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

[Guest cherzeca]

at the risk of stating the obvious, cancelling the NWS and senior prefs is much more important than timing of the exit. calabria/mnuchin may have disappointed on timing, but  so far they (or at least calabria) have been very very consistent on letting the entities rebuild capital. as soon as that starts, prefs should recover to 60-75% par. there are too many variables to be confident about 90%+ par recovery in the short term, imo. but thats okay, 60-75% par is still great in my book, especially considering my cost basis is <15% par. and thats what MOS is all about. sometimes you gotta tune out the noise and keep it simple.

 

1. what's MOS?

2.  I think if the recap process actually gets underway in the next 3 months, ie NWS stopped and negotiations begin on cancelling the sr. prefs (and for giggles some kind of victory in collins), I think the jps pricing will advance beyond what might otherwise be considered fair value...so yes I would go with your 60-75% range, maybe even higher.  this may set up for future disappointment of course, but once the admin starts doing rather than talking, I think you are going to see plenty of LIFOs come back and heat the space up

[hardincap]

margin of safety.

 

barring actions by treasury toward IPO in the near future, the prefs are a clear sell to me at 60-75% par. i strongly believe that while one can make decent money on these types of special situations, the real big money is made by investing in businesses that have excellent economics and long runway, and then sitting on your ass and watching it compound. the opportunity cost of holding out for the last 5, 10% of par is too high, unless as i stated there are clear actions taken toward IPO/conversion

[Guest cherzeca]

"the real big money is made by investing in businesses that have excellent economics and long runway, and then sitting on your ass and watching it compound."

 

sounds like the GSEs once recapped.

 

I haven't thought through things GSE that far ahead, for obvious reasons given the gyrations of events, but I would love to be able to have my jps convert into common at a favorable rate and then hold that common for a long time...

[hardincap]

the business is way too complicated for me to understand well, and then theres the politics. so too hard pile for me. ill keep a little for fun though. more if buffett buys in (doubt it).

[Guest cherzeca]

politics affects a lot of businesses.  Pharma, FANGs etc. understanding that politicians like

to make noise, prices can be buffeted.  one way of looking at the GSEs is that if they can get recapped, what better proof that all of that congressional/tbtf lobbying hatred is much ado about very little. 

[investorG]

it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

there's no urgency to buy and plenty of people urgently want out.

It looks like it was the bottom, as per this weekly close. Which topped the 34 weekly ma. Likely, we will regain the 5 monthly ma for the Jrs. FNMAS sits at $11.27 and FMCKJ at $ 11.16 and continue the bullish run started on October last year. Hopefully, nobody has sold their shares.

 

Recent comments by Gasparino on Calabria (thank you, Luke) may indicate the administration is still on the side of shareholders trying to put together the fact that c-ship is hard to terminate (or cannot) while shareholders must be made right. I can totally see the FHFA trying to achieve some kind of co-existence between Treasury (taxpayers) and us, with Treasury agreeing on sharing profits. This looks like a "second attempt". A new twist to throw us a bone.

 

it may be premature for confidence that this week was the bottom as actual events / quotes carry more weight than speculative tweets.

[Guest cherzeca]

the problem with the trump admin is that these speculative tweets by gaspo are not inconsistent with SOP that we have seen from this administration.  the administration is understaffed by competent advisors and encumbered by poseurs seeking influence.  the whole notion of kudlow involved as a gatekeeper in this process is remarkable, for those who have watched him flame out as a tv talking head. the only guy for my money that can do anything is mnuchin, and that seems to be apparent within the administration as well as sending the treasury plan to POTUS (through kudlow) means you own the plan, and with phillips on the beach now, no one is going to get near the plan but Mnuchin.  my bet is that calabria sees all of this lackey dysfunction and will make a power play for control over the process once the plan is publicized.  I have my problems with calabria too but this may turn out to be providential.

 

my hope is that once the treasury plan is publicized and the recap begins with negotiation between fhfa and treasury, actions will supplant rumor and gaspo will have fewer poseurs to leach from

[rros]

it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

there's no urgency to buy and plenty of people urgently want out.

It looks like it was the bottom, as per this weekly close. Which topped the 34 weekly ma. Likely, we will regain the 5 monthly ma for the Jrs. FNMAS sits at $11.27 and FMCKJ at $ 11.16 and continue the bullish run started on October last year. Hopefully, nobody has sold their shares.

