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

[hardincap]

Well if history is any indicator longs are missing a lot. Just look at all the confident predictions people have made on this board and look how they've nearly all turned out wrong. It never seizes to amaze me how quickly people forget their mistakes and overrate their abilities, esp when it comes to predictions. I also think ppl are overreacting to positive relative change, coming from a low base, and fooled into conflating that with absolute basis

[TwoCitiesCapital]

Well if history is any indicator longs are missing a lot. Just look at all the confident predictions people have made on this board and look how they've nearly all turned out wrong. It never seizes to amaze me how quickly people forget their mistakes and overrate their abilities, esp when it comes to predictions. I also think ppl are overreacting to positive relative change, coming from a low base, and fooled into conflating that with absolute basis

 

On the flip side, that could be exactly why the preferreds aren't moving. The bears have grown so used to being right, and the bulls so used to being wrong, that no one is updating their positioning based on the incremental information which appears positive at the margin.

 

I modestly increased my position, but do not have enough confidence in my understanding of which path forward to victory is the most likely to have conviction to substantially increase my position on this information.

 

 

 

[rros]

Well if history is any indicator longs are missing a lot. Just look at all the confident predictions people have made on this board and look how they've nearly all turned out wrong. It never seizes to amaze me how quickly people forget their mistakes and overrate their abilities, esp when it comes to predictions. I also think ppl are overreacting to positive relative change, coming from a low base, and fooled into conflating that with absolute basis

And on that note... I am predicting: the missing piece is Trump.

 

Mnuchin will not change his tone until his boss sends a signals. Mnuchin will not respond to Watt, any congressmen or any of the organizations supporting rebuilding capital simply out of loyalty (to Trump). Only after Trump endorses a plan, supports shareholder's rights or comes out in favor of Fannie/Freddie then Mnuchin will agree to stop the sweep. Trump does not want to be robbed from this victory. It will be him who seals the deal.

 

Everything is aligned. Including Obama's set up as the most leftist President ever (RNC's summer resolution). And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets. Trump will not only use the 100 billion he is after, he will make this move the hallmark of his administration bashing leftist nationalizer-in-chief Obama for the remainder of his term.

[hardincap]

Well if history is any indicator longs are missing a lot. Just look at all the confident predictions people have made on this board and look how they've nearly all turned out wrong. It never seizes to amaze me how quickly people forget their mistakes and overrate their abilities, esp when it comes to predictions. I also think ppl are overreacting to positive relative change, coming from a low base, and fooled into conflating that with absolute basis

And on that note... I am predicting: the missing piece is Trump.

 

Mnuchin will not change his tone until his boss sends a signals. Mnuchin will not respond to Watt, any congressmen or any of the organizations supporting rebuilding capital simply out of loyalty. Only after Trump endorses a plan, supports shareholder's rights or comes out in favor of Fannie/Freddie then Mnuchin will agree to stop the sweep. Trump does not want to be robbed from this victory. It will be him who seals the deal.

 

Everything is aligned. Including the Obama's set up as the most leftist President ever. And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets.

 

Where's the smack my head emoticon...

[Luke 532]

 

Everything is aligned. Including the Obama's set up as the most leftist President ever. And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets.

 

Where's the smack my head emoticon...

 

Right next to the "I can't believe I didn't load up in September 2017" emoticon  ;D

[hardincap]

 

Everything is aligned. Including the Obama's set up as the most leftist President ever. And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets.

 

Where's the smack my head emoticon...

 

Right next to the "I can't believe I didn't load up in September 2017" emoticon  ;D

 

We know how well that would have worked prelamberth, pre dc appeals, which is when a lot of ppl did in fact load up.My point is there's more uncertainty and randomness than our irrational brains lead us to believe

[SnarkyPuppy]

 

Everything is aligned. Including the Obama's set up as the most leftist President ever. And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets.

 

Where's the smack my head emoticon...

 

Right next to the "I can't believe I didn't load up in September 2017" emoticon  ;D

 

We know how well that would have worked prelamberth, pre dc appeals, which is when a lot of ppl did in fact load up.My point is there's more uncertainty and randomness than our irrational brains lead us to believe

 

Can you please explain what risks you see as having a >5% chance of occurrence?  What scenario do you see occurring that causes the preferreds to trade at less than 20% of par value?

