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

[stevevri]

Reducing risk at FHFA could mean terminating FHFA's role as Conservator so that it becomes Regulator. This way, FHFA is not "in the shoes of Fannie and Freddie" anymore. So he said the same thing twice in that sentence.

Honestly, 6 months is really tight if he really meant that.

 

The idiot that got the quote could also be wrong and he could have meant FHA and not FHFA and then it'd make sense.

[Guest cherzeca]

Reducing risk at FHFA could mean terminating FHFA's role as Conservator so that it becomes Regulator. This way, FHFA is not "in the shoes of Fannie and Freddie" anymore. So he said the same thing twice in that sentence.

Honestly, 6 months is really tight if he really meant that.

 

The idiot that got the quote could also be wrong and he could have meant FHA and not FHFA and then it'd make sense.

 

+1

[muscleman]

For those who cares about TA, today's price action is very positive. While John Carney and Gasparino are powerful market movers, their negative articles only caused a 3% decline for less than a few hours, and then price fully recovered, with more weak holders shaken out.

 

while I dont read gaspo and carney, I can see how the LIFO guys do, and so this can only mean volatility until a plan is released...and likely a new round of volatility once the plan is sought to be executed.  the POTUS memo was a sea change (the B guy thinks a recap is now a foregone conclusion), and a favorable collins en banc decision is another sea change opportunity.  but this is going to be a slow moving process with a lot of chirping by the gaspo/carney/tbtf types

 

The positive sign to me is that the number of LIFO guys have greatly diminished. With Gasparino and John Carney bashing hard on Tuesday, we have seen very little volume, and stock closed higher than the open after an initial dip of 3.5%.

All stocks tend to make a move to where the least number of people make money. It is never so easy that everyone is making money on the trade. Only those who are strong and smart are the ones making money in the end.

 

 

[rros]

For those who cares about TA, today's price action is very positive. While John Carney and Gasparino are powerful market movers, their negative articles only caused a 3% decline for less than a few hours, and then price fully recovered, with more weak holders shaken out.

 

while I dont read gaspo and carney, I can see how the LIFO guys do, and so this can only mean volatility until a plan is released...and likely a new round of volatility once the plan is sought to be executed.  the POTUS memo was a sea change (the B guy thinks a recap is now a foregone conclusion), and a favorable collins en banc decision is another sea change opportunity.  but this is going to be a slow moving process with a lot of chirping by the gaspo/carney/tbtf types

 

The positive sign to me is that the number of LIFO guys have greatly diminished. With Gasparino and John Carney bashing hard on Tuesday, we have seen very little volume, and stock closed higher than the open after an initial dip of 3.5%.

All stocks tend to make a move to where the least number of people make money. It is never so easy that everyone is making money on the trade. Only those who are strong and smart are the ones making money in the end.

As Livermore put it, "it wasn't my thinking that made me money. It was my sitting on my hands".

[muscleman]

For those who cares about TA, today's price action is very positive. While John Carney and Gasparino are powerful market movers, their negative articles only caused a 3% decline for less than a few hours, and then price fully recovered, with more weak holders shaken out.

 

while I dont read gaspo and carney, I can see how the LIFO guys do, and so this can only mean volatility until a plan is released...and likely a new round of volatility once the plan is sought to be executed.  the POTUS memo was a sea change (the B guy thinks a recap is now a foregone conclusion), and a favorable collins en banc decision is another sea change opportunity.  but this is going to be a slow moving process with a lot of chirping by the gaspo/carney/tbtf types

 

The positive sign to me is that the number of LIFO guys have greatly diminished. With Gasparino and John Carney bashing hard on Tuesday, we have seen very little volume, and stock closed higher than the open after an initial dip of 3.5%.

All stocks tend to make a move to where the least number of people make money. It is never so easy that everyone is making money on the trade. Only those who are strong and smart are the ones making money in the end.

As Livermore put it, "it wasn't my thinking that made me money. It was my sitting on my hands".

 

Exactly! I think Munger also said something like this.

[Luke 532]

Hannah Lang (American Banker) talks with Calabria... https://www.americanbanker.com/news/calabrias-ambitious-fhfa-agenda-its-not-just-gse-reform?brief=00000158-07c7-d3f4-a9f9-37df9bc10000

[Cox022]

 

short twitter thread from the author of the AB article just posted.

[Wiggins]

Hannah Lang (American Banker) talks with Calabria... https://www.americanbanker.com/news/calabrias-ambitious-fhfa-agenda-its-not-just-gse-reform?brief=00000158-07c7-d3f4-a9f9-37df9bc10000

 

 

This is the first time I have ever seen any official discuss "negotiating changes to the preferred stock purchase agreements."

The timeline (September or October) clearly puts it after the en banc decision.

This is a massive step.

[SnarkyPuppy]

lol @ stock price.  nobody looking at this because cobf pgs >1000 and all of the hair on it... but lol at the current price.

[SnarkyPuppy]

Imagine Watt saying any of this.  We're at similar prices to where we were at before FHFA and Treasury making this very strong statements. 

 

Market mistaking uncertainty with risk.

[Luke 532]

Market mistaking uncertainty with risk.

 

+1

[rros]

Imagine Watt saying any of this.  We're at similar prices to where we were at before FHFA and Treasury making this very strong statements. 

 

Market mistaking uncertainty with risk.

It's better this way.. numbness will allow both classes to grind higher w/o turbulence. No talk of windfall. A little each month, by Sept/Oct we should be close to targets barring any bad news from courts.

