prfd to trade at par. Any dividend discussion although very unlikely IMO would let them trade above par I believe.

 

Maybe Im in the minority here but to me its a foregone conclusion that the NWS will stop, capital will be built yada yada. Its just time to wait to see when it is that we get the final terms. Its just waiting to see what Mnuchin, Trump, Paulson came up with before the election and how favorable the terms are.

[Guest cherzeca]

I wouldn't say forgone conclusion but I would say it is highly likely the administration will go forward with a plan without waiting for congress.  now, do the equity markets tank in the meantime? does congress try to do something stupid (jumpstart-ish)? what will be the conversion rate (will juniors get par value conversion)? does calabria come up with a stupid capital target (which may actually improve the junior conversion rate...common price goes down...but also may put the capital raise in jeopardy)?  so lots still to unfold.

[Midas79]

I wouldn't say forgone conclusion but I would say it is highly likely the administration will go forward with a plan without waiting for congress.  now, do the equity markets tank in the meantime? does congress try to do something stupid (jumpstart-ish)? what will be the conversion rate (will juniors get par value conversion)? does calabria come up with a stupid capital target (which may actually improve the junior conversion rate...common price goes down...but also may put the capital raise in jeopardy)?  so lots still to unfold.

 

Speaking of the conversion rate, are the juniors going to care what price the IPO is set at as long as they get par? I didn't understand the latest Moelis plan, which called for juniors to get 2 or even fewer than 2 commons for every $25 in par value, even though the market ratio far exceeded that. The comments by orthopa about the preferred holders wanting to win versus the commons, not just getting par, has me thinking.

 

I also don't see why the IPO would be conducted at prices 4-5 times what we see now. Won't the price be set by the market, and if so why assume such a high price? Why would the preferred shareholders behind the Moelis plan come out with something that advantages the commons so much more?

[Guest cherzeca]

I wouldn't say forgone conclusion but I would say it is highly likely the administration will go forward with a plan without waiting for congress.  now, do the equity markets tank in the meantime? does congress try to do something stupid (jumpstart-ish)? what will be the conversion rate (will juniors get par value conversion)? does calabria come up with a stupid capital target (which may actually improve the junior conversion rate...common price goes down...but also may put the capital raise in jeopardy)?  so lots still to unfold.

 

Speaking of the conversion rate, are the juniors going to care what price the IPO is set at as long as they get par? I didn't understand the latest Moelis plan, which called for juniors to get 2 or even fewer than 2 commons for every $25 in par value, even though the market ratio far exceeded that. The comments by orthopa about the preferred holders wanting to win versus the commons, not just getting par, has me thinking.

 

I also don't see why the IPO would be conducted at prices 4-5 times what we see now. Won't the price be set by the market, and if so why assume such a high price? Why would the preferred shareholders behind the Moelis plan come out with something that advantages the commons so much more?

 

my guess is that the major junior holders have argued like this:  first, if you want to give us par in cash, that's fine. second, seeing that you dont want to do that and you would prefer to level the capital structure, we will convert into common at the re-IPO price.  third, since you need 2/3rds of each class to force conversion and you need to settle lawsuits, we have these various other items to discuss (high on my list would be getting the $20B or so back into the companies beyond the 10% moment).

 

now if the re-IPO price sinks, the junior who is about  to convert is protected by getting more common shares.

 

this is a very straightforward scenario in my view