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

[orthopa]

https://www.housingwire.com/articles/49952-trump-administration-to-release-plan-for-fannie-freddie-after-labor-day

 

Calabria discussed what he "thinks" will be in the release. He has already seen a copy/draft no? ;)

[investorG]

Why not margin up or go all in if one hasn't already? Biggest risk seems to be the time this takes to be realized. No longer permanent loss of capital.  If your margin rate is 10%. The preferred arent 10% higher a year from now? Unlikely.

 

oh, this argument again...  the answer of course is because you can lose $ from here.  the market doesn't hand out free gains or easy doubles.  I can easily paint a scenario where the jr pref receives a major discount to par only after several more years and a handful of 25% drawdowns along the way. or something worse.  of course there are other positive potential outcomes also. 

[investorG]

Todd Sullivan makes some great points about recent news starting at the 21:45 minute mark (Fitch, Sheila Bair, etc.): https://valueplays.podbean.com/e/16-aug-23-2019/

 

thanks, this has some interesting points.  however expecting a 75-100% rise from a report that has been read by many dozens or even hundreds of DC people would require a tremendous amount of confidentiality trust.    rather, imo, what we're hoping for is there's a small group of DC people working behind the scenes with a small group of bankers on a 1h2020 capital raise.

[orthopa]

Why not margin up or go all in if one hasn't already? Biggest risk seems to be the time this takes to be realized. No longer permanent loss of capital.  If your margin rate is 10%. The preferred arent 10% higher a year from now? Unlikely.

 

oh, this argument again...  the answer of course is because you can lose $ from here.  the market doesn't hand out free gains or easy doubles.  I can easily paint a scenario where the jr pref receives a major discount to par only after several more years and a handful of 25% drawdowns along the way. or something worse.  of course there are other positive outcomes also.

 

Yes its back. Why not? We are here to make money right? What's your argument for preferred receiving a major discount to par once NWS ends and capital build starts? How is the common worth anything before the preferred is worth par as money flows down the capital structure? Cant be forced conversion. Do you have specific examples where this has happened?

 

Time I agree with. Some preferred trade~ 40% of par. 150% upside leaves a lot of room for waiting.

[orthopa]

“I’m expecting that Treasury and the administration will lay out their vision of what they think Congress should do, what they think I should do and what they think the Treasury and I should be able to do together in terms of amendments to the share agreements that allow an exit out of conservatorship,” Federal Housing Finance Agency Director Mark Calabria said in an exclusive sit down with HousingWire.

 

The report should discussion about amendment for NWS to end. Finally getting on paper it seems.

[orthopa]

https://www.whitehouse.gov/wp-content/uploads/2018/06/Government-Reform-and-Reorg-Plan.pdf

 

Starting on page 76 maybe a large portion of what we see in the plan.

[Luke 532]

GSE bailout was really a stickup by Hindes

https://www.americanbanker.com/opinion/gse-bailout-was-really-a-stickup

[allnatural]

You can't margin OTC securities like the PFDs.

[Guest cherzeca]

You can't margin OTC securities like the PFDs.

 

beat me to it.  but 100% margin is god's way of telling you to chill

[Luke 532]

You can't margin OTC securities like the PFDs.

 

beat me to it.  but 100% margin is god's way of telling you to chill

 

It's true. That's in the Bible.  ;)

[Ahab]

Though shalt not YOLO OTC Securities 

Though shalt not depend on the courts to protect property rights...

 

[orthopa]

You can't margin OTC securities like the PFDs.

 

I've gone on margin buying Preferred against my other holdings before, in fact I am now.  :)

[beaufort]

You can't margin OTC securities like the PFDs.

 

I've gone on margin buying Preferred against my other holdings before, in fact I am now.  :)

 

This is how I have understood Druckenmiller to have had the slugging percentage that he did.  When a trade is working, pile in.

 

Edit:  I will add that managing money professionally is different than one's own.  If you are in a daily liquidity product, obviously you cannot pile into Fannie and Freddie prefs.  If you are not, or you are managing your own money, I don't see why you cannot.  My understanding of Druckenmiller is that he was in liquid securities/currencies etc, presumably because he was managing money professionally. 

 

One more point.  I start with the assumption that everybody on this board is an adult and competent to make their own decisions.  Knock it out Orthopa.

 

[muscleman]

You can't margin OTC securities like the PFDs.

 

beat me to it.  but 100% margin is god's way of telling you to chill

 

true but no one currently has 100% in this. Let’s say someone has 50% of his folio in BRK.B and 50% in this, then he can lend out his BRK shares to get the margin loan to buy more FNMAS.

 

But come on... why are people discussing this? I’ve seen countless times when inexperienced investors are myopia on only one scenario, the one that makes him money. They never bother to consider alternatives, and when people present a different view, they get pissed.

[hardincap]

is good news already baked in the stock? fhfa director strongly hinting at cancellation of nws and wsj reporting on continued backing from treasury hasnt really moved the stock. if we get all the things already reported, i wonder if the stock even moves up at all. it may even fall if congress speaks out strongly against it

[muscleman]

is good news already baked in the stock? fhfa director strongly hinting at cancellation of nws and wsj reporting on continued backing from treasury hasnt really moved the stock. if we get all the things already reported, i wonder if the stock even moves up at all. it may even fall if congress speaks out strongly against it

 

I bet big players already know the details of the plan. It must have been reviewed by lots of people in this admin, which is known for leaky news.