 

Recent comments by Gasparino on Calabria (thank you, Luke) may indicate the administration is still on the side of shareholders trying to put together the fact that c-ship is hard to terminate (or cannot) while shareholders must be made right. I can totally see the FHFA trying to achieve some kind of co-existence between Treasury (taxpayers) and us, with Treasury agreeing on sharing profits. This looks like a "second attempt". A new twist to throw us a bone.

 

it may be premature for confidence that this week was the bottom as actual events / quotes carry more weight than speculative tweets.

Yes, premature, you are correct. Eyes on the monthly close and more definite news.

[muscleman]

it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

there's no urgency to buy and plenty of people urgently want out.

It looks like it was the bottom, as per this weekly close. Which topped the 34 weekly ma. Likely, we will regain the 5 monthly ma for the Jrs. FNMAS sits at $11.27 and FMCKJ at $ 11.16 and continue the bullish run started on October last year. Hopefully, nobody has sold their shares.

 

Recent comments by Gasparino on Calabria (thank you, Luke) may indicate the administration is still on the side of shareholders trying to put together the fact that c-ship is hard to terminate (or cannot) while shareholders must be made right. I can totally see the FHFA trying to achieve some kind of co-existence between Treasury (taxpayers) and us, with Treasury agreeing on sharing profits. This looks like a "second attempt". A new twist to throw us a bone.

 

it may be premature for confidence that this week was the bottom as actual events / quotes carry more weight than speculative tweets.

Yes, premature, you are correct. Eyes on the monthly close and more definite news.

 

Now that I have decided not to talk about TA anymore here, you are suddenly a TA expert and advise people what to look for now?  ;)

You are just using TA to rationalize holding your positions. That's the reality.

[undervalued]

Let’s be friendly and focus on the goal (making money). I sincerely appreciate everyone’s discussion TA or FA.

 

For the record, since this bull run began you have been spot on Muscle, hope you made some nice gains. I also know you had intentions to help with TA and not mislead. Thank you for that.

[muscleman]

Let’s be friendly and focus on the goal (making money). I sincerely appreciate everyone’s discussion TA or FA.

 

For the record, since this bull run began you have been spot on Muscle, hope you made some nice gains. I also know you had intentions to help with TA and not mislead. Thank you for that.

 

Sure. I was trying to help people. It didn't work. That's ok.

I guess there is still one thing that I think is really important to point out. Ego is the least important thing in this game. I'd rather get slapped by any random person online than by Mr. market. I know I can't avoid being slapped by Mr. market 100% of the time, but I want to minimize it.

I am surprised to see people getting upset when they got criticized. For me, I welcome any criticism, and I question my own process everyday, which is what eventually made me abandon the pure FA approach.

 

I wanted to make the point that making money in the stock market is a serious game. When Mr. market slaps you, he will not gently pat your head and say, it's ok baby, let's start again. Ego driven investors are so eager to be right that they would stick to their original view to death, and whenever things came against their view, they would just keep rationalizing those. I used to be one of those folks, but I am not anymore. I was ultra bullish on FNMAS and even told my mundane friends and my boss at work to buy it, until early June when I switched to bearish and sold out.

 

I recommend people here read the book "what i learned losing a million dollars" and see if you can benefit from it.

 

[Guest cherzeca]

@MM

 

all I think I have seen in last couple weeks is one signal (2 month delay in treasury plan) and a lot of noise (mostly gaspo).  to me there is no story here in this deepish drawdown over past week and some impressive fight back today (again, both mostly gaspo driven to the extent I can pinpoint anything).  I was wondering if you think today's action (up 7% in fnma) is inconsequential or meaningful from a TA perspective. and why?

 

I am comfortable with the notion that the market is can be an emotionally wrought system at times, and certainly this investment can move willy-nilly at a drop of a hat at anytime...which is why I try to focus on FA.  but curious whether you think this 7% retracement after a weekend to think about things has changed your views on the name

[Midas79]

@cherzeca

 

I know you didn't ask me, but my theory as to why FNMAS went up 7% and FNMA was flat is that the market has decided that FNMAS should be roughly 4.5 times as valuable as FNMA; that's the average over the last three months. That ratio skewed down to just over 4 last Thursday but has now corrected back to that level with today's FNMAS move.

 

I don't think this is a powerful enough trend to trade on, such as shorting one of FNMAS and FNMA and going long the other whenever the ratio varies significantly from 4.5, because big news can cause a big regime change.

