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

[undervalued]

https://www.bloomberg.com/news/articles/2021-01-13/trump-team-s-final-act-on-fannie-freddie-leaves-fates-to-biden

[typicalvalue]

https://www.bloomberg.com/news/articles/2021-01-13/trump-team-s-final-act-on-fannie-freddie-leaves-fates-to-biden

If that's true would be just allowing more retained earnings and maybe ending the NWS if we are lucky. So we have to wait till scotus to decide our fate and admin reform is dead.

[beaufort]

Possibilities:

 

1.  Mnuchin has been bought, is currently running the clock and has been running the clock for a long time.

2.  Joe Light is doing what he has always done, which is to spread misinformation.  If misinformation, there is usually a correction in the press fairly quickly.

3.  This is an orchestration, to ensure that there was a hard fought contract negotiated. 

4.  Mnuchin has no balls and requires Trump to make the decision.

5.  SPS write down comes along, as does end to NWS, but warrants stay in play.  Consistent with Light's article. 

 

If Calabria can't be an effective conservator by Mnuchin's design, receivership has to be on the table. 

 

 

 

[typicalvalue]

Possibilities:

 

1.  Mnuchin has been bought, is currently running the clock and has been running the clock for a long time.

2.  Joe Light is doing what he has always done, which is to spread misinformation.  If misinformation, there is usually a correction in the press fairly quickly.

3.  This is an orchestration, to ensure that there was a hard fought contract negotiated. 

4.  Mnuchin has no balls and requires Trump to make the decision.

5.  SPS write down comes along, as does end to NWS, but warrants stay in play.  Consistent with Light's article. 

 

If Calabria can't be an effective conservator by Mnuchin's design, receivership has to be on the table.

 

Many of the above make sense. Tomorrow we'll know. Considerating admin reform is dead and just capital buffers are increased, what are your takes on SCOTUS decision?

[investorG]

Sep 30 2019, press release from Treasury:  "The (housing) Plan also recommended that Treasury and FHFA develop recapitalization plans for Fannie Mae and Freddie Mac after identifying and assessing the full range of strategic options.  Subsequent amendments to the PSPAs may be appropriate to facilitate the implementation of any eventual recapitalization plans."

 

January 2021:  Never mind.

 

 

[DRValue]

They need all the money they can get with 27T of debt...

[SnarkyPuppy]

One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isn’t actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

 

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

 

It’s not over until it’s over and the floor is not $0 as there are multiple prongs of margin of safety. 

[DRValue]

Good point on incentives.

 

Depending on what treasury does, Biden could be good for common if the amount of capital is set to more realistic levels.

[asterisk]

One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isn’t actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

 

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

 

It’s not over until it’s over and the floor is not $0 as there are multiple prongs of margin of safety.

 

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out.

 

 

Good luck to all

[james22]

...if Mnuchin believes the Court case strong, maybe he likes letting them rule against (and embarrass) the Democrats?

 

Starting to like this: put the loss on those who took Fannie/Freddie in the first place.

 

I can wait.

[SnarkyPuppy]

One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isn’t actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

 

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

 

It’s not over until it’s over and the floor is not $0 as there are multiple prongs of margin of safety.

 

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out.

 

 

Good luck to all

 

There is $16mm in ADV across the 2 most liquid preferreds (FNMAS and FMCKJ) before accounting for any of the other series.  Over the course of 4 years, wouldn't be too difficult to make some $.

 

Again - I have no idea and certainly not trying to accuse.  I'm just starting to do a post-mortem on alternative explanations so I can at least learn something here.  Ex-ante I think a lot of the "Mnuchin won't act" were surface level opinions that may prove to be correct, but never thought through specific incentives like the one I mentioned above.  Right for the wrong reasons.  But all that matters in this game is the result. 

[asterisk]

One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isn’t actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

 

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

 

It’s not over until it’s over and the floor is not $0 as there are multiple prongs of margin of safety.

 

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out.

 

 

Good luck to all

 

There is $16mm in ADV across the 2 most liquid preferreds (FNMAS and FMCKJ) before accounting for any of the other series.  Over the course of 4 years, wouldn't be too difficult to make some $.

