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

[orthopa]

While most on this board have actually read the full report (and provided terrific thoughts and insight - thanks!) and also have the context of the past and recent history, I think it is important to take a step back. This is probably the first time in years that anything related to GSEs has received such wide media coverage. If you are an investor and seeing the headlines for the first time in a while your impression is that this is basically more of the same and if it happens (or as Bloomberg and other's are saying it won't if Trump loses) we are still years out. If you are a holder today, like many on this board I believe are, we are betting that today's perception of a recap (if it happens) is moving forward ASAP and is not years out, which is what the market seems to think (basically market is wrong in its view about timing of recap and risk of it not fully happening).

 

Agree, I think full focus should be shifted to Calabria and his past comments regarding recap, time frame to negotiate the PSPA and IPO/offering.

 

Looking at it now were those involved expecting too much from Treasury? This is FHFA/Calabrias baby now. Treasury said go ahead do your thing.

[Luke 532]

While most on this board have actually read the full report (and provided terrific thoughts and insight - thanks!) and also have the context of the past and recent history, I think it is important to take a step back. This is probably the first time in years that anything related to GSEs has received such wide media coverage. If you are an investor and seeing the headlines for the first time in a while your impression is that this is basically more of the same and if it happens (or as Bloomberg and other's are saying it won't if Trump loses) we are still years out. If you are a holder today, like many on this board I believe are, we are betting that today's perception of a recap (if it happens) is moving forward ASAP and is not years out, which is what the market seems to think (basically market is wrong in its view about timing of recap and risk of it not fully happening).

 

Bingo!  Well said.

[Guest cherzeca]

suppose trump loses in 2020? so what?

 

if he loses, he loses to a democrat. will that democrat want to see congress enact the recs in the plan? hell no. will that democrat want to continue the NWS? perhaps. but suppose treasury and fhfa have already negotiated an amendment to the NWS by then, putting aside for the moment how much the capital raising has been done. what will the democratic POTUS do? another amendment reinstating the NWS?  perhaps, but it seems to me that the most likely scenario is that democratic president would want to strengthen FnF. 

 

it seems to me that the whole recap plan was always going to go beyond the election.  this has not changed.  and the negotiation of changes to the PSPA was always going to occur before the election. this has not changed.

 

I understand that uncertainty frustrates investors, but this reelection concern that I have read from some commentary seems besides the point.

[Gregmal]

https://www.bloomberg.com/news/articles/2019-09-06/fannie-freddie-slump-as-trump-plan-disappoints-wall-street

 

Dick Bove: Investors in the preferred issues of both Fannie Mae and Freddie Mac are about to make a great deal of money.

 

I actually did swing half of my common into preferred this morning. More of a risk management move, but I agree with Bove.

[Jcmeg35]

@chereza - I agree with you. I think once NWS is ended the train will have left the station, so to speak. But again, to my earlier point, as long as these moves start happening in the next few months, I think the market will be proven wrong.

 

As investors, I think we could care less when they are "offically" released from conservatorship. It is the clear actions that move it in that direction an enable us to put a value on a future stream of earnings.

 

suppose trump loses in 2020? so what?

 

if he loses, he loses to a democrat. will that democrat want to see congress enact the recs in the plan? hell no. will that democrat want to continue the NWS? perhaps. but suppose treasury and fhfa have already negotiated an amendment to the NWS by then, putting aside for the moment how much the capital raising has been done. what will the democratic POTUS do? another amendment reinstating the NWS?  perhaps, but it seems to me that the most likely scenario is that democratic president would want to strengthen FnF. 

 

it seems to me that the whole recap plan was always going to go beyond the election.  this has not changed.  and the negotiation of changes to the PSPA was always going to occur before the election. this has not changed.

 

I understand that uncertainty frustrates investors, but this reelection concern that I have read from some commentary seems besides the point.

[Luke 532]

I agree.

 

We recommend a closer reading of the government #GSE plan. Stocks should be trading up today on the news #endthesweep

[muscleman]

I agree.

 

We recommend a closer reading of the government #GSE plan. Stocks should be trading up today on the news #endthesweep

 

 

This is why a great trader said, the best analysts are sometimes the worst traders.

[Luke 532]

This is why a great trader said, the best analysts are sometimes the worst traders.

 

"Successful traders generate income.  Successful investors generate wealth."  -me

[muscleman]

This is why a great trader said, the best analysts are sometimes the worst traders.

 

"Successful traders generate income.  Successful investors generate wealth."  -me

 

Is George Soros a successful trader or investor?

How about David Tepper?

 

[Luke 532]

This is why a great trader said, the best analysts are sometimes the worst traders.

 

"Successful traders generate income.  Successful investors generate wealth."  -me

 

Is George Soros a successful trader or investor?

How about David Tepper?

 

OK, you win. I still think you're missing ACG's point.