 

 

 

As an aside, for a while I have tracked what I call the commons' implied ceiling, or what price the commons would trade at if the prefs go to par and the commons gain the same percentage. Compared to the liquid prefs it is around $5.40 right now, and around $6.50 for the less liquid prefs.

[Guest cherzeca]

@midas

 

as I recall moelis came up with a little more than $6 for common, vs par for juniors, which is about 4x

[Midas79]

The budget deal should be good news. That's one huge item off of Mnuchin's plate.

[muscleman]

@MM

 

all I think I have seen in last couple weeks is one signal (2 month delay in treasury plan) and a lot of noise (mostly gaspo).  to me there is no story here in this deepish drawdown over past week and some impressive fight back today (again, both mostly gaspo driven to the extent I can pinpoint anything).  I was wondering if you think today's action (up 7% in fnma) is inconsequential or meaningful from a TA perspective. and why?

 

I am comfortable with the notion that the market is can be an emotionally wrought system at times, and certainly this investment can move willy-nilly at a drop of a hat at anytime...which is why I try to focus on FA.  but curious whether you think this 7% retracement after a weekend to think about things has changed your views on the name

 

I will message you. I am not gonna talk about TA here anymore.

[DRValue]

The budget deal should be good news. That's one huge item off of Mnuchin's plate.

 

Awesome. I didn't think they'd get it done. I was going to post about it yesterday but didn't cos of that.

 

Imo it definitely needed sorting before moving on the gse's. If it passes the house this week, after the senate next week we should be good to go on reform plan release.

 

I expect Calabrias movement on plan release date could have been due to uncertainty of when the budget would pass.

[Steve_Berk]

I wish you would. I know some didn't like it, but I appreciated it. for those who don't like technical analysis, they can just skip it, right?

 

@MM

 

all I think I have seen in last couple weeks is one signal (2 month delay in treasury plan) and a lot of noise (mostly gaspo).  to me there is no story here in this deepish drawdown over past week and some impressive fight back today (again, both mostly gaspo driven to the extent I can pinpoint anything).  I was wondering if you think today's action (up 7% in fnma) is inconsequential or meaningful from a TA perspective. and why?

 

I am comfortable with the notion that the market is can be an emotionally wrought system at times, and certainly this investment can move willy-nilly at a drop of a hat at anytime...which is why I try to focus on FA.  but curious whether you think this 7% retracement after a weekend to think about things has changed your views on the name

 

I will message you. I am not gonna talk about TA here anymore.

[Ahab]

Ditto, you have a different approach then most of us MM, but it adds to viewpoint diversity.

[muscleman]

Ditto, you have a different approach then most of us MM, but it adds to viewpoint diversity.

 

You should not need view point diversity. All you need to do is to find out what best works for you, and keep improving on that.

What I see from some folks here are the short comings:

1. Do a small amount of research, and instead of working out various scenarios, just focus on the optimal scenario (Par value, Par value, Par value!)

2. When things go against him, rationalize on why it is still a buy, and possible even a better buy here.

3. Tell himself to never sell, because that means lack of conviction.

 

The greatest traders do really hard work, and be open minded about the various outcomes, while amateurs do small amount of lousy work, and be rigid about the outcome. When other people mention different alternative outcomes, he immediately treat these people as threatening, and use hostile languages against them, which is a reflection of his fear against these possible outcomes.

 

I've been learning investing since 2009. The above is exactly what I was doing myself for the first 9 years. I am no longer making these mistakes. My previous posts only served one purpose. I wanted to use this real time example to show people what mistakes they could be making, and how to fix those, and also use this live example to remind myself never to repeat these mistakes again. A few people got pissed. That's fine. Mr. Market will teach them.

 

[buffetteer1984]

I appreciated your TA and felt it gave a different perspective on the "trade".  But honestly, if you want to message people privately that is fair but enough with the condescending remarks. 

 

Ditto, you have a different approach then most of us MM, but it adds to viewpoint diversity.

 

You should not need view point diversity. All you need to do is to find out what best works for you, and keep improving on that.

What I see from some folks here are the short comings:

1. Do a small amount of research, and instead of working out various scenarios, just focus on the optimal scenario (Par value, Par value, Par value!)

