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

[WB_fan82]

I think this is simple.  There is an elephant in the room.  There is no upside, none, nada, zilch for Mnuchin to move on the GSEs before the election.  It's all downside from optics of bailing out hedge funds and opens up all kinds of scrutiny.

 

Mnuchin has been the consummate survivor in this administration that has seen record turnover.  He's smart.  Another poster said he's an analytical guy --  based on lack of TSY personnel, he's a micromanager that does things personally.  He's also been super busy with more pressing items:  China, stimulus, covid, funding the govt, etc.

 

So all of that tells me that the GSEs are in his "want to do" pile but not in his "need to do now" pile.  And he's fully aware of the political risks of acting before the election.

 

After the election, that falls off the table.  That would be THE time for him to act.  There is still a white house order to reform Fannie/Freddie.  There is still an order to negotiate a new amendment and covenants.

 

And we WILL get something.  FNMA is close to the capital reserve buffer, which forces the conversation.  The real question is whether Mnuchin punts by increasing the buffers to $200B and keeps the NWS in place, or whether he wants to take the step to convert the sr pfd and negotiate a commitment fee to truly get the GSEs privatized.

 

I don't think he needs to settle Collins to do any of this.  He can let Collins play out.  Worst case, $125B+ goes back to the GSEs which increases the value of TSY's stake.  TSY is in a win-win position.  In fact, I think it might very well be a bridge too far for him to settle Collins.  He can accomplish the same objective of getting govt out of ownership w/o all the bad press of settling Collins (and I'm not even sure if he has the authority to do a monetary settlement?!).  Obviously that's only half a loaf, but it's the only half he's ever talked about.

 

 

 

 

 

[WB_fan82]

Off topic, but I can't resist.

 

Trump is toast.  The reason is simple.  He net lost people that voted for him in 2016 to Biden.  Especially women.  On the other hand, almost nobody that voted for HRC in 2016 now finds themselves voting for Trump in 2020.

 

Remember his victory margins were narrow in 2016.  So he needs to pick up 2 new voters for every 1 he loses to Biden.  That hill is way too big to climb.

 

If only 1 or 2% switch it's 2 - 4% ground to make up.  Just not happening.  The women are deciding 2020, like it or not.

 

[Guest cherzeca]

@orthopa

 

a couple of thoughts, inspired by my dealings with govt as a private lawyer.

 

with govt, DOJ controls litigation, Treasury and WH control policy.  what you have seen for over the last year is that these two are at odds.  you can't recap and win Collins...unless you basically give up your Collins win in order to do the recap.

 

so why has this dichotomy persisted? well until collins, DOJ hasn't lost.  so you keep going until you get smacked down.  now not only has it lost at circuit court level, but with ACB replacing RBJ, scotus doesn't look promising.  so what does DOJ do?.....nothing until it has to.  when does it have to make a decision? I think not later than 12/09.  until then, variables will shake out, not least of which is whether trump remains in office.  if trump loses, I think a settlement is likely, certainly Calabria will want it.  if trump wins, I am not sure whether DOJ will conclude lets go to scotus and have them smack us down too...but that sounds like a dumb strategy to me.

[COBFInfinity]

As a reminder, it's best to keep your political opinions out of this discussion. With people on the right and left both claiming 100% certainty about their team winning - guess what? Someone is wrong.

 

The rest of us in the real world know that there is uncertainty as to what happens. With the GSE's, it obviously does matter who wins POTUS and it makes sense to consider the different paths the GSE's will take based on that fork in the road. But it is not helpful for people to chime in with, "Well, I know Mr. XYZ is going to win", implying that we should not factor any uncertainty into this investment.

[COBFInfinity]

As I delineated before in another post if Trump loses and the SCOTUS is argued then at a minimum I would heavily decrease my position...

 

The problem with that idea is that Mr. Market will probably reduce your position for you before you get a chance.

[Guest cherzeca]

As I delineated before in another post if Trump loses and the SCOTUS is argued then at a minimum I would heavily decrease my position...

 

The problem with that idea is that Mr. Market will probably reduce your position for you before you get a chance.

 

the problem with the GSE trade has always been that there are legal tea leaves, political tea leaves and good old fashioned how's-the-business-doing tea leaves to read.  if collins is argued before scotus, then the price will drop because people will need to focus on legal teal leaves, and not be comfortable doing so.  I will listen to the oral arg tape before I do anything re positions

[orthopa]

@orthopa

 

a couple of thoughts, inspired by my dealings with govt as a private lawyer.

 

with govt, DOJ controls litigation, Treasury and WH control policy.  what you have seen for over the last year is that these two are at odds.  you can't recap and win Collins...unless you basically give up your Collins win in order to do the recap.

