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

[Luke 532]

Interesting Boyle Capital Q3 update: https://www.boylecapital.com/news-and-insights/2020-q3-commentary . As some of you may now they are big on Jr prds, and have increased their exposition this Q. Nothing new on the table, but love the way they connect the dots on this saga. Expecting a PSPA amendment/consent decree late november/early december (between elections and SCOTUS hearing).

 

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

[Luke 532]

At this week's @MITgcfp Future of Housing Finance conference, @MarkCalabria

stated that @FHFA will release mile markers that indicate when capital is enough and sufficient, and said that "we as an agency need to be ready." Sounds like a consent decree to us! #GSEs

[SnarkyPuppy]

My biggest concern is that if Trump loses the election, the current administration being as partisan as it is, recognizes that a supreme court loss will likely be decided during the next administration.

 

Therefore, as a F* you, Mnuchin can refuse to sign any PSPA amendment and let the next administration deal with the mess.  Why is this not a risk?

 

A loss in the courts is really a reflection of the policies in 2012 during Biden's previous stint & mnuchin/calabria can say they did what they could to build capital. 

 

Of course from a probability perspective, this scenario AND a supreme court loss would both have to  occur for us to lose $. 

[onyx1]

Interesting Boyle Capital Q3 update: https://www.boylecapital.com/news-and-insights/2020-q3-commentary . As some of you may now they are big on Jr prds, and have increased their exposition this Q. Nothing new on the table, but love the way they connect the dots on this saga. Expecting a PSPA amendment/consent decree late november/early december (between elections and SCOTUS hearing).

 

https://twitter.com/ACGAnalytics/status/1309135699900276740

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

 

 

Speaking of chances, I've laid out the possible near-term scenarios from today and assigned conservative probabilities to each node to arrive at a "low-ish" estimate of a JPS win.  Spoiler: It's 80%.  I have no doubt others will see different probability distribution and for that reason, I welcome any feedback (especially from those with more insight & expertise).  FWIW I've owned JPS since 2011, and recently added significantly more around current levels.  See attached.

GSE.pdf

[SnarkyPuppy]

Interesting Boyle Capital Q3 update: https://www.boylecapital.com/news-and-insights/2020-q3-commentary . As some of you may now they are big on Jr prds, and have increased their exposition this Q. Nothing new on the table, but love the way they connect the dots on this saga. Expecting a PSPA amendment/consent decree late november/early december (between elections and SCOTUS hearing).

 

https://twitter.com/ACGAnalytics/status/1309135699900276740

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

 

 

Speaking of chances, I've laid out the possible near-term scenarios from today and assigned conservative probabilities to each node to arrive at a "low-ish" estimate of a JPS win.  Spoiler: It's 80%.  I have no doubt others will see different probability distribution and for that reason, I welcome any feedback (especially from those with more insight & expertise).  FWIW I've owned JPS since 2011, and recently added significantly more around current levels.  See attached.

 

You have 80% odds of an amendment which requires Mnuchin's approval.  Why is it only 20% odds that Mnuchin says F* you and leaves the mess to the next administration if Trump loses?

[onyx1]

Interesting Boyle Capital Q3 update: https://www.boylecapital.com/news-and-insights/2020-q3-commentary . As some of you may now they are big on Jr prds, and have increased their exposition this Q. Nothing new on the table, but love the way they connect the dots on this saga. Expecting a PSPA amendment/consent decree late november/early december (between elections and SCOTUS hearing).

 

https://twitter.com/ACGAnalytics/status/1309135699900276740

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

 

 

Speaking of chances, I've laid out the possible near-term scenarios from today and assigned conservative probabilities to each node to arrive at a "low-ish" estimate of a JPS win.  Spoiler: It's 80%.  I have no doubt others will see different probability distribution and for that reason, I welcome any feedback (especially from those with more insight & expertise).  FWIW I've owned JPS since 2011, and recently added significantly more around current levels.  See attached.

 

You have 80% odds of an amendment which requires Mnuchin's approval.  Why is it only 20% odds that Mnuchin says F* you and leaves the mess to the next administration if Trump loses?