 

Again - I have no idea and certainly not trying to accuse.  I'm just starting to do a post-mortem on alternative explanations so I can at least learn something here.  Ex-ante I think a lot of the "Mnuchin won't act" were surface level opinions that may prove to be correct, but never thought through specific incentives like the one I mentioned above.  Right for the wrong reasons.  But all that matters in this game is the result.

 

Thats a valid point. Although seems like peanuts for the "potential" overall prize.

 

I think a debt of gratitude is owed the significant contributors on here. This board could be used as a case study. Ahead of tomorrow I would like to thank you all for the insights.

[james22]

Incentives would argue against a perpetual sweep:

 

Even if the Greed thesis true, Mnuchin has no reason to do the Democrats any favors.

 

If this administration kicks to SCOTUS, they must be very confident the ruling will take care of Paulson.

[orthopa]

Sep 30 2019, press release from Treasury:  "The (housing) Plan also recommended that Treasury and FHFA develop recapitalization plans for Fannie Mae and Freddie Mac after identifying and assessing the full range of strategic options.  Subsequent amendments to the PSPAs may be appropriate to facilitate the implementation of any eventual recapitalization plans."

 

January 2021:  Never mind.

\

 

Looking at a decision tree if the answer is no, and one would have to assume Mnuchin would know what Trump thinks by now, why pass the question up to Trump? Mnuchin already looks like a bad guy by saying no. Do we really need 2 "no's" at this point?

 

Secondly its the eve before this goes down and a decision still has not been made on this? How the hell do you have a framework, blueprint all that BS but you havent made a decision on the "thorniest issue"? Really?

 

We are in Trumps hands here, he finishes it but you wait till the end to say no? Just say no right away, or why isnt mnuchins "no" not good enough.

 

I dont get it.

 

I thought this was an agreement between Treasury and FHFA? Why get Trump involved?

[cameronfen]

One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isn’t actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

 

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

 

It’s not over until it’s over and the floor is not $0 as there are multiple prongs of margin of safety.

 

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out.

 

 

Good luck to all

 

There is $16mm in ADV across the 2 most liquid preferreds (FNMAS and FMCKJ) before accounting for any of the other series.  Over the course of 4 years, wouldn't be too difficult to make some $.

 

Again - I have no idea and certainly not trying to accuse.  I'm just starting to do a post-mortem on alternative explanations so I can at least learn something here.  Ex-ante I think a lot of the "Mnuchin won't act" were surface level opinions that may prove to be correct, but never thought through specific incentives like the one I mentioned above.  Right for the wrong reasons.  But all that matters in this game is the result.

 

For what it’s worth for your post mortem I think SM was probably on track to sign the amendment until the riots.  But that’s just opinion. 

[orthopa]

One area I strongly miscalculated was incentives.  I figured that while an argument could be made that the perpetual sweep of profits to the UST is valuable cashflow for the govt, the govt is made up of elected officials with term limits and therefore the cashflow isn’t actually perpetual from the perspective of the elected officials in charge.  And therefore in practice, the cashflow was only valuable to Mnuchin/Trump for the 4-8 years they held office.  And therefore once that time was up, they would make a move as the cashflow does not directly benefit them once they leave office.

 

One possibility is that while we had incentives generally correct (taking care of Paulson), they were achieved in a way we had not thought realistic - continued non commital public statements causing the securities prices to fluctuate up and down - allowing for people close to insiders to trade around the news.  Not saying this is what happened - but would be an alternative explanation for everything to date. 

 

It’s not over until it’s over and the floor is not $0 as there are multiple prongs of margin of safety.

 

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out.

 

 

Good luck to all

 

There is $16mm in ADV across the 2 most liquid preferreds (FNMAS and FMCKJ) before accounting for any of the other series.  Over the course of 4 years, wouldn't be too difficult to make some $.

 

Again - I have no idea and certainly not trying to accuse.  I'm just starting to do a post-mortem on alternative explanations so I can at least learn something here.  Ex-ante I think a lot of the "Mnuchin won't act" were surface level opinions that may prove to be correct, but never thought through specific incentives like the one I mentioned above.  Right for the wrong reasons.  But all that matters in this game is the result.

 

For what it’s worth for your post mortem I think SM was probably on track to sign the amendment until the riots.  But that’s just opinion.