[rros]

 

Everything is aligned. Including the Obama's set up as the most leftist President ever. And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets.

 

Where's the smack my head emoticon...

 

Right next to the "I can't believe I didn't load up in September 2017" emoticon  ;D

 

We know how well that would have worked prelamberth, pre dc appeals, which is when a lot of ppl did in fact load up.My point is there's more uncertainty and randomness than our irrational brains lead us to believe

"more uncertainty and randomness than our irrational brains lead us to believe"

 

scratch that and replace with "Trump".

[investorG]

 

Everything is aligned. Including the Obama's set up as the most leftist President ever. And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets.

 

Where's the smack my head emoticon...

 

Right next to the "I can't believe I didn't load up in September 2017" emoticon  ;D

 

We know how well that would have worked prelamberth, pre dc appeals, which is when a lot of ppl did in fact load up.My point is there's more uncertainty and randomness than our irrational brains lead us to believe

 

i'm guessing you have a big position here, hardincap.  it's often those with the least to lose who speak so confidently.

[rros]

 

Everything is aligned. Including the Obama's set up as the most leftist President ever. And we already know how much Trump loves socialists and communists. So let's wait for one of his tweets.

 

Where's the smack my head emoticon...

 

Right next to the "I can't believe I didn't load up in September 2017" emoticon  ;D

 

We know how well that would have worked prelamberth, pre dc appeals, which is when a lot of ppl did in fact load up.My point is there's more uncertainty and randomness than our irrational brains lead us to believe

 

i'm guessing you have a big position here, hardincap.  it's often those with the least to lose who speak so confidently.

I have a lot to lose.

 

I will still wait for that small town rally, maybe Macon, GA or Madison, WI or wherever where Trump speaks about the goodness of Fannie and Freddie, their need for capital and the rewards from warrants and tells the crowd to go buy some shares.

[investorG]

Thanks.  Bizarre how the current prices aren't reflecting how obvious the end game is here.  Could be a function of us being wrong, a function of the market not connecting the dots, or a function of the fact that everyone who understands the end game and isn't restricted from buying for institutional reasons is already fully positioned (price leaks over time from day traders). 

 

Seems that while there are certain risks that are scary (as I've highlighted), the probability of each is very low as compared to the almost too obvious end game here.  What are we missing...

 

this investment takes guts, imagination, and time.  having to explain this in an investment meeting is challenging.  it's easier to simply say 'too complicated' or 'too much out of my control' and move on to the next one.  sell side analysts like KBW give the buy side decision makers mental cover to avoid.  hence, I believe, why there is such a great opportunity here for the rest of us, even acknowledging the risks. 

[investorG]

 

I have a lot to lose.

 

I will still wait for that small town rally, maybe Macon, GA or Madison, WI or wherever where Trump speaks about the goodness of Fannie and Freddie, their need for capital and the rewards from warrants and tells the crowd to go buy some shares.

 

given trump and mnuchin's ties to Paulson and berkowitz, I believe it's best if the public figures driving this process are people like Mick Mulvaney, Craig Phillips, ICBA, Sherrod Brown, the RNC, etc.  of course Trump and Mnuchin would be involved but it's important I think for consensus to build over time, which is why I'm encouraged by the recent news.  this way, FnF's opponents don't get as riled up for action like they do in instances such as Nov-2016 when a frenzy occurs.

[rros]

Thanks.  Bizarre how the current prices aren't reflecting how obvious the end game is here.  Could be a function of us being wrong, a function of the market not connecting the dots, or a function of the fact that everyone who understands the end game and isn't restricted from buying for institutional reasons is already fully positioned (price leaks over time from day traders). 

 

Seems that while there are certain risks that are scary (as I've highlighted), the probability of each is very low as compared to the almost too obvious end game here.  What are we missing...

 

this investment takes guts, imagination, and time.  having to explain this in an investment meeting is challenging.  it's easier to simply say 'too complicated' or 'too much out of my control' and move on to the next one.  sell side analysts like KBW give the buy side decision makers mental cover to avoid.  hence, I believe, why there is such a great opportunity here for the rest of us, even acknowledging the risks.