 

 

If partisanship is the primary motivation, and I don't believe it is, then leaving the NWS in place would be giving a Biden Administration exactly what they and many democrats (like Warner and Sherman) desire: nationalized GSEs they can control and continue to milk. 

[Guest cherzeca]

@onyx

 

I think you have done a good job, analytically and risk assessing.  this has always been an "event investment", and I always believed that the ultimate event would be a litigation win.  now that ultimate litigation win opportunity has been teed up (and I never thought that it would get to scotus, but as the court of last resort so much the better), the events of an amendment/consent decree will come to fruition imo simply because govt won't want to see the litigation result (you can add to that the desire not to hand this situation to #crookedjoe).  govt actors are always slow and unreliable...but now their focus has been concentrated.

[orthopa]

Interesting Boyle Capital Q3 update: https://www.boylecapital.com/news-and-insights/2020-q3-commentary . As some of you may now they are big on Jr prds, and have increased their exposition this Q. Nothing new on the table, but love the way they connect the dots on this saga. Expecting a PSPA amendment/consent decree late november/early december (between elections and SCOTUS hearing).

 

https://twitter.com/ACGAnalytics/status/1309135699900276740

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

 

 

Speaking of chances, I've laid out the possible near-term scenarios from today and assigned conservative probabilities to each node to arrive at a "low-ish" estimate of a JPS win.  Spoiler: It's 80%.  I have no doubt others will see different probability distribution and for that reason, I welcome any feedback (especially from those with more insight & expertise).  FWIW I've owned JPS since 2011, and recently added significantly more around current levels.  See attached.

 

You have 80% odds of an amendment which requires Mnuchin's approval.  Why is it only 20% odds that Mnuchin says F* you and leaves the mess to the next administration if Trump loses?

 

Certainly a possibility I have thought of but a low one I believe for a couple of reasons.

 

1. Granted it was only words but reforming the GSEs were a priority for this administration spoken by Mnuchin himself.

2. A loss in any fashion during a Biden admin is blamed on Mnuchin/Calabria as right now they have their name all over this and Calabria still in office till removed. So either they leave their mark on their terms or a courts terms.

3. Even if only at 50/50 odds something as large as overturning the NWS and being held responsible for such carries no glory. Why even step in that arena when you can stop that possibility in totality with a pen stroke?

4. Last PSPA amendment agreement contemplated another amendment.

5. Again I have mentioned this before but I think many people that Mnuchin would interact with outside of public servant duty would benefit much more from a 4th PSPA then not. This will be seen as enriching the hedge funds but lets call it for what it is.

6. There is substantial cover at this point in regard to Tsy investment and risks of SCOTUS.

 

As much as sticking it to Biden may seem palatable this would stink of Mnuchin forever. How can it not?

 

A interesting point that Phillips brought up during the recent MIT webinar was in regard to treasury's investment return. Not only have the GSEs returned the original commitment +10% but treasury also has the warrants which will be worth 10s of billion of dollars making this one of the govs best investments  if not best ever. That should quiet Mark Warner and his buddy down real quick.

[orthopa]

At this week's @MITgcfp Future of Housing Finance conference, @MarkCalabria

stated that @FHFA will release mile markers that indicate when capital is enough and sufficient, and said that "we as an agency need to be ready." Sounds like a consent decree to us! #GSEs

 

Not sure I quite get the quoted part of this tweet. Ready for what? If released under consent decree the terms would have been determined already.

 

I wonder if the mile markers will be released with or as part of the capital rule?

[Jcmeg35]

At this week's @MITgcfp Future of Housing Finance conference, @MarkCalabria

stated that @FHFA will release mile markers that indicate when capital is enough and sufficient, and said that "we as an agency need to be ready." Sounds like a consent decree to us! #GSEs

 

Not sure I quite get the quoted part of this tweet. Ready for what? If released under consent decree the terms would have been determined already.

 

I wonder if the mile markers will be released with or as part of the capital rule?

 

I watched the discussion, and if memory serves me, the "need to be ready" was around the change to capacity as regulator. He discussed quite a bit building up this capacity within the agency - having own analytic capability compared to relying on GSE's, hiring economist, etc.