[orthopa]

I agree.

 

We recommend a closer reading of the government #GSE plan. Stocks should be trading up today on the news #endthesweep

 

I think thats pretty obvious to those who have a level of understanding that I think many of us have here.  Fast money leaving again.

[orthopa]

I agree.

 

We recommend a closer reading of the government #GSE plan. Stocks should be trading up today on the news #endthesweep

 

 

This is why a great trader said, the best analysts are sometimes the worst traders.

 

Who here is trading?

[Guest cherzeca]

I agree.

 

We recommend a closer reading of the government #GSE plan. Stocks should be trading up today on the news #endthesweep

 

 

This is why a great trader said, the best analysts are sometimes the worst traders.

 

Who here is trading?

 

MM

[allnatural]

I think in the last week alone ACG has proven to be a reliable and credible source (first to break the GSE plan to be released on Thursday after the close w/ Embargo + only source i'm aware of who called for the interim step to be announced ahead of the formal PSPA amendment which i think was a surprising piece of the plan). Additionally, based off the real vision interview with the head of ACG, it seems the head of ACG has a very close connection w/ Mick Mulvaney... Maybe ACG is hinting that the sweep could be stopped this month w/ that recommended interim step which should be implemented "as promptly as practicable." That would gives the GSEs ~15b+ of retained earnings in 2019 (Q2, Q3, Q4) + ~6b on the books = ~$20b of retained capital heading into 2020 to accelerate any recap.

 

Tuesday should be interesting.

 

[Gregmal]

After "investing" for nearly half a decade here, I made this decision to start trading today. Sold half my common at 2.60 to buy FNMAS at $11.45. Already paying off and frankly given the volatility here over the years, I'm kind of pissed at myself for not being more active with it. I know plenty of people who have already round tripped this thing several times over, meanwhile even if you had a nice entry, buy and hold has not yielded all that much. 

[muscleman]

After "investing" for nearly half a decade here, I made this decision to start trading today. Sold half my common at 2.60 to buy FNMAS at $11.45. Already paying off and frankly given the volatility here over the years, I'm kind of pissed at myself for not being more active with it. I know plenty of people who have already round tripped this thing several times over, meanwhile even if you had a nice entry, buy and hold has not yielded all that much.

 

Well, it is all about what suits your personality. While this one would have worked out better trading, there will be plenty others that you wished you would have been investing. Making the decision to switch should be entirely based on your personality, not looking at one particular stock and draw the conclusion in hindsight.

The same applies to FA vs TA.

[Guest cherzeca]

I think in the last week alone ACG has proven to be a reliable and credible source (first to break the GSE plan to be released on Thursday after the close w/ Embargo + only source i'm aware of who called for the interim step to be announced ahead of the formal PSPA amendment which i think was a surprising piece of the plan). Additionally, based off the real vision interview with the head of ACG, it seems the head of ACG has a very close connection w/ Mick Mulvaney... Maybe ACG is hinting that the sweep could be stopped this month w/ that recommended interim step which should be implemented "as promptly as practicable." That would gives the GSEs ~15b+ of retained earnings in 2019 (Q2, Q3, Q4) + ~6b on the books = ~$20b of retained capital heading into 2020 to accelerate any recap.

 

Tuesday should be interesting.

 

agreed @allnatural. 

 

as for investing vs trading GSEs, fuggedaboutit.  it's a personality test. heart of darkness.

[Gregmal]

After "investing" for nearly half a decade here, I made this decision to start trading today. Sold half my common at 2.60 to buy FNMAS at $11.45. Already paying off and frankly given the volatility here over the years, I'm kind of pissed at myself for not being more active with it. I know plenty of people who have already round tripped this thing several times over, meanwhile even if you had a nice entry, buy and hold has not yielded all that much.

 

Well, it is all about what suits your personality. While this one would have worked out better trading, there will be plenty others that you wished you would have been investing. Making the decision to switch should be entirely based on your personality, not looking at one particular stock and draw the conclusion in hindsight.

The same applies to FA vs TA.

 

It about making money, that's it.

 

The preferred have long been anointed the security most certain to have a favorable outcome when its all said and done. But the commons have been a much better vehicle to date. I think that changes once we start seeing some material developments, as the commons are more of a retail investment, but nevertheless how many 1-5-2-4-2-4-1-3 moves have we seen?

 

So if its all said and done and this is a bust, who's worse off? The guy who sits on commons at $0 but made $5 per share trading? Or the guy who bought and held and now has nothing to show and 5-10 years of wasted time? If reform gets done pretty much everyone wins anyway. Thats why trading around a core is also a way to mitigate loss and permanent impairment.

