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


twacowfca

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Just a newbie question, but doesn't killing off Fannie/Freddie mean that 30 year fixed rate mortgages would disappear?

 

No, but the alternatives are not very competitive at the current g-fee. (pages 5,6,7,8,…)

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/millstein's-plan-for-fannie-and-freddie/msg77844/#msg77844

 

http://www.dsnews.com/articles/barclays-non-agency-rmbs-market-to-make-small-comeback-2013-05-22

http://www.housingwire.com/fastnews/2013/05/21/g-fee-hikes-will-lead-private-label-market-comeback-barclays

 

"On the securitization option, the economics of nonagency securitization are much closer than Fannie Mae and Freddie Mac securitizations today than they were two years ago.

 

"In fact, for the cleanest collateral, nonagency execution could be slightly better than government-sponsored enterprises."

 

As a result, even for moderately high quality loans — forming the bulk of GSE issuance — private-label execution is likely to be within 10 to 15 basis points of GSE execution. "

 

 

I'll try to track done the more detailed analysis I saw earlier in the year tomorrow.

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Thanks Jay, looking forward to it.

 

A lot will depend on how the privatization is structured. If there is one. Peter Lynch on the GSEs moat:

 

* It occurred to me that Fannie Mae was like a bank, but also had major advantages over a bank. Banks had 2-3 percent overhead. Fannie Mae could pay its expenses on a .2 percent overhead.

 

* Thanks to its status a quasigovernmental agency, Fannie Mae could borrow money more cheaply than any bank, more cheaply than IBM or GM or thousands of other companies.

 

* No bank, S&L, or other financial company in America could make a profit on a 1 percent spread.

 

* As long as people were paying on their mortgages, Fannie Mae would be the most lucrative business left on the planet

 

http://variantperceptions.wordpress.com/2009/09/10/voice-from-the-past-lynch-on-fannie-and-freddie-fre-fnm/

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I think realistic scenario is that Congress wants to shrink Fannie and Freddie over time.Fannie have $3.5T in assets. You cannot liquidate 3.5T in one day.I think Congress will set a timetable say 10 years to shrink it.

The question is whether Fannie will stay in current form for 10 years.Or will govt privatize it and then shrink it?

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What is the government's incentive to not wipe out the preferred upon restructuring Fannie & Freddie? (Other than to please the lobbyists that are advocating a beneficial restructuring to pref holders)

 

why not just do a fresh start clean of these liabilities?

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“The tough work is over,” Berkowitz said. “I don’t understand the politics involved but it seems obvious to me what needs to take place.”

 

???

 

Surely, he is being coy, no?

 

I guess we know why he reduced his MBI position in the Allocation fund.

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Surely, he is being coy, no?

 

I guess we know why he reduced his MBI position in the Allocation fund.

 

I thought the same thing -- well, both things -- too.

 

Can anyone name a large position that didn't work out well that Berkowitz pounded the table on?  I can only think of CNQ -- though he probably made a lot of money there too.

 

He sold others before they worked out -- Pfizer and the health insurers.  But, you made good money, I think, if you held.

 

Anything else that someone can name where he made a large investment and it didn't work well?  I guess we could argue AIG and SHLD haven't hit yet.  I'm not sure of his average price on either.

 

Perhaps it makes sense to wait a few months, or more, given his self-described propensity for "premature accumulation" -- great phrase.  But, his ideas are pretty solid from what I've seen.

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shld has been absolutely terrible. its far below his cost and he's been waiting 5+ years for it to work out. i doubt he'd get into it if he could do it over again... i think he overestimated lampert. i did too.. as buffett says turnarounds seldom turn around

 

Surely, he is being coy, no?

 

I guess we know why he reduced his MBI position in the Allocation fund.

 

I thought the same thing -- well, both things -- too.

 

Can anyone name a large position that didn't work out well that Berkowitz pounded the table on?  I can only think of CNQ -- though he probably made a lot of money there too.

 

He sold others before they worked out -- Pfizer and the health insurers.  But, you made good money, I think, if you held.

 

Anything else that someone can name where he made a large investment and it didn't work well?  I guess we could argue AIG and SHLD haven't hit yet.  I'm not sure of his average price on either.

 

Perhaps it makes sense to wait a few months, or more, given his self-described propensity for "premature accumulation" -- great phrase.  But, his ideas are pretty solid from what I've seen.

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Anything else that someone can name where he made a large investment and it didn't work well?  I guess we could argue AIG and SHLD haven't hit yet.  I'm not sure of his average price on either.

 

What about St Joe?

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BB was way early on CNQ and made tons of money; he also got out at the right time.

 

 

Surely, he is being coy, no?