We may not have to wait much longer to see if we have been out of our minds or have been hidden geniuses. The democrat senators' letter to Mnuchin must have added a sense of urgency, I can only imagine, if Trump wants this trophy. One thing is for Mnuchin to act in response to democrats. A very different one would be to make a move because Trump sets the direction all alone. If a lot of good comes out of this including  100 bill the administration could put to work do you really believe Trump will like all the thank you notes to be sent to Sherrod Brown?

 

Mnuchin boasted about bank shares being higher thanks to him.

 

He is not going to make that mistake with Fannie and Freddie shares. That spot is reserved only for Trump.

[Luke 532]

I will still wait for that small town rally, maybe Macon, GA or Madison, WI or wherever where Trump speaks about the goodness of Fannie and Freddie, their need for capital and the rewards from warrants and tells the crowd to go buy some shares.

 

"Late this week, there was talk inside the Beltway that President Trump might even issue an executive order officially tasking Treasury with coming up with some type of GSE plan."

https://www.insidemortgagefinance.com/imfnews/1_1192/daily/Treasury-taking-meetings-on-gse-zero-capital-1000042860-1.html?ET=imfpubs:e9810:73599a:&st=email

 

[Luke 532]

"Late this week, there was talk inside the Beltway that President Trump might even issue an executive order officially tasking Treasury with coming up with some type of GSE plan."

https://www.insidemortgagefinance.com/imfnews/1_1192/daily/Treasury-taking-meetings-on-gse-zero-capital-1000042860-1.html?ET=imfpubs:e9810:73599a:&st=email

 

If only there were already a plan out there that accomplished everything Mnuchin has publicly stated he wanted.  ;)

[SnarkyPuppy]

Only two key risks (but very low %) from my perspective are:

- private settlement with large players excluding retail

- complete structural reform (some creative Mnuchin scheme that I wouldn't be able to come up with) which does not include current GSEs and their current capital structure as is. 

 

Other than that there's black swan events that can't be accounted for. 

 

Outside of that I'd be curious if anyone has thoughts on risks that would cause the prefs to trade below 20% par

[DocSnowball]

As Professor Damodaran would say, it is a "slow learning Market" given how many times we've been burnt before, and this is the time to correctly allocate your position or additionally do some information arbitrage trading if that is what your thing is...

[Williams406]

As an additional risk factor: Cabinet members serve at the pleasure of the President, and can also resign if they decide it's better for themselves to do so. I don't rate this a high % probability risk, but Mnuchin is a key player in this so I think it should be on the list of risk factors. With the recent Dem letter and RNC platform change, the tide certainly seems to have shifted the investment proposition in longs' favor, but imagine how you'd view things if, say, three weeks ago Mnuchin announced his resignation as Treasury Secretary. I'm just saying it belongs on the list.

[Guest cherzeca]

Well if history is any indicator longs are missing a lot. Just look at all the confident predictions people have made on this board and look how they've nearly all turned out wrong. It never seizes to amaze me how quickly people forget their mistakes and overrate their abilities, esp when it comes to predictions. I also think ppl are overreacting to positive relative change, coming from a low base, and fooled into conflating that with absolute basis

 

Cf kanehman/tversky

 

Remember the rnc resolution has no legal authority.  Corker etc can say go eff off. But it sure helps imo

[Gregmal]

Well if history is any indicator longs are missing a lot. Just look at all the confident predictions people have made on this board and look how they've nearly all turned out wrong. It never seizes to amaze me how quickly people forget their mistakes and overrate their abilities, esp when it comes to predictions. I also think ppl are overreacting to positive relative change, coming from a low base, and fooled into conflating that with absolute basis

 

Yea I've actually noticed that the most popular ideas/threads here(outside of BRK&FF), the ones with a million comments and everyone frothing about the value, are largely major duds. Definitely some psychological stuff behind it. SHLD and VRX probably the most glaring recent ones. I'll even add in FELP, which while the original posters made money, I'd presume there are a lot of bagholders who got carried away and are now underwater with the stock off 50% from the highs. People get way too attached and biases are deadly.