2. When things go against him, rationalize on why it is still a buy, and possible even a better buy here.

3. Tell himself to never sell, because that means lack of conviction.

 

The greatest traders do really hard work, and be open minded about the various outcomes, while amateurs do small amount of lousy work, and be rigid about the outcome. When other people mention different alternative outcomes, he immediately treat these people as threatening, and use hostile languages against them, which is a reflection of his fear against these possible outcomes.

 

I've been learning investing since 2009. The above is exactly what I was doing myself for the first 9 years. I am no longer making these mistakes. My previous posts only served one purpose. I wanted to use this real time example to show people what mistakes they could be making, and how to fix those, and also use this live example to remind myself never to repeat these mistakes again. A few people got pissed. That's fine. Mr. Market will teach them.

 

[Midas79]

What I see from some folks here are the short comings:

1. Do a small amount of research, and instead of working out various scenarios, just focus on the optimal scenario (Par value, Par value, Par value!)

2. When things go against him, rationalize on why it is still a buy, and possible even a better buy here.

3. Tell himself to never sell, because that means lack of conviction.

 

The greatest traders do really hard work, and be open minded about the various outcomes, while amateurs do small amount of lousy work, and be rigid about the outcome. When other people mention different alternative outcomes, he immediately treat these people as threatening, and use hostile languages against them, which is a reflection of his fear against these possible outcomes.

 

Enough with the passive-agressive comments. Name names. Which posters are guilty of which shortcomings, and what evidence do you have to support your claims? What specific posters are you referring to in the last part? Please be very specific.

 

I've been learning investing since 2009. The above is exactly what I was doing myself for the first 9 years. I am no longer making these mistakes. My previous posts only served one purpose. I wanted to use this real time example to show people what mistakes they could be making, and how to fix those, and also use this live example to remind myself never to repeat these mistakes again. A few people got pissed. That's fine. Mr. Market will teach them.

 

Again with the schadenfruede. Mr. Market doesn't seek out individuals for punishment. You seem to want an impersonal force to do personal harm, all for the imagined slight of not agreeing with you.

 

You even said this in a previous post.

 

For me, I welcome any criticism

 

Your most recent post, and your earlier one wishing that Mr. Market will slap down those who (in your imagination) slighted you, starkly disagree with this.

[muscleman]

Midas, I made a mistake and should not have said these words, ok? Does that calm you down and make you feel better?

I was lucky to be trained by a great trader and this is the way he communicates with me all the time, and I never felt his words were "passive-agressive" or "condescending" a tiny bit. If you feel it differently, then I apologize.

I never thought I needed to "name names", and "refer to specific posts", because I thought people need to ask themselves what they need to improve. By asking me to "name names", and "refer to specific posts", it is just another way to defend themselves and say, no, you are wrong, I am not doing anything wrong. Then another round of rationalization. There is no point of doing that.

 

Perhaps a nicer way to say this, and more acceptable  to most people is this: Do you think your current strategy and process has any shortcomings that you could improve after the recent GSE down turn? Can we have an honest discussion about this? To those really long term investors, maybe there are none. Maybe they are already doing well, and they are confident that they can continue to do well. But are there anyone who think they found some shortcomings in their existing process who wants to list it here for an honest discussion?

 

[Guest cherzeca]

Ditto, you have a different approach then most of us MM, but it adds to viewpoint diversity.

 

You should not need view point diversity. All you need to do is to find out what best works for you, and keep improving on that.

What I see from some folks here are the short comings:

1. Do a small amount of research, and instead of working out various scenarios, just focus on the optimal scenario (Par value, Par value, Par value!)

2. When things go against him, rationalize on why it is still a buy, and possible even a better buy here.

3. Tell himself to never sell, because that means lack of conviction.

 

The greatest traders do really hard work, and be open minded about the various outcomes, while amateurs do small amount of lousy work, and be rigid about the outcome. When other people mention different alternative outcomes, he immediately treat these people as threatening, and use hostile languages against them, which is a reflection of his fear against these possible outcomes.

 

I've been learning investing since 2009. The above is exactly what I was doing myself for the first 9 years. I am no longer making these mistakes. My previous posts only served one purpose. I wanted to use this real time example to show people what mistakes they could be making, and how to fix those, and also use this live example to remind myself never to repeat these mistakes again. A few people got pissed. That's fine. Mr. Market will teach them.

 

I have been thinking about your posts, MM, which first of all I hope encourages you to post more if only for my benefit, and I want to react in the way that I find useful for me, which is a journal-type entry trying to understand something through writing it out.  better on a BB where people can respond than in some private journal.

