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


twacowfca

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what's the value of a 5 year $25 par value security discounted back for both time value and material event risk?  below current prices I assume.

 

my guess is the jps go to 60-75% par on retiring senior prefs (must do so they have ipo option and treasury can monetize their warrants). anyone else want to venture a guess?

 

As you say NWS has to stop and retiring sr prfds have to happen before recap so.

 

1. The Jr preferred become the Sr security and have a contracted par value. Once capital is built to the levels to cover the Jr preferred at par I dont see why they wouldnt trade within a close range to par in accordance with dividend yield. My guess is 80-90% of par.  Right away until some capital is kept I think your 60-75% is a good guess. I know my 80-90% guess is optimistic but what is the value of a 1st in line security with a contracted value minus non cumulative dividends?

 

I think this is unlikely tho for 2 reasons. 1. Treasury misses an opportunity to a quicker recap converting preferred to common 2. Some of the preferred have dividend yields that are quite generous relative to today's interest rates and from FNMAs perspective this would be a chance to wash their hands of the old preferred and start anew.

 

 

I think in regard to the preferred you have to think in the end what would be accepted "to make the lawsuits go away". I think in the scenario above that maybe all that it is for litigants. Let the NWS stop, consider the Sr's paid off so we can get our par and dividend. I think though as I said above treasury would like to take the opportunity to restructure things, clean themselves somewhat of "oldco"and get a jump start on capital from a willing participant if the $$$ is right.  Looking back at the TARP bailouts there were plenty of times the preferred were converted to common at or just below par and I think its because of the above reasons.

 

So I would say

 

60-70% when NWS and Sr retired

80-90% if Preferred not converted, now 1st in line and capital built for full redemption

95%-100%+ if converted to common in light of giving up future dividends and to sweeten the deal for faster capital build.

 

 

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Guest cherzeca

you may recall calabria talking recently in a CNBC interview (as I recall) about a public offering and litigation going away and it is premature to speculate if juniors get par.  lots of that detail has gone away in this last Reuters interview, and frankly I think calabria is well advised to clam up.  as the head roadie of the Grateful Dead always said, when someone representing the venue came to ask who was in charge, he said no one is in control of the situation, the situation is in control of the situation. I've always found that to be wise beyond expectation.  as a deadhead, calabria should appreciate this.  given Mnuchin's huge work load, it seems like calabria felt the need to fill the vacuum.  mistake.

 

as to valuation of junior prefs, again this is impossible to speculate until details emerge, but remember the litigation.  if the Ps outright win collins (and stand ready to press their case in SCOTUS...perhaps the only court more favorably disposed to hear this case than the 5th

C), then not only do the seniors go away but about $20B of money needs to be put back into the GSEs.  that $20B affects the valuation of the juniors.  moreover, if as I expect treasury will want the juniors to convert, then the eventual conversion rate and the extent of common dilution all affects juniors' valuation.  so all of this is beyond calculation now,.

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you may recall calabria talking recently in a CNBC interview (as I recall) about a public offering and litigation going away and it is premature to speculate if juniors get par.  lots of that detail has gone away in this last Reuters interview, and frankly I think calabria is well advised to clam up.  as the head roadie of the Grateful Dead always said, when someone representing the venue came to ask who was in charge, he said no one is in control of the situation, the situation is in control of the situation. I've always found that to be wise beyond expectation.  as a deadhead, calabria should appreciate this.  given Mnuchin's huge work load, it seems like calabria felt the need to fill the vacuum.  mistake.

 

as to valuation of junior prefs, again this is impossible to speculate until details emerge, but remember the litigation.  if the Ps outright win collins (and stand ready to press their case in SCOTUS...perhaps the only court more favorably disposed to hear this case than the 5th

C), then not only do the seniors go away but about $20B of money needs to be put back into the GSEs.  that $20B affects the valuation of the juniors.  moreover, if as I expect treasury will want the juniors to convert, then the eventual conversion rate and the extent of common dilution all affects juniors' valuation.  so all of this is beyond calculation now,.

 

This is likely what happened to Otting, and Mnuchin too remember. I guess its hard to play dumb and pretend like you dont know the answer to a question when its asked at first. Looks like all 3 have learned this now.

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Thinking of the timeline, I'd be surprised if treasury could get anyone to commit billions of dollars before the outcome of the next election.

Reason being trump is turning the world on its head to supply side economics, moving the global supply chain and apparently being able to influence the Fed and the yield curve.

 

If the model changes from that then the outlook for housing may change, which I would expect if anyone but trump gets in.

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it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

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it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.
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muscelman,

 

Appreciate your post on what you were seeing with the technicals. This seems like an investment where there is a clear information asymmetry between investors for better or worse. Hopefully there isn't any asymmetry with the court outcomes like with the administration. Thank you for sharing what you saw because it seems to be a reflection of what was happening with material information.

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it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

there's no urgency to buy and plenty of people urgently want out.

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Guest cherzeca

muscelman,

 

Appreciate your post on what you were seeing with the technicals. This seems like an investment where there is a clear information asymmetry between investors for better or worse. Hopefully there isn't any asymmetry with the court outcomes like with the administration. Thank you for sharing what you saw because it seems to be a reflection of what was happening with material information.