 

Why would this be more palatable without the riots? If Trump does this he enriches hedge funds, paulson et al. He is already going down as the worst president in history and has pardoned all of his cronies manafort, kushners dad, flynn,  etc. The riot made this too much? Interesting.

[beaufort]

All of the press are a bunch of hit pieces/misinformation.  It is easy to interpret Light's article as follows.

 

1.  NWS

 

"Most significant, Fannie and Freddie won’t have to pay their profits to the government until they have much bigger capital buffers to protect the companies against losses."

 

NWS is done.  No commitment fee until hitting a certain amount in buffers.  And "[p]eople briefed on the plans said it wasn’t clear how much capital the companies will be permitted to keep but said the changes were framed as an end to the so-called net-worth sweep, a controversial policy implemented during the Obama administration that requires they send their earnings to the Treasury."

 

 

2.  Warrants

 

"However, Treasury opposes reducing the government’s ownership stake in Fannie and Freddie, a longtime goal of the companies’ private shareholders." 

 

This can easily be understood to be the warrants and not the SPS, becuase in the very next sentence, Light addresses the SPS.

 

3.  SPS

 

"Whether to modify the Treasury’s senior preferred stake is under consideration at the White House, said one person familiar with the matter."

 

There is no reason 'modify' can't be interpreted to mean liquidation preference paid down.

 

4.  Conditions precedent for release

 

"With the agreement, the Treasury and FHFA plan to set out recommendations for what needs to happen before Fannie and Freddie are freed. But the suggestions won’t be binding for Biden’s Treasury, the people said. That means the changes effectively amount to a blueprint for eventually making Fannie and Freddie fully privatized companies."

 

It will be up to the GSEs to meet the conditions precedent in order to get out.  Of course that is not 'binding' on Biden's treasury.  The conditions precedent must be met by FnF.  As for anything still to be negotiated, sure, maybe the Biden admin makes further agreements.

 

5.  Conflating SPS and warrants

 

There is a distinction between SPS and warrants, but Light conflates them here.  I base this on the fact that he acknowledges that the SPS is a WH decision above:

 

"One of the thorniest issues that Treasury intends to leave unresolved will be the government’s stake in Fannie and Freddie, a position that now exceeds $220 billion in senior preferred shares as well as warrants to acquire nearly 80% of the companies’ common stock."

 

 

All in all, sloppy work from Light, as usual.  In this regard he is matched by Ackerman and Gasparino.

 

[orthopa]

All of the press are a bunch of hit pieces/misinformation.  It is easy to interpret Light's article as follows.

 

1.  NWS

 

"Most significant, Fannie and Freddie won’t have to pay their profits to the government until they have much bigger capital buffers to protect the companies against losses."

 

NWS is done.  No commitment fee until hitting a certain amount in buffers.  And "[p]eople briefed on the plans said it wasn’t clear how much capital the companies will be permitted to keep but said the changes were framed as an end to the so-called net-worth sweep, a controversial policy implemented during the Obama administration that requires they send their earnings to the Treasury."

 

 

2.  Warrants

 

"However, Treasury opposes reducing the government’s ownership stake in Fannie and Freddie, a longtime goal of the companies’ private shareholders." 

 

This can easily be understood to be the warrants and not the SPS, becuase in the very next sentence, Light addresses the SPS.

 

3.  SPS

 

"Whether to modify the Treasury’s senior preferred stake is under consideration at the White House, said one person familiar with the matter."

 

There is no reason 'modify' can't be interpreted to mean liquidation preference paid down.

 

4.  Conditions precedent for release

 

"With the agreement, the Treasury and FHFA plan to set out recommendations for what needs to happen before Fannie and Freddie are freed. But the suggestions won’t be binding for Biden’s Treasury, the people said. That means the changes effectively amount to a blueprint for eventually making Fannie and Freddie fully privatized companies."

 

It will be up to the GSEs to meet the conditions precedent in order to get out.  Of course that is not 'binding' on Biden's treasury.  The conditions precedent must be met by FnF.  As for anything still to be negotiated, sure, maybe the Biden admin makes further agreements.

 

5.  Conflating SPS and warrants

 

There is a distinction between SPS and warrants, but Light conflates them here.  I base this on the fact that he acknowledges that the SPS is a WH decision above:

 

"One of the thorniest issues that Treasury intends to leave unresolved will be the government’s stake in Fannie and Freddie, a position that now exceeds $220 billion in senior preferred shares as well as warrants to acquire nearly 80% of the companies’ common stock."