 

so why has this dichotomy persisted? well until collins, DOJ hasn't lost.  so you keep going until you get smacked down.  now not only has it lost at circuit court level, but with ACB replacing RBJ, scotus doesn't look promising.  so what does DOJ do?.....nothing until it has to.  when does it have to make a decision? I think not later than 12/09.  until then, variables will shake out, not least of which is whether trump remains in office.  if trump loses, I think a settlement is likely, certainly Calabria will want it.  if trump wins, I am not sure whether DOJ will conclude lets go to scotus and have them smack us down too...but that sounds like a dumb strategy to me.

 

This is the exact line of thinking I have. You will have a 180 degree change in who controls policy with what will still appear to be a shareholder unfriendly DOJ by arguing the case.  The damage even with a favorable SCOTUS outcome is how different can the policy be? Are Obama era holdovers coming back? Elizabeth Warren has been floated as a Treasury Sec possibility. I don't even want to guess the chances of that but jesus, imagine negotiating a PSPA with her! lol. I have picked the Brain of others who have said wait 4 more years till the next election for a possible Rep president if Biden gets in. No thanks.

 

The 12/9 date has become the defacto point of no return in my mind in regards to a settlement in that I have leaned heavily on others in regards to that its disrespectful to settle a case after its argued at the SCOTUS, etc, etc. Maybe that's wrong I don't know.

 

Its certainly the final count down.

[Guest cherzeca]

I do believe that SG will think that it is disrespectful of scotus to argue then settle. but respect seems rather old fashioned these days...

[sholland]

I do believe that SG will think that it is disrespectful of scotus to argue then settle. but respect seems rather old fashioned these days...

 

cherzeca - you believe that there will be a settlement before 9-Dec-2020.

I believe that all negotiation occurs at the 11th hour.

If true, then when do you think is the latest that settlement happens?

Seems to me that the court’s time is still wasted if settlement happens 8-Dec-2020.

 

[Guest cherzeca]

I do believe that SG will think that it is disrespectful of scotus to argue then settle. but respect seems rather old fashioned these days...

 

cherzeca - you believe that there will be a settlement before 9-Dec-2020.

I believe that all negotiation occurs at the 11th hour.

If true, then when do you think is the latest that settlement happens?

Seems to me that the court’s time is still wasted if settlement happens 8-Dec-2020.

 

it is a question of a bright line.  yes, scotus granted cert, and cert grants are scarce, so you are right, there is a bit of "using" scotus already.  but actually holding orals and then settling is a step beyond imo, a bright line.

[WB_fan82]

Have you ever heard of a settlement after oral argument?

 

I've found settlements in the weeks before, but never after argument.

[Luke 532]

Gary Hindes latest blog opines on Solicitor Generals oral argument strategy for December 9 - not since the thrilla in Manila has there been a set up like this.

http://delawarebayllc.com/images/The_shameful_state_of_the_federal_courts.pdf

[Guest cherzeca]

Gary Hindes latest blog opines on Solicitor Generals oral argument strategy for December 9 - not since the thrilla in Manila has there been a set up like this.

http://delawarebayllc.com/images/The_shameful_state_of_the_federal_courts.pdf

 

the article is well worth reading.  in sum, there is a difference between SG arguing before scotus and DOJ arguing before district and circuit courts.  BS arguments (may/shall) won't fly, and settling after orals imo won't fly.  we shall see.

[Jcmeg35]

@cherzeca given that this was initiated by the sixth circuit do you think it is misplaced to read into this as being the beginnings of settlement talks involving the bigger cases?

 

http://www.glenbradford.com/2020/11/fnma-fanniegate-997/

[Guest cherzeca]

@cherzeca given that this was initiated by the sixth circuit do you think it is misplaced to read into this as being the beginnings of settlement talks involving the bigger cases?

 

http://www.glenbradford.com/2020/11/fnma-fanniegate-997/

 

no I wouldn't say that.  6th C doesn't want to have to hear this appeal. trying to head it off by requiring an attempt at mediation...which won't go anywhere.  this is court administration. no tea leaves here

[Jcmeg35]

 

Thanks, thought that was probably the case.

 

@cherzeca given that this was initiated by the sixth circuit do you think it is misplaced to read into this as being the beginnings of settlement talks involving the bigger cases?

 

http://www.glenbradford.com/2020/11/fnma-fanniegate-997/

 

no I wouldn't say that.  6th C doesn't want to have to hear this appeal. trying to head it off by requiring an attempt at mediation...which won't go anywhere.  this is court administration. no tea leaves here

[orthopa]

Hopefully the events of today are a big step towards the end. We have been waiting for this since last summer.

