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


twacowfca

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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.

 

I think the UST is boxed in on this. Taking over F&F would inflate the government's balance sheet like a hot air balloon.  Ultimately, they will have to face the unpleasant fact that they have hogged all the profits to a degree far beyond what it cost to bail them out. 

 

Here are government sponsored enterprises where the preferred shareholders included many pension funds and small banks that were allowed to own the preferred by their government regulators only because the government deemed the preferred to be super safe.  Once the government is made whole on their bailout funds, are the small banks and others who relied on the assurances of their government going to be wiped out while shareholders in private companies like TBTF banks and insurance companies like AIG continue to make a substantial recovery in their losses!?

 

That would be the unkindest cut of all: recovery of shareholders of the TBTF banks that almost brought the country to its knees with their greed and bloated bonuses for their managers while the pension funds and regulated small banks have all their equity taken by the government as a consequence of the excesses of the managers of the GSE's.

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The never ending story continues.  The arbitrage on this worked very well for those willing and able  to borrow and short the common because the recent bill does adhere more or less to the absolute priority rule with the preferred having priority over the common.

 

Time will tell, meanwhile this Bill like many other proposals is between a rock and a hard place.  Nonplussed again.  The interesting thing about this situation is like having stock in a company in Cpt 11 in the old days when the reorganization could be strung out indefinitely.  In that event, if the creditors didn't want to liquidate the company and if the business could get a decent Return on its capital, the longer the company was in Cpt 11, the better that was as the company was able month by month and year by year to earn itself out of tho hole.

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  • 2 weeks later...

Hopefully only fashionably late, i took a bite of the Fannie Prefs today. Risk/rewards seem favorable despite recent legislative action and general market commentary.

 

valuecfa, what do you think about the recently filed litigation by Perry Capital?

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Breaking from CNBC Twitter Feed:

 

BREAKING: Fairholme Fund says will sue this week to receive Fannie, Freddie dividends; suit appears similar to Perry Capital suit filed Sun.

 

(More) Fairholme Fund argues that the amendment to government ownership of Fannie and Freddie is unlawful, @KateKellyCNBC reports.

 

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Hopefully only fashionably late, i took a bite of the Fannie Prefs today. Risk/rewards seem favorable despite recent legislative action and general market commentary.

 

valuecfa, what do you think about the recently filed litigation by Perry Capital?

 

I think it has merit. With the prefs currently at 17 cents on the dollar, i think the market is mispricing the probability of success.

 

I doubt the courts will end up being the deciding factor in the investment, but if they are, then this could take some time (recall mbia)

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Hopefully only fashionably late, i took a bite of the Fannie Prefs today. Risk/rewards seem favorable despite recent legislative action and general market commentary.

 

valuecfa, what do you think about the recently filed litigation by Perry Capital?

 

I think it has merit. With the prefs currently at 17 cents on the dollar, i think the market is mispricing the probability of success.

 

I doubt the courts will end up being the deciding factor in the investment, but if they are, then this could take some time (recall mbia)

 

I'm on the sidelines but becoming more interested every day. I've often wondered over the last two days or so where the free-market conservatives are -- shouldn't they be shouting bloody murder with the de facto nationalization of Fannie & Freddie? It's an interesting story if only from a political angle.

 

If you don't mind me asking, did you buy a particular series or just a basket?

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Hopefully only fashionably late, i took a bite of the Fannie Prefs today. Risk/rewards seem favorable despite recent legislative action and general market commentary.

 

valuecfa, what do you think about the recently filed litigation by Perry Capital?

 

I think it has merit. With the prefs currently at 17 cents on the dollar, i think the market is mispricing the probability of success.

 

I doubt the courts will end up being the deciding factor in the investment, but if they are, then this could take some time (recall mbia)

 

I'm on the sidelines but becoming more interested every day. I've often wondered over the last two days or so where the free-market conservatives are -- shouldn't they be shouting bloody murder with the de facto nationalization of Fannie & Freddie? It's an interesting story if only from a political angle.

 

If you don't mind me asking, did you buy a particular series or just a basket?

 

I purchased 3 different series. The more illiquid ones with largest discount to par, ignoring the coupons for the most part. I've been purchasing over the past few weeks, but made what may be my final purchase yesterday. Currently about a 6% position.