 

 

All in all, sloppy work from Light, as usual.  In this regard he is matched by Ackerman and Gasparino.

 

+1.

 

And again no source names, every thing is "fluid", "not set in stone", still "under consideration", we wont know till we know.

[TwoCitiesCapital]

Picked up more today at 19.5% of par. Can't decide if this is me being stubborn and throwing good money after bad or a very timely and tactical addition to what is going to be a multibagger. Time will tell.

[Read the Footnotes]

 

For what it’s worth for your post mortem I think SM was probably on track to sign the amendment until the riots.  But that’s just opinion.

 

Why would this be more palatable without the riots? If Trump does this he enriches hedge funds, paulson et al. He is already going down as the worst president in history and has pardoned all of his cronies manafort, kushners dad, flynn,  etc. The riot made this too much? Interesting.

I think Cameronfen has a good point.

 

The Joint Chiefs just reiterated that they serve the constitution, that they only take lawful orders and that Joe Biden "will" become the next President (they made a similar statement just after the election, for the first time ever). The emphasis on the use of "will" is interesting, because in US military speak it might have an additional emphasis of inevitability. It's a VERY unusual statement. The kind of thing that you would only write if you believe one branch of the government was engaging in a cold war with the other.

 

https://www.cnn.com/2021/01/12/politics/joint-chiefs-memo-capitol-insurrection/index.html

 

Mnuchin and other cabinet members have made similar gestures that indicate they side with the Constitution (and that might indicate they have ambitions for the future under the current US Constitution). That combined with the fact that many cabinet members and staff are reportedly trying to avoid Trump for legal reasons, plus the added complexity of COVID-19, and it starts to be understandable that timelines could slip. Plus his staff are probably dealing with all kinds of crazy problems that they weren't last week. Staff are also resigning across the administration at even faster rates after last Wednesday.

 

Mnuchin is fifth in line of succession and we see a military presence in DC unlike anything we have every seen before. The top five are going to be treated differently from other members of government, and with the level of dysfunction he might be taking on additional responsibilities as one of the top four most important Cabinet officials.

 

We also need to add in the Russian hack discovered quite recently that involved government and financial institutions. With that longs list there is a lot that the Treasury has on it's plate that  on and ensuring financial stability during these troubling times would of course be a top priority. The number of previously unexpected curve balls is quite high.

 

If he was planning on something last minute and the work wasn't all done well in advance, it make sense to me that there could be major issues meeting a planned schedule.

[Guest cherzeca]

bravo beaufort

[SnarkyPuppy]

[investorG]

Sep 30 2019, press release from Treasury:  "The (housing) Plan also recommended that Treasury and FHFA develop recapitalization plans for Fannie Mae and Freddie Mac after identifying and assessing the full range of strategic options.  Subsequent amendments to the PSPAs may be appropriate to facilitate the implementation of any eventual recapitalization plans."

 

January 2021:  Never mind.

\

 

Looking at a decision tree if the answer is no, and one would have to assume Mnuchin would know what Trump thinks by now, why pass the question up to Trump? Mnuchin already looks like a bad guy by saying no. Do we really need 2 "no's" at this point?

 

Secondly its the eve before this goes down and a decision still has not been made on this? How the hell do you have a framework, blueprint all that BS but you havent made a decision on the "thorniest issue"? Really?

 

We are in Trumps hands here, he finishes it but you wait till the end to say no? Just say no right away, or why isnt mnuchins "no" not good enough.

 

I dont get it.

 

I thought this was an agreement between Treasury and FHFA? Why get Trump involved?

 

two "no's" lessens any potential blowback on mnuchin for this disaster.

[SnarkyPuppy]

[orthopa]

Looks like after close is the time per Gasparino. 2 weeks ago we were told there wouldn't be a PSPA agreement and not enough time to get anything done before Biden gets in. Now we are told there is a plan (surprise!) but its a pathway out of conservatorship that will not benefit common/preferred shareholders whatever that means.  As of yesterday treatment of the Sr Preferred up for debate at the WH but per Gasparino to not expect much. Honestly sounds like no one knows anything concrete but we will all find out soon enough.