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

[Guest cherzeca]

I expect the senior pref will be extinguished in connection with a global litigation settlement.

 

Chris, I know it's largely guesswork but when do you think that settlement would take place?  This month, October, November, December, next year?  Thanks.

 

it only needs to take place before 2020 election, from our point of view.  when more precisely, who knows

[orthopa]

I think mnuchin is also playing heavily into the bad cop role so no one can in hindsight or concurrently say he gave up more then he should have or enriched any of the hedge fund crowd.  You have heard very little of that from the media which is a good thing of course.

 

I think once the PSPA is negotiated which many think will be Q4 I think the risk due to Trump/Mnuchin leaving goes down significantly. Its FHFA's baby at that point. I don't know at what point the recap becomes irreversible but once  any third party capital comes in the common value and conversion level should be set. I dont think doing that before Jan 2021 is that much of a stretch.

 

I know this may sound naive but there is no way we lose from this price at least on the preferred. I personally believe all of the possible scenarios are unlikely to begin with and the recap is pushed on as a result anyway.  think if you buy at 100% of par you could lose from that level but from these levels no way.

 

I think there is a large group of people who 1. Dont understand the trade. You really have had to been following this for a couple years to see the turn around in perception, politics, understand relationships, why certain people were put into power and positions. 2. Really understand the housing market or at least whats important. 3 Understand the lawsuits and their implications. 4. Understand the possible recap scenarios and how you could get hurt or helped.

 

Think about it. This group of say 10-15 posters were salivating waiting for the treasury plan to come out. "Everyone" else couldnt give a shit about housing policy etc. I would say unless by dumb luck almost everyone buying the preferred with a good understanding is a sophisticated investor. Not that the common investors aren't but thats where all the fast/retail money is that pushes the price all over the place.

[orthopa]

I know the intersection between technicals and value investing can be very blurry but for FWIW where the price levels are stuck on the preferred is where there was consolidation and a lot of trading in the price as FNMA was taken into conservatorship in 2008. This goes for nearly all the preferred looking back at most recent highs and highs in the last couple of years. Hard to believe there is still some trapped money but many maybe relieved to get out even or playing this for some reason.  A very squishly explanation I know but just saying....

[muscleman]

I know the intersection between technicals and value investing can be very blurry but for FWIW where the price levels are stuck on the preferred is where there was consolidation and a lot of trading in the price as FNMA was taken into conservatorship in 2008. This goes for nearly all the preferred looking back at most recent highs and highs in the last couple of years. Hard to believe there is still some trapped money but many maybe relieved to get out even or playing this for some reason.  A very squishly explanation I know but just saying....

 

Another TA expert here. People please come and have a round of tounting.  ???

Joking aside, this is why historical tops are important, but as a rule of thumb, as time passes by, more and more people give up and sell at a loss during the Christmas tax loss sell season, so the further away the prior top, the less importance it is.

[Luke 532]

Investors Unite call with David Thompson and Tim Pagliara starting in 45 minutes...

https://investorsunite.org/media-teleconference-at-200-p-m-et-wednesday-september-11-on-fifth-circuit-court-strike-down-of-net-worth-sweep/

[DRValue]

Investors Unite call with David Thompson starting in 45 minutes...

https://investorsunite.org/media-teleconference-at-200-p-m-et-wednesday-september-11-on-fifth-circuit-court-strike-down-of-net-worth-sweep/

 

Anyone joining?

[DRValue]

"Calabria today said he's "extremely hopeful" the net worth sweep will be gone by the end of the year, then "we’re probably going to have to have approximately a year of building retained earnings” before Fannie and Freddie can raise outside capital."

 

At that point fannie would have over $30b in capital if 10pct moment stands.

They'll likely not be critically under capitalised at that point and probably listed on the nyse.

[Guest cherzeca]

@orthopa

 

why could go wrong? depending upon govt bureaucrats to do right thing. ex: ackman was dead right as a legal matter on HBL, yet FTC wimped out on relief.  the companies' businesses are rocking, but we still need some govt guys to do the right thing....they are talking the right thing, but that is not enough

[Luke 532]

David Thompson (paraphrased): "We have significant settlement leverage and the defendant has incentive to settle for reasons of recapitalizing the companies."

[Luke 532]

This guy has been posting detailed notes throughout the call for those that missed it:

[Luke 532]

I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

 

https://twitter.com/HoldenWalker99/status/1171856144828178432

.@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

[orthopa]

"Calabria today said he's "extremely hopeful" the net worth sweep will be gone by the end of the year, then "we’re probably going to have to have approximately a year of building retained earnings” before Fannie and Freddie can raise outside capital."

 

At that point fannie would have over $30b in capital if 10pct moment stands.

They'll likely not be critically under capitalised at that point and probably listed on the nyse.

 

Where was that from today?