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Hopefully only fashionably late, i took a bite of the Fannie Prefs today. Risk/rewards seem favorable despite recent legislative action and general market commentary.

 

valuecfa, what do you think about the recently filed litigation by Perry Capital?

 

I think it has merit. With the prefs currently at 17 cents on the dollar, i think the market is mispricing the probability of success.

 

I doubt the courts will end up being the deciding factor in the investment, but if they are, then this could take some time (recall mbia)

 

I'm on the sidelines but becoming more interested every day. I've often wondered over the last two days or so where the free-market conservatives are -- shouldn't they be shouting bloody murder with the de facto nationalization of Fannie & Freddie? It's an interesting story if only from a political angle.

 

If you don't mind me asking, did you buy a particular series or just a basket?

 

I purchased 3 different series. The more illiquid ones with largest discount to par, ignoring the coupons for the most part. I've been purchasing over the past few weeks, but made what may be my final purchase yesterday. Currently about a 6% position.

 

That's what we've done over the years.  Bid on the most illiquid with the greatest disount from stated value first, and then go up fom there. Sometimes, when the prefs are getting bid up, we'll sell a relatively overpriced issue even while we are generally buying other issues.  We sold a substantial amount of the more liquid ones a few weeks ago for as much as 30%+ of stated value while continuing to hold or even increasing our holdings of the less liquid series.

 

Unhappily, these are usually more rationally priced in recent months as Bruce and other managers of large funds have taken notice of the uncertain potential of value for the preferreds.

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Glad to see them going with the Takings Clause. It's what I would've done.

 

Also, I have to say that, on a personal note, I'm really quite happy that my legal education wasn't completely useless in my new life as an investor. :)

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I have a question for the other lawyers on the board.

 

As I understand it, Berkowitz bought the preferred shares after the sweep amendment. Does he have standing?

 

The security's claim still has standing. If the sweep amendment was illegal, it still is. It doesn't matter who now owns the security, but rather that the security itself was wronged.

 

Caution: I am not a lawyer. I know nothing about law so the above could be complete BS. I did take the LSAT though. I hate logic games.

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I have a question for the other lawyers on the board.

 

As I understand it, Berkowitz bought the preferred shares after the sweep amendment. Does he have standing?

 

The security's claim still has standing. If the sweep amendment was illegal, it still is. It doesn't matter who now owns the security, but rather that the security itself was wronged.

 

Caution: I am not a lawyer. I know nothing about law so the above could be complete BS. I did take the LSAT though. I hate logic games.

 

Agree.

 

Also not a lawyer, but have been told by a top securities attorney that the current owner of a security stands in the stead of all who previously owned it.  Practically, that attorney advises that judges often are less sympathetic to speculators who scoop up a security at a low price after the damage has been done.

 

Is there a named plaintiff who owned the prefs before the US takeover? That would be a big moral plus.  :)

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I have a question for the other lawyers on the board.

 

As I understand it, Berkowitz bought the preferred shares after the sweep amendment. Does he have standing?

 

The security's claim still has standing. If the sweep amendment was illegal, it still is. It doesn't matter who now owns the security, but rather that the security itself was wronged.

 

Caution: I am not a lawyer. I know nothing about law so the above could be complete BS. I did take the LSAT though. I hate logic games.

 

If Fairholme doesn't have standing because of post-third amendment purchase timing, it's safe to assume that WR Berkley & Co. won't have the same problem since they bought before conservatorship. 

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I have a question for the other lawyers on the board.

 

As I understand it, Berkowitz bought the preferred shares after the sweep amendment. Does he have standing?

 

The security's claim still has standing. If the sweep amendment was illegal, it still is. It doesn't matter who now owns the security, but rather that the security itself was wronged.

 

Caution: I am not a lawyer. I know nothing about law so the above could be complete BS. I did take the LSAT though. I hate logic games.

 

If Fairholme doesn't have standing because of post-third amendment purchase timing, it's safe to assume that WR Berkley & Co. won't have the same problem since they bought before conservatorship.

 

Good, that gives the plaintiffs the moral high road.  :)

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FNMAS: $5.10 today. Preferred Series S Fixed to Floating Rate

FNMAI: $4.37 today.  Preferred Series Q. 6.75%

FNMAJ: $4.50 today. Preferred Series R 7.625%

 

Is the difference purely due to the int rate or do you all think FNMAS is just the most noted one in the media?

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