 

there is a lot of GSE antagonism and the antagonists are only a gasparino call away from trying to game the information scales.  I think you have to be wary of all "information" reported about the GSEs unless it comes directly from calabria and mnuchin, and even then they can be inconsistent with their past statements (and terms like reform and privatize are used without precision or understanding by the financial press).  which means we just have to wait for the treasury plan so that we can read it for ourselves, and read the final fhfa capital regulation.  trading in the interim is too risky for my blood, though I credit MM for avoiding this last downdraft.

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it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

I disagree. I'd like to outline what people are saying and hoping, and let's see if there are anyone who will learn the lesson and improve.

1. Calm down guys, it is only a 7% minor decline from all time high. Hold on!

2. Last Friday: Oops, it is down another 14%, but it closed strong and at the end of the day, it is only down 6%, and the Bloomberg article is totally fake! Hold on!

3. Today: Oops, it is down anther 7%. It has gone down so much that it must be the bottom! Hold on!

 

What's next?

 

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Guest cherzeca

it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

there's no urgency to buy and plenty of people urgently want out.

 

actually using Buffett's greedy when others fearful meme, today looks like a very good time to buy

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muscelman,

 

Appreciate your post on what you were seeing with the technicals. This seems like an investment where there is a clear information asymmetry between investors for better or worse. Hopefully there isn't any asymmetry with the court outcomes like with the administration. Thank you for sharing what you saw because it seems to be a reflection of what was happening with material information.

 

Thanks. I tried to help people improve because  they've been helping me with all the useful information on fundamentals.

Keep in mind that there is always information asymmetry for any stock. It is totally naive to think that a fundamental retail investor can be so smart and hard working that he could made better decisions than the institutions.

 

The rumor that the treasury plan has been in the white house for weeks earlier this week made me ultra bearish. Could weeks mean early June? That's right around the time when the stock price peaked, and I started to see crack on the canary of the coal mine. Is that a pure coincidence?

 

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it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

there's no urgency to buy and plenty of people urgently want out.

 

actually using Buffett's greedy when others fearful meme, today looks like a very good time to buy

 

Be careful Chris. Are you a market timer now? Do you think I can time it better than you?  :)

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Guest cherzeca

@MM.  no way am I a trader! and no way have I seen the GSE thesis get busted, though I will naturally reanalyze after collins decision and reading treasury plan and fhfa cap reg

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Guest cherzeca

what is news in the context of this investment?

 

my objective is to get par (or close to it) for my juniors.  I know this will only happen if there is a successful recapitalization.  I know there can be a successful recap only if a credible plan is adopted by treasury/fhfa, the investment bankers do their job and the markets stay accommodating.  it will be helpful for this successful recap if the collins en banc comes with a P win.

 

nothing that has happened recently undermines this.  yes there is a delay, and for the momentum crowd, a delay is death.  as for my objective attainment, delay is annoying but not death.  I actually think it is good for calabria to sober up a bit.  it would be nice if mnuchin had some time to really shepherd the plan, and I guess the September time frame is his estimate of the time he needs, counting in a little well-earned vacay.

 

now there is plenty I dont like, such as some of what calabria has said about capital levels and his suggestion for congressional action (which if it isn't just optics is a stupid fools errand). I have seen some unbooked gain eroded about which I am not happy but I cant say my investment thesis has changed

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I don't understand the point of the trade, if I'm going to freak out and sell every time we have a correction. I am shifting my allocations a bit towards higher yielding preferreds, just in case dividends get turned back on and the capital build takes longer than most expect.

Not sure today's move is a response to new information. It could be market participants reflexively freaking out to downward price moves and taking profits ("someone must know something" kind of thinking).

 

The reporting has been utterly conflicting over the last few days. I don't know what to think. If there wasn't uncertainty about the path ahead, the preferreds would be trading at double the current price. You pays yer money, you takes yer chances..

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why do you continue to misrepresent what I said? I said repeatedly if it sells off in volume on *no* news, that indicates insider trading.

 

oh. sorry..

 

I explained it to you just two days ago over DM, and you replied:

 

Quote from: hardincap on July 16, 2019, 08:40:38 AM

what have i described that no longer stands? i think ive said before if there is massive selling on no news, ill sell. that hasnt happened yet.

 

and im definitely more of a fundamental investor who appreciates technical investing than the other way around.

 

oh. Maybe I missed the no news part. I thought you said heavy selling.

 

:facepalm:

 

 

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why do you continue to misrepresent what I said? I said repeatedly if it sells off in volume on *no* news, that indicates insider trading.

 

oh. sorry..

 

I explained it to you just two days ago over DM, and you replied:

 

Quote from: hardincap on July 16, 2019, 08:40:38 AM

what have i described that no longer stands? i think ive said before if there is massive selling on no news, ill sell. that hasnt happened yet.

 

and im definitely more of a fundamental investor who appreciates technical investing than the other way around.

 

oh. Maybe I missed the no news part. I thought you said heavy selling.

 

:facepalm:

 

Yeah....... Sorry about that. At that time you said you didn't sell because the Bloomberg news was totally fake, so I got the impression that you would sell if some material news came out.

 

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muscleman received some rude commentary on this board, he's due his victory lap imo so long as it stays respectable.

 

I was never pissed by rude comments from them because I know sooner or later Mr market will slap people who are arrogant and think they are smarter than everyone else in the world.

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