[Guest cherzeca]

I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

 

https://twitter.com/HoldenWalker99/status/1171856144828178432

.@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

 

this was not said in so many words.  David would never say there is going to be a settlement. I do believe David believes there will be a settlement.  he mentioned that Calabria is on a 15 month shot clock since a new potus can remove him (or so he expects scotus to affirm whether in this case or another), and the APA holding is very strong and unlikely to be reversed by scotus

[Luke 532]

I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

 

https://twitter.com/HoldenWalker99/status/1171856144828178432

.@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

 

this was not said in so many words.  David would never say there is going to be a settlement. I do believe David believes there will be a settlement.  he mentioned that Calabria is on a 15 month shot clock since a new potus can remove him (or so he expects scotus to affirm whether in this case or another), and the APA holding is very strong and unlikely to be reversed by scotus

 

Yeah, I didn't think so.  Thanks for responding.

[DRValue]

"Calabria today said he's "extremely hopeful" the net worth sweep will be gone by the end of the year, then "we’re probably going to have to have approximately a year of building retained earnings” before Fannie and Freddie can raise outside capital."

 

At that point fannie would have over $30b in capital if 10pct moment stands.

They'll likely not be critically under capitalised at that point and probably listed on the nyse.

 

Where was that from today?

 

[Midas79]

At that point fannie would have over $30b in capital if 10pct moment stands.

They'll likely not be critically under capitalised at that point and probably listed on the nyse.

 

They would only have that capital if Treasury actually gives it to FnF in cash. Thompson said that his preference is to have Treasury keep the cash and issue a tax credit.

 

I'm not sure what the relisting requirements are, but I would expect it to happen alongside or just before the SPO.

[Luke 532]

I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

 

https://twitter.com/HoldenWalker99/status/1171856144828178432

.@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

 

Quote was right, but I may have inadvertently omitted "if" leading up to it.

[james22]

I know this may sound naive but there is no way we lose from this price at least on the preferred. I personally believe all of the possible scenarios are unlikely to begin with and the recap is pushed on as a result anyway.  think if you buy at 100% of par you could lose from that level but from these levels no way.

 

I'd thought to cap my bet at 10%, but the preferred risk/reward seems very attractive.

 

Just bumped to 15%.

 

Now 4:1 preferred to common.

[onyx1]

I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

 

https://twitter.com/HoldenWalker99/status/1171856144828178432

.@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

 

this was not said in so many words.  David would never say there is going to be a settlement. I do believe David believes there will be a settlement.  he mentioned that Calabria is on a 15 month shot clock since a new potus can remove him (or so he expects scotus to affirm whether in this case or another), and the APA holding is very strong and unlikely to be reversed by scotus

 

Thompson thinks the government has a lot of reasons to settle soon due to significant litigation risk.

 

(1) FHFA removal threat sets up a “15 month shot clock”

 

plus

 

(2) Fairholme case with a claim for breach of implied covenant of good faith which is a liability that is owed by the GSE’s (not the government).  Thompson believes that raising capital for the GSE’s would be “basically impossible” with potential for lawsuit damages that could cost new investors “tens of billions”.

 

If he is right, I see the Jr. preferred gaining more from this scenario than the common.

 

[Guest cherzeca]

couple of pro tip legal points David mentioned:

 

1. collins APA holding improves fairholme illegal exaction claim.  so the prospect of damages payable to shareholders has improved....net net, another bargaining chip.

 

2. scotus normally accepts cert on final judgments. collins was not a final judgment, just a remand for district court to issue a final judgment in accordance with the law set forth in collins.  ie figure out what the proper remedy is.  so there is a possibility that scotus does not grant cert even though there is a circuit split.

[james22]

Former hedge fund manager Whitney Tilson said this week the court ruling is a major step in the right direction for Fannie and Freddie investors and has applied significant pressure to the Treasury. Tilson originally recommended Fannie Mae shares to his newsletter subscribers last Thursday, but recommended they take only a 1.5% stake.

 

Tilson said Fannie Mae shares should be up 50% following Mnuchin’s comments.

 

“It's clear that investors don't yet fully appreciate the implications of this ruling. That's why today, we recommend buying the second half of the position, making it a 3% holding,” Tilson wrote Tuesday.

 

https://www.benzinga.com/analyst-ratings/analyst-color/19/09/14415875/analyst-raises-fannie-mae-price-target-following-mnuchin-comments?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+benzinga%2Fanalyst-ratings+%28Channels+-+Analyst+Ratings%29

[DRValue]

https://finance.yahoo.com/video/fannie-mae-road-recapitalization-050100885.html

 

ACG BAE on commons and other things.

[DRValue]

Also, buying more prefs on Monday. Bash and sell please.

[DRValue]

At that point fannie would have over $30b in capital if 10pct moment stands.

They'll likely not be critically under capitalised at that point and probably listed on the nyse.

 

They would only have that capital if Treasury actually gives it to FnF in cash. Thompson said that his preference is to have Treasury keep the cash and issue a tax credit.

 

I'm not sure what the relisting requirements are, but I would expect it to happen alongside or just before the SPO.

 

I've never understood them requesting tax credits although I realise it's a carrot to treasury as it's easier.

 

What I don't understand is that it's not a like for like relief. You took my dollars and now I want something back that isn't dollars and will take years to get the full value of, while I REALLY need those dollars now and I would be in a totally different position if I had them.

 

The only compromise I'd make is if dtas are considered capital.

[Luke 532]

.@USTreasury @stevenmnuchin1 on @SquawkCNBC: "actively negotiating Amendment, objective to get it done by end of month" $FNMA $FMCC