 

I guess we know why he reduced his MBI position in the Allocation fund.

 

I thought the same thing -- well, both things -- too.

 

Can anyone name a large position that didn't work out well that Berkowitz pounded the table on?  I can only think of CNQ -- though he probably made a lot of money there too.

 

He sold others before they worked out -- Pfizer and the health insurers.  But, you made good money, I think, if you held.

 

Anything else that someone can name where he made a large investment and it didn't work well?  I guess we could argue AIG and SHLD haven't hit yet.  I'm not sure of his average price on either.

 

Perhaps it makes sense to wait a few months, or more, given his self-described propensity for "premature accumulation" -- great phrase.  But, his ideas are pretty solid from what I've seen.

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Anything else that someone can name where he made a large investment and it didn't work well?  I guess we could argue AIG and SHLD haven't hit yet.  I'm not sure of his average price on either.

 

What about St Joe?

 

Trading into AIG and BAC for the health insurers and defense companies worked out eventually but it cost him billions in capital (redemptions).

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http://www.bloomberg.com/news/2013-06-05/fannie-shares-seen-as-worthless-surging-in-disconnect.html

 

 

.Fannie Shares Seen as Worthless Surging in Disconnect

 

Fannie Mae and Freddie Mac shares surged to five-year highs last week, giving them a combined market value of $48 billion, about the same as BlackRock Inc., the world’s largest money manager, and Starbucks Corp., the biggest coffee-shop operator.

 

...

 

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Anything else that someone can name where he made a large investment and it didn't work well?  I guess we could argue AIG and SHLD haven't hit yet.  I'm not sure of his average price on either.

 

Perhaps it makes sense to wait a few months, or more, given his self-described propensity for "premature accumulation" -- great phrase.  But, his ideas are pretty solid from what I've seen.

 

BAC was purchased around $14 a little over 2 years ago. 

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I suppose the argument is who else can step in to support the housing market with scale and pricing impact to the level the the GSE's have had.

 

With record profits coming out of the GSE's, perhaps the politicians will decide to simply let the GSEs continue to pay back treasury over time, while eventually reinstating the preferred stock dividend.

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Are there any material cost savings associated with keeping Freddie and Fannie alive versus transferring thier functions to new entities which can raise equity capital to act as a buffer for gov't support?

 

Packer

 

Yes, I think Fannie and Freddie's scale, established business, financial structures, relationships etc. give them a large cost advantage over any current or new entrant.

 

But no matter how much financial sense it makes to recapitalize the GSEs and return them to business as usual (instead of winding them down), it doesn't matter if Treasury, FHFA and Congress have opposing political priorities.

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Corker saying that the bill would "ensure that taxpayers get all of the upside that comes with the risks they were asked to assume in 2008" seems unexpectedly strong, even compared to recent articles on the same legislation. Bad news for common and preferred in my opinion.

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I seem to recall that Mohnish was invested in the preferred shares a while back and exited. Does anyone remember why?

 

Probably because it's a frickin' 9-foot hurdle! 

 

What margin of safety is there in something that may not exist because the government deems it so?  Balance sheet and operating risk is somewhat estimable, but business/industry risk is much harder to do with congressmen and senators involved.

 

Contrary to popular belief, Mohnish prefers easier ways to make money...so do I.  You can make money trading it like Twacowfca has, but you better be right about the bet within 5-7 years.  You can't wait this one out like Berkowitz did with Sears, since the U.S. government isn't worried about investors getting their money back, only the U.S. government.  Cheers! 

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I seem to recall that Mohnish was invested in the preferred shares a while back and exited. Does anyone remember why?

 

Probably because it's a frickin' 9-foot hurdle! 

 

What margin of safety is there in something that may not exist because the government deems it so?  Balance sheet and operating risk is somewhat estimable, but business/industry risk is much harder to do with congressmen and senators involved.

 

Contrary to popular belief, Mohnish prefers easier ways to make money...so do I.  You can make money trading it like Twacowfca has, but you better be right about the bet within 5-7 years.  You can't wait this one out like Berkowitz did with Sears, since the U.S. government isn't worried about investors getting their money back, only the U.S. government.  Cheers!

 

I'll be interested to see how this plays out. I briefly owned a small amount of Freddie Mac preferreds before the government decided it was going to take all of the profits as a dividend. The GSEs are pretty good businesses, overall, and if they are ever taken out of conservatorship they could become good investments.

 

Until that happens, though, I have little interest in these securities. I do own some indirectly through Fairholme, but that's in my 401.

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I think this is why the politicians are so desperate to take the GSEs out of the public shareholder's hands.

 

The cash flows for them to play with (spend) will be enormous going forward.

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