[orthopa]

[typicalvalue]

Seems that Trump has lost the election o has very slight chances. Now we enter in a countdown until inaguration where we will see if Calabria/Mnuchin (especially 2nd one) are serious about the issue. If not we will have to rely on the fairness of justice. Interesting to watch today how beaten are the pfds by the market.

[Guest cherzeca]

Seems that Trump has lost the election o has very slight chances. Now we enter in a countdown until inaguration where we will see if Calabria/Mnuchin (especially 2nd one) are serious about the issue. If not we will have to rely on the fairness of justice. Interesting to watch today how beaten are the pfds by the market.

 

yup.  I would think the common would do worse than junior prefs, and while it may be magical thinking, I do hope this lights a fire under Calabria/mnuchin's ass

[Jcmeg35]

In some non-election related news:

 

"Fannie Mae Names Sheila C. Bair as New Chair of the Board of Directors"

https://www.prnewswire.com/news-releases/fannie-mae-names-sheila-c-bair-as-new-chair-of-the-board-of-directors-301166697.html

[Luke 532]

Interview: https://www.housingwire.com/podcast/former-mba-president-david-stevens-on-the-2020-election-and-housing/

 

David Stevens had the following to say today:

-acknowledges that Republican-controlled Senate is a massive problem for him

-the lame duck action to make permanent changes is legit

-he knows housing isn't a priority for Biden

-doesn't think Biden will focus on Calabria or his job (i.e. Biden not going to be in a rush to get rid of Calabria)

-Biden has no power to get refi-fee rolled back (not going anywhere in short run)

[Guest cherzeca]

thanks Luke.  Stevens is annoying and cloying, but not dumb.  I think his point that housing/GSEs are currently not a problem and hence won't be a priority for a Biden admin at least initially is correct, and even if the house FSC thinks otherwise, I think Calabria gets probation time. just a question of inertia if nothing else.  he doesn't appreciate that collins may not be a live case after lame duck so that the Biden admin might need to go to court to remove Calabria at will, which I thought was somewhat naive.  but my biggest takeaway is that he thinks Toomey will be the new senate banking committee chair, and Toomey was an early proponent of GSE recap.  if he is right, and I rather think he spends a lot of time on the phone sussing out beltway moves, then that might be the best thing I heard today.

[DocSnowball]

thanks Luke.  Stevens is annoying and cloying, but not dumb.  I think his point that housing/GSEs are currently not a problem and hence won't be a priority for a Biden admin at least initially is correct, and even if the house FSC thinks otherwise, I think Calabria gets probation time. just a question of inertia if nothing else.  he doesn't appreciate that collins may not be a live case after lame duck so that the Biden admin might need to go to court to remove Calabria at will, which I thought was somewhat naive.  but my biggest takeaway is that he thinks Toomey will be the new senate banking committee chair, and Toomey was an early proponent of GSE recap.  if he is right, and I rather think he spends a lot of time on the phone sussing out beltway moves, then that might be the best thing I heard today.

 

Toomey might well be in the "let it happen" column. Question is, who (person) or what (catalyst) would "make it happen" still? I think if nothing happens prior to transition of power, then looks like it may be a long drawn out wait once again, subject to the court ruling. The court hearing and if progressing then its result are the two sure events on the calendar, everything else seems to be subject to the kindness of strangers.

[Guest cherzeca]

thanks Luke.  Stevens is annoying and cloying, but not dumb.  I think his point that housing/GSEs are currently not a problem and hence won't be a priority for a Biden admin at least initially is correct, and even if the house FSC thinks otherwise, I think Calabria gets probation time. just a question of inertia if nothing else.  he doesn't appreciate that collins may not be a live case after lame duck so that the Biden admin might need to go to court to remove Calabria at will, which I thought was somewhat naive.  but my biggest takeaway is that he thinks Toomey will be the new senate banking committee chair, and Toomey was an early proponent of GSE recap.  if he is right, and I rather think he spends a lot of time on the phone sussing out beltway moves, then that might be the best thing I heard today.

 

Toomey might well be in the "let it happen" column. Question is, who (person) or what (catalyst) would "make it happen" still? I think if nothing happens prior to transition of power, then looks like it may be a long drawn out wait once again, subject to the court ruling. The court hearing and if progressing then its result are the two sure events on the calendar, everything else seems to be subject to the kindness of strangers.

 

this is all true.  but look at the price action of the common v junior pref (6% outperformance of junior over past two days).  I will let muscleman inform us as to what the market is telling us, but it appears to be something that is more adverse to common than junior pref.