[orthopa]

unlocked now

 

https://www.realvision.com/the-ultimate-election-trade-fannie-and-freddie-live-with-gabriella-heffesse

[ValueMaven]

ACG has been DEAD wrong over the past 18-24 months.  I've seen there research.  It stinks - they have little insight.  Dont forget they were pushing IntelSat very hard as well. 

[undervalued]

ACG has been DEAD wrong over the past 18-24 months.  I've seen there research.  It stinks - they have little insight.  Dont forget they were pushing IntelSat very hard as well.

 

What is their incentive trying to push FNMA/FMCC and IntelSat very hard?

[WB_fan82]

New FHFA rule!

 

Slow but sure progress.  Curious about what MC would want to bake into an amended SPSA and what he would want to get done through rulemaking.

[WB_fan82]

"Other critical mile-markers"... sounds to me like:

 

"putting in place prudent and sustainable lending standards" = figure out QM and GSE patch?

"sound risk management" = CRTs?

"and world-class regulation that applies the same set of rules to all market participants" = equal terms for selling loans to GSEs, and/or equal capital treatment by banks of mortgages (i.e. 20% risk weight same as GSE MBS instead of 50% risk weight holding the mortgage)?

 

Excerpt from MBA remarks:

 

 

"Of course, having a capital rule is not the same as having capital. But it is a critical step toward ensuring that the Enterprises can support sustainable homeownership throughout the economic cycle.

 

It is also a critical step toward responsibly ending the conservatorships. It was insufficient capital that triggered the conservatorships. And building private capital is a necessary precondition to ending them.

 

Ending the conservatorships will be process-driven, not calendar-driven. Other critical mile-markers include putting in place prudent and sustainable lending standards, sound risk management, and world-class regulation that applies the same set of rules to all market participants."

 

[muscleman]

ACG has been DEAD wrong over the past 18-24 months.  I've seen there research.  It stinks - they have little insight.  Dont forget they were pushing IntelSat very hard as well.

 

What is their incentive trying to push FNMA/FMCC and IntelSat very hard?

 

Could it be just self re-enforcing bias? ACG first started with a bold prediction in 2019 about FnF. Then as it turned sour, they have to double down to show their clients that they should be listened to.

[SnarkyPuppy]

ACG has been DEAD wrong over the past 18-24 months.  I've seen there research.  It stinks - they have little insight.  Dont forget they were pushing IntelSat very hard as well.

 

What is their incentive trying to push FNMA/FMCC and IntelSat very hard?

 

Could it be just self re-enforcing bias? ACG first started with a bold prediction in 2019 about FnF. Then as it turned sour, they have to double down to show their clients that they should be listened to.

 

Or maybe there isn't some weird conspiracy behind everything;  and they think that it's a complicated subject for which they can provide value to interested funds while simultaneously benefiting from being right given the risk/reward dynamics?

[orthopa]

ACG has been DEAD wrong over the past 18-24 months.  I've seen there research.  It stinks - they have little insight.  Dont forget they were pushing IntelSat very hard as well.

 

What is their incentive trying to push FNMA/FMCC and IntelSat very hard?

 

Could it be just self re-enforcing bias? ACG first started with a bold prediction in 2019 about FnF. Then as it turned sour, they have to double down to show their clients that they should be listened to.

 

Or maybe there isn't some weird conspiracy behind everything;  and they think that it's a complicated subject for which they can provide value to interested funds while simultaneously benefiting from being right given the risk/reward dynamics?

 

+1 To be fair everyone on in this thread has been wrong at some point and until this works out is wrong if invested. They have earned respect on the timing of some calls.

[SnarkyPuppy]

ACG has been DEAD wrong over the past 18-24 months.  I've seen there research.  It stinks - they have little insight.  Dont forget they were pushing IntelSat very hard as well.

 

What is their incentive trying to push FNMA/FMCC and IntelSat very hard?

 

Could it be just self re-enforcing bias? ACG first started with a bold prediction in 2019 about FnF. Then as it turned sour, they have to double down to show their clients that they should be listened to.

 

Or maybe there isn't some weird conspiracy behind everything;  and they think that it's a complicated subject for which they can provide value to interested funds while simultaneously benefiting from being right given the risk/reward dynamics?

