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

[investorG]

although examining a potential nominee's historical views are relevant, it shouldn't be viewed as literally what is likely to happen due to others' outsized influence and also changing priorities over time and roles.

 

one thing they might consider is a receivership with some sort of amendment that future cash flows from the legacy operations (old co) are divided up in some pre-determined ratio between sr pref, jr pref, and common rather than the standard waterfall. likely this would drop many lawsuits and allow for the govt to win some more.

 

obviously i'm just guessing but things like the above seem more likely than straight moelis with common @ $1.16.  wish i was wrong but cant ignore the market for month after month when we're now in the oppty zone.  also, there's a large gap between the liquid and nonliquid preferred, which tells me the person / people buying jr pref are traders more than convinced investors.

 

[investorG]

I respectfully disagree with Tim Rood's comments on twitter today about no legislative path with Max Waters.

 

If the admin gets in a libertarian / right wing FHFA head then it's likely she'll be eager for a deal to protect her pet projects even if it means giving up some things she's not eager to go along with.

 

I expect a real negotiation next year.  In the mean time mnuchin and watt need to stop the sweep after Congress goes home in December -- in addition to being the fair / reasonable thing to do, this will get emotions going and can be the impetus for real action.

[Guest cherzeca]

although examining a potential nominee's historical views are relevant, it shouldn't be viewed as literally what is likely to happen due to others' outsized influence and also changing priorities over time and roles.

 

one thing they might consider is a receivership with some sort of amendment that future cash flows from the legacy operations (old co) are divided up in some pre-determined ratio between sr pref, jr pref, and common rather than the standard waterfall. likely this would drop many lawsuits and allow for the govt to win some more.

 

obviously i'm just guessing but things like the above seem more likely than straight moelis with common @ $1.16.  wish i was wrong but cant ignore the market for month after month when we're now in the oppty zone.  also, there's a large gap between the liquid and nonliquid preferred, which tells me the person / people buying jr pref are traders more than convinced investors.

 

last 3 months, fnmas is up 5%, fnma down 35%. (fwiw, S&P 500 down 7%)

interesting divergence, but imo not explained by any fear of receivership...which would depress everything across the board.

if fnma is more a retail story and prefs an institutional story, then to my mind you are possibly seeing some hedging by pref buyers shorting common, and waning interest in fnma by retail (and ackman is already at 9.9% and not going higher).  to extent any institutions own common, you will see loss realization selling into year end to cap common's upside.

 

[investorG]

although examining a potential nominee's historical views are relevant, it shouldn't be viewed as literally what is likely to happen due to others' outsized influence and also changing priorities over time and roles.

 

one thing they might consider is a receivership with some sort of amendment that future cash flows from the legacy operations (old co) are divided up in some pre-determined ratio between sr pref, jr pref, and common rather than the standard waterfall. likely this would drop many lawsuits and allow for the govt to win some more.

 

obviously i'm just guessing but things like the above seem more likely than straight moelis with common @ $1.16.  wish i was wrong but cant ignore the market for month after month when we're now in the oppty zone.  also, there's a large gap between the liquid and nonliquid preferred, which tells me the person / people buying jr pref are traders more than convinced investors.

 

last 3 months, fnmas is up 5%, fnma down 35%. (fwiw, S&P 500 down 7%)

interesting divergence, but imo not explained by any fear of receivership...which would depress everything across the board.

if fnma is more a retail story and prefs an institutional story, then to my mind you are possibly seeing some hedging by pref buyers shorting common, and waning interest in fnma by retail (and ackman is already at 9.9% and not going higher).  to extent any institutions own common, you will see loss realization selling into year end to cap common's upside.

 

ok, agree to disagree.  hedge funds are sharks.  the Moelis plan offers ~ 10x reward.  even if you cut it down to 5x, they'd likely be all over this given the low market cap involved and lack of other excellent opportunities in the market.  ackman's involved, people love to piggyback him.  thus, to me, the mkt is speaking clearly - I love the Moelis plan but for some reason no one in power appears to share that view.