[SHDL]

I was already quite skeptical about the common shares with the dilution risk and everything but I feel more strongly about this now given how serious the people involved seem to be about breaking the old Fannie-Freddie duopoly.  I think this could also cause some difficulties as they try to recap because some of the actions they are recommending would seem to make the two businesses much less moat-y/profitable than they were previously.  In particular I’m not so sure anymore if Berkshire would be interested in committing a huge amount of capital to this.  But then again the market for utility-like enterprises is red hot, so maybe there’s not much to worry about.

 

On the other hand I feel better about the preferred shares now that the risk of getting zero (say due to inaction by the current administration followed by an unfavorable political regime change in the near future) has IMO greatly diminished. 

[Guest cherzeca]

@SHDL

 

better imo being a future common holder becoming so from jr pref through exchange than a current common holder

[SHDL]

@SHDL

 

better imo being a future common holder becoming so from jr pref through exchange than a current common holder

 

Yes no doubt. That was my original plan in fact, though I may sell earlier given where things seem to be going.

[muscleman]

After "investing" for nearly half a decade here, I made this decision to start trading today. Sold half my common at 2.60 to buy FNMAS at $11.45. Already paying off and frankly given the volatility here over the years, I'm kind of pissed at myself for not being more active with it. I know plenty of people who have already round tripped this thing several times over, meanwhile even if you had a nice entry, buy and hold has not yielded all that much.

 

Well, it is all about what suits your personality. While this one would have worked out better trading, there will be plenty others that you wished you would have been investing. Making the decision to switch should be entirely based on your personality, not looking at one particular stock and draw the conclusion in hindsight.

The same applies to FA vs TA.

 

It about making money, that's it.

 

The preferred have long been anointed the security most certain to have a favorable outcome when its all said and done. But the commons have been a much better vehicle to date. I think that changes once we start seeing some material developments, as the commons are more of a retail investment, but nevertheless how many 1-5-2-4-2-4-1-3 moves have we seen?

 

So if its all said and done and this is a bust, who's worse off? The guy who sits on commons at $0 but made $5 per share trading? Or the guy who bought and held and now has nothing to show and 5-10 years of wasted time? If reform gets done pretty much everyone wins anyway. Thats why trading around a core is also a way to mitigate loss and permanent impairment.

 

 

That’s all hindsight. You wouldn’t have known ahead of time. Of course it is about money. Who here doesn’t have the goal to make money? But you can only make money when you use a strategy that suits you. If you make this switch merely based on the common share movement in the past, you may be more disappointed in the future

[Gregmal]

After "investing" for nearly half a decade here, I made this decision to start trading today. Sold half my common at 2.60 to buy FNMAS at $11.45. Already paying off and frankly given the volatility here over the years, I'm kind of pissed at myself for not being more active with it. I know plenty of people who have already round tripped this thing several times over, meanwhile even if you had a nice entry, buy and hold has not yielded all that much.

 

Well, it is all about what suits your personality. While this one would have worked out better trading, there will be plenty others that you wished you would have been investing. Making the decision to switch should be entirely based on your personality, not looking at one particular stock and draw the conclusion in hindsight.

The same applies to FA vs TA.

 

It about making money, that's it.

 

The preferred have long been anointed the security most certain to have a favorable outcome when its all said and done. But the commons have been a much better vehicle to date. I think that changes once we start seeing some material developments, as the commons are more of a retail investment, but nevertheless how many 1-5-2-4-2-4-1-3 moves have we seen?

 

So if its all said and done and this is a bust, who's worse off? The guy who sits on commons at $0 but made $5 per share trading? Or the guy who bought and held and now has nothing to show and 5-10 years of wasted time? If reform gets done pretty much everyone wins anyway. Thats why trading around a core is also a way to mitigate loss and permanent impairment.

 

 

That’s all hindsight. You wouldn’t have known ahead of time. Of course it is about money. Who here doesn’t have the goal to make money? But you can only make money when you use a strategy that suits you. If you make this switch merely based on the common share movement in the past, you may be more disappointed in the future

 

Yes, ones job is to make money. Hindsite evaluation of ones performance is crucial. There really isn't an argument that if you've been a buy and hold investor in this name for any substantial period of time, that you wouldn't have been better suited trading vs holding. No one knows for sure but as an investor your job is to decipher/read situations and if you chose to hold you simply got it wrong(as I did). Thats not to say you didnt make some money. But missing the gravy train is an opportunity cost and most here probably wouldn't waste their time for, lets say a 50% 5 year total return given the known downside risk.

 

As I said in a different post, moving from common to preferred at this point in time, probably de-risks this a bit if indeed they do start taking action. Which isn't to say the commons still can't be the better performer. Thats my read on this... as always we'll see who's right and wrong eventually...the beauty of the markets.

[muscleman]

MM, are you Charlie G who is into muscle building too?

 

No.

[Luke 532]

Apparently en banc is out according to Twitter. Away from computer so don't have the doc.