 

+1 To be fair everyone on in this thread has been wrong at some point and until this works out is wrong if invested. They have earned respect on the timing of some calls.

 

I think my CAGR from cost is mid 20%'s.  If this is wrong, I don't want to be right. 

[Guest cherzeca]

https://seekingalpha.com/article/4380404-for-fannie-and-freddie-shareholders-crunch-time-approaches-given-availability-of-prejudgment

 

[Luke 532]

As of today when they were asked, ACG has not changed their opinion on this level of confidence.

 

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

[Guest cherzeca]

As of today when they were asked, ACG has not changed their opinion on this level of confidence.

 

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

 

I like ACG, but their wheelhouse is gathering intel in DC, not legal.  legal is hard, and they can't do it since they are not lawyers.  I dont know who they look to for that, as I have asked and haven't gotten an answer.  for all I know, they just read SA/twitter etc.  if they have insight into what legal advisors to GSEs/FHFA are thinking, then great but I dont understand that they have that.  so it is a little bit like the wizard behind the curtain, at least re legal matters. re DC matters, I think they are often correct, or as correct as one can be about what this administration is thinking

 

 

[typicalvalue]

Interested to know what are your views on the election (as it affects the path and speed of recap), as just 11 days remain and final debate was yesterday.

 

My humble take is that even though we cannot trust polls given the 2016 outcome, Biden has a slightly chance of winning (less than the advantatge that polls sugest), and dunno know if the lastest Biden scandal will have the ability to hurt him on the election or will be ignored. Please keep in mind that I'm not a US citizen nor a political expert, so would like to know your view on this, especially the ones that live it from the inside.

[orthopa]

Interested to know what are your views on the election (as it affects the path and speed of recap), as just 11 days remain and final debate was yesterday.

 

My humble take is that even though we cannot trust polls given the 2016 outcome, Biden has a slightly chance of winning (less than the advantatge that polls sugest), and dunno know if the lastest Biden scandal will have the ability to hurt him on the election or will be ignored. Please keep in mind that I'm not a US citizen nor a political expert, so would like to know your view on this, especially the ones that live it from the inside.

 

My 2 pennies.

 

1. If Trump wins we should see substantial post election price appreciation as that eliminates a lot of short term uncertainty. Still doesn't account for Calabria and Mnuchin moves post election but allow more time for both to carry out the plan.

 

2. If Biden wins likely we see a drop post election (maybe even significantly) until we start to see some action from Calabria/Mnuchin leading up the SCOTUS oral arguments. This maybe the best outcome for an accelerated time line though.

 

I think since amending the PSPA and formally stopping the NWS maybe the biggest short term action both Calabria/Mnuchin can take in the next 6 weeks to affect share price that is the biggest thing to watch for and can happen with either election outcome. This ideally happens before SCOTUS oral arguments and comes with other actions. I think what happens before or on Dec 9th will be the biggest tell for shareholders.

 

My confidence in Mnuchin/Calabria would both be seriously compromised if SCOTUS oral arguments occur as scheduled. This is for multiple reasons.

 

1. As cherzeca and others have pointed out actually/continually fighting a case in the SCOTUS that is 180 degrees to what the administrations public housing goals are undermines my confidence in those goals as being serious.

2. This undoubtedly delays the offering prospects for early next summer if we don't get a decision till June. Tack on another 6-12 months to any idea of a timeline you may have had for capital building and getting resolution of Jr preferred if that's what your holding.

3. Many lawyers/opinions have high probability of shareholders winning in SCOTUS. If shareholders lose we lose substantial if not all leverage in negotiations and the NWS likely stays intact until decision and who knows what happens after.

 

If Biden wins, and the SCOTUS is argued by the gov I would really consider heavily reducing my position. The prospects of a having Biden in office, a Dem Treasury Secretary, and the possibility of Calabrias position in jeopardy is the worst set up to have while waiting 6+ months for a SCOTUS opinion to come out.

[Guest cherzeca]

well said orthopa.  if Biden wins and SCOTUS is argued, then that would indicate that the inmates truly are running the Trump asylum.  though if you believe that Ps win before SCOTUS, you might want to sell only a little