[allnatural]

I think you are overrating hedgefunds and their abilities (have you seen their returns lately).

 

FWIW- I work closely with hedge funds and most either throw this in the too difficult / do not touch pile or have been involved in this name for so long that its already tainted and are close to throwing in the towel if they havent already.

 

I believe the mispricing today is simply a fear of status quo continuing indefinitely. This is now a "show-me" story. Until the Admin takes concrete definitive action one way or another, market won't bite.

[Guest cherzeca]

I think you are overrating hedgefunds and their abilities (have you seen their returns lately).

 

FWIW- I work closely with hedge funds and most either throw this in the too difficult / do not touch pile or have been involved in this name for so long that its already tainted and are close to throwing in the towel if they havent already.

 

I believe the mispricing today is simply a fear of status quo continuing indefinitely. This is now a "show-me" story. Until the Admin takes concrete definitive action one way or another, market won't bite.

 

I agree GSEs are actually under-owned by HFs.  for some it's a don't fight city hall response to litigation with government or I don't have 5 years to give to this name.  for others, its look who owns...Perry (closed shop), Berkowitz (underperforming), Paulson (one shot wonder) and ackman (valeant-boy).  I just find the pref/common price action divergence surprising so I was trying to think it through.

[Luke 532]

Something to keep in mind if Calabria takes over at FHFA...

 

John Allison is on the Moelis BOD

http://investors.moelis.com/OD

 

Allison was CEO of the CATO Institute (late 2012 to mid-2015) while Calabria was there

https://www.cato.org/people/john-allison

[investorG]

Any chance that these could be Fannie Freddie related documents? It was the biggest heist in the history where 10,000 documents and many presidential privilege documents are still not released even after a decade and they keep stalling their release in courts? There must be a reason where the companies were robbed off 300 billion dollars and misused to prop up banks.

 

Trump threatens to declassify 'devastating' documents if Democrats 'want to play tough'

https://www.cnn.com/2018/11/28/politics/new-york-post-trump-threatens-declassify-devastating-dems/index.html

 

very close to a 0pct chance.  he's likely referring to other documents.  unfortunately the hedge fund narrative, among other reasons, prevents a big show in our situation.

[DRValue]

Any chance that these could be Fannie Freddie related documents? It was the biggest heist in the history where 10,000 documents and many presidential privilege documents are still not released even after a decade and they keep stalling their release in courts? There must be a reason where the companies were robbed off 300 billion dollars and misused to prop up banks.

 

Trump threatens to declassify 'devastating' documents if Democrats 'want to play tough'

https://www.cnn.com/2018/11/28/politics/new-york-post-trump-threatens-declassify-devastating-dems/index.html

 

I doubt they'll ever release docs by choice if they want to exercise the warrants.

[rros]

Mnuchin to appear on CNBC Live Squawk box tomorrow at 8am.

[investorG]

Mnuchin to appear on CNBC Live Squawk box tomorrow at 8am.

 

 

thanks.  the GSEs were not addressed but I thought it was a good interview where he appeared relaxed and on target.

[rros]

Naive of me to think he would mention housing. This China thing seems to have taken over and anything else on the agenda is way below.

[Luke 532]

Collins case, Fifth Circuit en banc rehearing on January 23rd.

[rros]

While Calabria would like to go back to the gold standard and have banks keep mortgages in their books, this doesn't seem realistic. Banks aren't the ones making the loans.

https://www.economist.com/finance-and-economics/2018/12/01/non-bank-firms-are-now-big-players-in-americas-mortgage-market

 

And, related...

https://www.theinstitutionalriskanalyst.com/single-post/2018/11/26/Ragin-Contagion-in-Non-Bank-Finance

 

And found one more...

https://www.financialsense.com/podcast/18827/large-funds-preparing-credit-bust-says-chris-whalen?utm_source=dlvr.it&utm_medium=twitter

 

 

[investorG]

anyone else surprised a holder(s) of FNMAS wouldn't sell some @ 6.80 and buy some less liquid securities with the current 35-40pct liquidity (and a slight dividend) premium on the S shares?