 

GSE junior preferred is a bet that a contractual right to receive $25 will prove out, and it is interesting given its current discount.  now, if the business is faltering such that par is unrealistic, that would be one reason not to invest, but the GSE business is stellar and for my money not a substantial risk factor.  not many companies that I can find that I have as much trust in future business prospects as the GSEs.., assuming of course that they are not wound down, which was a real issue in the past as we all know.

 

so the GSE pref is an unusual investment, offering the potential for significant appreciation (common like) without the presence of substantial business risk (assuming that the GSEs are not killed by congressional fiat).  the legal issues are complex and multiple, and I have gotten comfortable with my analysis that the legal process will favor the junior prefs holder...at some point. lord knows, the point that I expected has long passed but my legal conviction is still steady.

 

there is a lot of political risk of course to contend with as well, and this could be the topic of a separate thread, but the trend of political action has been positive.  still much to see re treasury plan and FHFA capital level, but if you can be patient, I sense the trend will unfold in a reasonable fashion.

 

all of this is to say that what I think what might happen in the future is not necessarily gleaned form the past.  I still dont understand how TA can help me understand the future by looking at the past because in this situation, which is very atypical, the past is full of surprises (for instance, who would have expected a democratic Obama administration to have been so hostile to GSEs, which are an important source of financing for low-income Americans, or that a republican administration would have a treasury secretary who actually understands that the GSEs cant be wound down, like the Obama policy shitheads blithely suggested, and should be the source for future benefit for the housing industry)...so how can a past surprise provide predictive value...by definition the past surprise was unexpected based upon its own view of the past...or else it wouldn't have been a surprise.

 

so while I dont see FA being a very good predictive tool to analyze this investment (given the difficulty of predicting future events in such a turbulent investment situation), it is just that I dont see TA being applicable to this situation at all, since I dont see future events bearing a close relation to past history in the investment.

[Midas79]

I was lucky to be trained by a great trader and this is the way he communicates with me all the time, and I never felt his words were "passive-agressive" or "condescending" a tiny bit. If you feel it differently, then I apologize.

I never thought I needed to "name names", and "refer to specific posts", because I thought people need to ask themselves what they need to improve. By asking me to "name names", and "refer to specific posts", it is just another way to defend themselves and say, no, you are wrong, I am not doing anything wrong. Then another round of rationalization. There is no point of doing that.

 

No, I just want to know exactly who it is that you're hoping that Mr. Market will slap down and why. That's the part of your post (and your previous one) that I mainly take exception to. The hostility is unnecessary.

 

Also, this "great trader" of yours was talking only to you. He didn't need to name names.

 

Perhaps a nicer way to say this, and more acceptable  to most people is this: Do you think your current strategy and process has any shortcomings that you could improve after the recent GSE down turn? Can we have an honest discussion about this? To those really long term investors, maybe there are none. Maybe they are already doing well, and they are confident that they can continue to do well. But are there anyone who think they found some shortcomings in their existing process who wants to list it here for an honest discussion?

 

My reaction to this recent downturn isn't nearly as severe as yours. To me it's only a blip, and not even a big one. I barely blinked when the original Perry appeal came down, even though I lost 40% on paper in one day, because the overall thesis hadn't changed: There Is No Alternative.

 

I am in this for the long haul. It has only been about 3 years for me so far, small change compared to many, but even if it takes another 5-7 I will still make a good return overall. I trade around small pieces if I see price discrepancies, and while this has been a decent money-maker for a couple of years, it is not the core of my position and doesn't affect my thesis. I know you have expressed incredulity at some posters' lack of an exit plan, but I am in the illiquid prefs because they offer the best return to par and I don't really care about liquidity.

 

If the thesis is severely challenged then I will think about exiting, and my trading gains should offset the losses I would take due to my position being illiquid. But I bought in mid-2016 when Obama was still actively hostile to FnF and it looked like Hillary would take the White House and continue carrying that torch. It would take a change in events to a state worse than that to get me to reconsider the overall thesis. The political and legal climate are far more favorable now than then.

 

My existing process is hold on to what I have bought. The only possible change to that process is to sell some. That involves either trying to time the market or being better at interpreting news than others in the short term. I don't have a reason to believe that I have an edge in either of these things, they are outside my circle of competence as it were.