[Luke 532]

 

Yea I've actually noticed that the most popular ideas/threads here(outside of BRK&FF), the ones with a million comments and everyone frothing about the value, are largely major duds. Definitely some psychological stuff behind it. SHLD and VRX probably the most glaring recent ones. I'll even add in FELP, which while the original posters made money, I'd presume there are a lot of bagholders who got carried away and are now underwater with the stock off 50% from the highs. People get way too attached and biases are deadly.

 

True, but what is the point of continuing to discuss an investment on a value board if it has already reached (or is near) intrinsic value?  There's really not much incentive (for me at least) to continue to discuss value investments that have worked.  When that happens, it's time to move on to the next hated stock.  Just my two cents.

[SnarkyPuppy]

Only two key risks (but very low %) from my perspective are:

- private settlement with large players excluding retail

- complete structural reform (some creative Mnuchin scheme that I wouldn't be able to come up with) which does not include current GSEs and their current capital structure as is. 

 

Other than that there's black swan events that can't be accounted for. 

 

Outside of that I'd be curious if anyone has thoughts on risks that would cause the prefs to trade below 20% par

 

I'll add Mnuchin exit as treasury secretary to list of (low probability) risks.

 

Any other tangible/specific risks other than the fact that we have a long thread so the market price just make sense?

[Gregmal]

 

Yea I've actually noticed that the most popular ideas/threads here(outside of BRK&FF), the ones with a million comments and everyone frothing about the value, are largely major duds. Definitely some psychological stuff behind it. SHLD and VRX probably the most glaring recent ones. I'll even add in FELP, which while the original posters made money, I'd presume there are a lot of bagholders who got carried away and are now underwater with the stock off 50% from the highs. People get way too attached and biases are deadly.

 

True, but what is the point of continuing to discuss an investment on a value board if it has already reached (or is near) intrinsic value?  There's really not much incentive (for me at least) to continue to discuss value investments that have worked.  When that happens, it's time to move on to the next hated stock.  Just my two cents.

 

Maybe I'll clarify as perhaps I could have been clearer. Rereading what I wrote may have, although not intentionally, come off a bit schmucky.

 

Ideas that are under-followed or out of favor typically don't have huge followings. Is/was SHLD or VRX really out of favor? Surely it was polarizing but every value investor in the world was in SHLD.

 

FNMA is obviously different. Its either worth 0 or way more than it trades for today. But what I've seen is that a large chunk of the talk and speculation seems counter productive as people obsessively over do it with the speculation. Making things seem more of an issue than they truly are. SHLD again for instance, there was and is so freakin much of the "what does Lampert/Berkowitz have up their sleeve" type stuff that perhaps it blinded people from the obvious fact that the business sucked and the properties were valuable and that time would be a negative carry, especially with a downturn in the economy or retail sector.

 

These are just lazy examples; there's definitely more of them, but I guess my point is that I think people over/under estimate the importance of a lot of the things they spend a lot of time pondering. Hence the huge threads(from my perspective) seemingly having a high correlation to big time stinkers.

 

And I say all this as someone who has owned SHLD here and there over the years and is currently long FNMA.

[DocSnowball]

Well if history is any indicator longs are missing a lot. Just look at all the confident predictions people have made on this board and look how they've nearly all turned out wrong. It never seizes to amaze me how quickly people forget their mistakes and overrate their abilities, esp when it comes to predictions. I also think ppl are overreacting to positive relative change, coming from a low base, and fooled into conflating that with absolute basis

 

Yea I've actually noticed that the most popular ideas/threads here(outside of BRK&FF), the ones with a million comments and everyone frothing about the value, are largely major duds. Definitely some psychological stuff behind it. SHLD and VRX probably the most glaring recent ones. I'll even add in FELP, which while the original posters made money, I'd presume there are a lot of bagholders who got carried away and are now underwater with the stock off 50% from the highs. People get way too attached and biases are deadly.

 

There is no law of gravity that says price will always catch up with intrinsic value, or do so in a short time frame. That may be why those threads were so belabored. It's the catalysts that are also important that bring price to value. IMO one has to think what the catalysts will be here, and be prepared for that timeline.

[Luke 532]

Fiderer: http://www.fidererongses.com/params/post/1298138/rnc-suggests-gse-recap--release-is-a-viable-option