[Guest cherzeca]

@IG. not surprised at all.  this is a special situation, event name.  most hedges etc who are in this will want as wide an exit door as they can find among the prefs in the event of an event

[rros]

anyone else surprised a holder(s) of FNMAS wouldn't sell some @ 6.80 and buy some less liquid securities with the current 35-40pct liquidity (and a slight dividend) premium on the S shares?

Watt is shining his dance shoes.

[investorG]

anyone else surprised a holder(s) of FNMAS wouldn't sell some @ 6.80 and buy some less liquid securities with the current 35-40pct liquidity (and a slight dividend) premium on the S shares?

Watt is shining his dance shoes.

 

it appears Emily was correct, Watt may end up a disappointment barring some last minute heroics.  Similar to the judges hiding behind the technicalities, he has refused to take material corrective action in deference to Congress even though a) based on his white paper he seems to be a GSE supporter and b) fixing the NWS doesn't preclude legislative solution(s).

 

[Sunrider]

@IG. not surprised at all.  this is a special situation, event name.  most hedges etc who are in this will want as wide an exit door as they can find among the prefs in the event of an event

 

Hmm ... wondering if it makes sense to swap some FNMAS into FNMAJ - similar coupon but at 20% discount.... I presume there's no reason to think the different pref series will be treated differently if there is a deal / conversion / etc.?

 

Thanks!

[Luke 532]

Rumor mill: Calabria to head FHFA, Otting to serve as interim.

 

https://www.insidemortgagefinance.com/imfnews/1_1500/daily/white-house-to-name-mark-calabria-to-head-fhfa-1000048717-1.html?ET=imfpubs:e11655:73599a:&st=email&s=imfnews

 

It appears that conservative economist Mark Calabria – presently serving on the staff of Vice President Mike Pence – will be nominated by the Trump administration to be the next director of the Federal Housing Finance Agency. Of course, it hasn’t happened yet. All this week we heard from a handful of Washington-based lobbyists and advisors who thought the announcement would come by the weekend. (So far, no.) But there’s a twist as well. The White House is expected to name Comptroller of the Currency Joseph Otting interim FHFA director, wearing two hats. It’s just a hop, skip and a jump from the OCC building to FHFA headquarters…

[Guest cherzeca]

turns out Otting is a Mnuchin boy.  from wikipedia:

 

"Otting was President, CEO, and a board member of OneWest Bank, N.A.,[14] from October 2010 until August 2015, when the bank merged with CIT Group, which purchased OneWest Bank for $3.4 billion, following regulatory approval.[15] He served as President of CIT Bank and Co-President of CIT Group from August 2015 to December 2015.[16]

 

At OneWest, he worked closely with the bank’s founder, Steven Mnuchin, who later became the U.S. Secretary of the Treasury.[17] Mnuchin led a group that purchased the California-based residential lender, IndyMac Federal Bank, FSB, on March 19, 2009, from the FDIC to create OneWest, FSB.[18] The FDIC established IndyMac Federal Bank, FSB, in 2008 when IndyMac Bank, F.S.B., failed.[19] OneWest Bank, FSB, converted to a national bank and was renamed OneWest Bank, N.A., in February 2014, as the bank transitioned from a residential lender to a full-service bank.[20]"

[rros]

Maybe they do the 4th with Otting while Calabria "inherits" the situation and appears cleaner.

[DRValue]

Maybe they do the 4th with Otting while Calabria "inherits" the situation and appears cleaner.

 

I'd go with something like that.

 

They're doing similar with the gse ceos when they leave conservatorship.

[Guest cherzeca]

so the rumor is that a close business associate of Mnuchin is to be acting director and a guy who co-wrote a scathing indictment of the NWS (https://www.dropbox.com/s/sb8h3cgub74u9c6/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf?dl=0) is to be nominated as director (subject to consent by a R majority...and likely will be given a non-confirmation job at FHFA before confirmation).

 

why isn't MBA raging against this?

[Midas79]

why isn't MBA raging against this?

 

Crafting a response that does so while giving lip service to affordable housing takes time, you know.