 

[Ahab]

I think the stock isn't responding more to the upcoming release of the plan because no one truly believes the plan is coming out. They hope the plan is coming out! It's been delay, delay, delay for months/years...

Another thought I have is that perhaps everybody who wants in is already in and has been for years. The plan being released would be a catalyst for large upward price movement, but also the entrance of a new sort of shareholder that craves a greater degree of certainty in their investments.

[muscleman]

I think the stock isn't responding more to the upcoming release of the plan because no one truly believes the plan is coming out. They hope the plan is coming out! It's been delay, delay, delay for months/years...

Another thought I have is that perhaps everybody who wants in is already in and has been for years. The plan being released would be a catalyst for large upward price movement, but also the entrance of a new sort of shareholder that craves a greater degree of certainty in their investments.

 

 

your statement suggests that price will not move until material news comes out. Check the chart in March and ask why the stock started a strong rally days before the White House initiative was released?

[stevevri]

is good news already baked in the stock? fhfa director strongly hinting at cancellation of nws and wsj reporting on continued backing from treasury hasnt really moved the stock. if we get all the things already reported, i wonder if the stock even moves up at all. it may even fall if congress speaks out strongly against it

 

I would be cautious as to what to expect from this plan. We know a plan is coming. We also know that the FHFA & Treasury have to negotiate to end the net sweep, and we know there has to be IPOs. Calabria has said that could be up to the companies.

 

All of these things could happen down the line from each other.  The first plan could rather generally lay out principles including suggestions and direct the FHFA & Treasury to negotiate for the NWS. The FHFA & Treasury could then negotiate end the sweep and then like Calabria said it could then be up to the companies to raise capital.

[Ahab]

I think the new few weeks are the real deal and the market isn't reacting to it because "once bitten, twice shy."

This board is skeptical. GSE Twitter is skeptical. Unless you have material, non-public information, you should be skeptical right now. Even if you do, you probably should still be skeptical, because this is the Trump administration after all.

[Guest cherzeca]

the plan will be short on specifics, which will be ironed out later in a negotiation between fhfa and treasury (the ultimate terms of which I imagine had already been broadly discussed).  but I dont see what fear one should have of congress blowback.  the plan will provide congress a role. the administration will ignore any blowback since it has made clear what it views as congress' role (charter competition and limited fed mbs guy). congress can do it or not, and of course it won't. let blowhards blowback.

 

i wonder when collins en banc is released....

[orthopa]

I think we may get a little bump from the plan release but like Ahab mentions who really believes its coming? Otting supposedly let the cat out of the bag almost 8 months ago now. People are tired and want details and their return on investment. Secondly if you want to be in, your in by now and probably have since as early as mnuchin on fox news or at any other bullish mnuchin/trump/otting/calabria comment on the way.

 

I think what really has the most potential to move the common/preferred are a stop to the NWS after this coming earnings report. FHFA captial rules which likely affect common the most, and then recap/IPO plan.  Of course Enbanc is a wild card in there too.

[orthopa]

I think the stock isn't responding more to the upcoming release of the plan because no one truly believes the plan is coming out. They hope the plan is coming out! It's been delay, delay, delay for months/years...

Another thought I have is that perhaps everybody who wants in is already in and has been for years. The plan being released would be a catalyst for large upward price movement, but also the entrance of a new sort of shareholder that craves a greater degree of certainty in their investments.

 

 

your statement suggests that price will not move until material news comes out. Check the chart in March and ask why the stock started a strong rally days before the White House initiative was released?

 

I think the stock started a strong rally because multiple news outlets were reporting the the trump administration was releasing a plan soon. It was being discussed up to a week ahead of time if I remember correctly plus you had the Calabria confirmation process going on and the Otting comments.

 

The most recent time that the preferred moved up was just recently when material information again...regarding an upcoming release of the plan was coming after labor day.

[muscleman]

I think the stock isn't responding more to the upcoming release of the plan because no one truly believes the plan is coming out. They hope the plan is coming out! It's been delay, delay, delay for months/years...

Another thought I have is that perhaps everybody who wants in is already in and has been for years. The plan being released would be a catalyst for large upward price movement, but also the entrance of a new sort of shareholder that craves a greater degree of certainty in their investments.

 

 

your statement suggests that price will not move until material news comes out. Check the chart in March and ask why the stock started a strong rally days before the White House initiative was released?

 

I think the stock started a strong rally because multiple news outlets were reporting the the trump administration was releasing a plan soon. It was being discussed up to a week ahead of time if I remember correctly plus you had the Calabria confirmation process going on and the Otting comments.

 

The most recent time that the preferred moved up was just recently when material information again...regarding an upcoming release of the plan was coming after labor day.

 

Maybe my memory was messed up, but I do not recall any news on the trump admin's plan. It suddenly came out. I remember Chris commented that this was a game changer on that day.

Unlike that move up, this recent move up has been a low quality one, so be careful. I am not long yet. I think odds are lower this time than last time. So even if I go long again, I'll bet a smaller size this time.

 

[Guest cherzeca]

the biggest news re plan recently imo was that it has been sitting on Mnuchin's desk for 3 months because HUD was slow in finishing its work and the plan will be a joint presentation and thus we were all waiting on HUD. 

 

there are no more tea leaves to read until the plan comes out....unless mnuchin suddenly is dragged into china trade negotiations and kicks can for some reason...but I tend to doubt this if you believe that the Phillips work product was ready for prime time in June