[Midas79]

Imagine Watt saying any of this.  We're at similar prices to where we were at before FHFA and Treasury making this very strong statements. 

 

Market mistaking uncertainty with risk.

 

I wish I could share your optimism here, but this piece actually gives me a sinking feeling. My investment thesis has started to coalesce around the idea that everything (full recap and release) needs to be done before the end of the year so as not to affect the campaign and election cycle. But here, Calabria makes it sound like getting FnF released ASAP is not really a goal. He also keeps mentioning Congress, which should be a non-starter.

 

It's a lock that Calabria will be able to be fired at-will by Trump, or the next president if Trump is not re-elected. The en banc decision will include this, and that part won't be appealed by either side. That means if Trump gets voted out, the incoming president could fire Calabria (and Mnuchin, of course) and derail the entire thing. I have therefore thought that if Trump really wants FnF released, it has to be done before the end of his term, and more likely much sooner due to the aforementioned campaign and election cycle concerns.

 

To me, these are the concerning parts.

 

“My hope is that by us trying to build some momentum, that that helps enforce a sense of urgency for Congress to act.”

 

Changes to those agreements would accompany a “roadmap” for Fannie and Freddie to exit conservatorship, said Calabria, with no specific end dates in mind, but rather a checklist of progress.

 

“We can create with Treasury a path out of conservatorship,” he said. “That will take a substantial amount of time if in putting that roadmap out, if Congress comes in and says, ‘You know, we think your road map goes the wrong direction.’ That will give them an opportunity and again plenty of time.”

 

I do wonder if the negotiations over the PSPAs could move up if Treasury submits its plan earlier than expected. Waiting until September or October could be too late, unless Treasury has already lined up the big money for the capital raise. The key dominos seem to be the en banc decision, Calabria issuing actual binding capital standards, and Treasury's plan. Once those are all done the PSPAs can be amended and then it's capital raise time.

 

This line sounds like a regulator speaking, not a conservator.

 

“What I see coming out of this is a roadmap with mileposts and at the end of the day, it's really predominately in the hands of the GSEs whether they meet those mileposts,” he said.

[SnarkyPuppy]

A roadmap with milestones?  Like the Moelis plan has?

 

I view his Congress commentary as placating to Congress, but pretty clear they will move forward administratively with a timeline with dates on recap process beginning -> ending -> end of conservatorship.  Congress can do what they want.

 

With that said, I can't see how this reconciles with trying to raise $150bn of capital in the face of an uncertain prospective business model. 

[Luke 532]

FHFA's twitter account tweeted the American Banker article.  They are trying to tell the market what's going to happen.  The market is still in a coma.

[rros]

Imagine Watt saying any of this.  We're at similar prices to where we were at before FHFA and Treasury making this very strong statements. 

 

Market mistaking uncertainty with risk.

 

I wish I could share your optimism here, but this piece actually gives me a sinking feeling. My investment thesis has started to coalesce around the idea that everything (full recap and release) needs to be done before the end of the year so as not to affect the campaign and election cycle. But here, Calabria makes it sound like getting FnF released ASAP is not really a goal. He also keeps mentioning Congress, which should be a non-starter.

 

It's a lock that Calabria will be able to be fired at-will by Trump, or the next president if Trump is not re-elected. The en banc decision will include this, and that part won't be appealed by either side. That means if Trump gets voted out, the incoming president could fire Calabria (and Mnuchin, of course) and derail the entire thing. I have therefore thought that if Trump really wants FnF released, it has to be done before the end of his term, and more likely much sooner due to the aforementioned campaign and election cycle concerns.

 

To me, these are the concerning parts.

 

“My hope is that by us trying to build some momentum, that that helps enforce a sense of urgency for Congress to act.”

 

Changes to those agreements would accompany a “roadmap” for Fannie and Freddie to exit conservatorship, said Calabria, with no specific end dates in mind, but rather a checklist of progress.

 

“We can create with Treasury a path out of conservatorship,” he said. “That will take a substantial amount of time if in putting that roadmap out, if Congress comes in and says, ‘You know, we think your road map goes the wrong direction.’ That will give them an opportunity and again plenty of time.”

 

I do wonder if the negotiations over the PSPAs could move up if Treasury submits its plan earlier than expected. Waiting until September or October could be too late, unless Treasury has already lined up the big money for the capital raise. The key dominos seem to be the en banc decision, Calabria issuing actual binding capital standards, and Treasury's plan. Once those are all done the PSPAs can be amended and then it's capital raise time.

 

This line sounds like a regulator speaking, not a conservator.

 

“What I see coming out of this is a roadmap with mileposts and at the end of the day, it's really predominately in the hands of the GSEs whether they meet those mileposts,” he said.

Respectfully, what does this have to do with Calabria correcting or not the shareholders' issue? This matter, the one we all care about, was born from an improper administrative action, not from Congress legislating. In fact, Congress followed the right path to protect shareholders based on Calabria's own contributions to HERA.

 

In my view, this matter is simple. As is, shareholders have nothing because companies have 6 billion in net worth and an inability to retain full earnings. On top, Jrs. have someone looking down at them from the top. If/when Calabria makes a move to correct this faulty structure value is automatically added to all shares. And that value will not disappear. It will travel along with any reform.

[SnarkyPuppy]

In Calabria's mind, his role is not to determine outcome.  He will act appropriately in line with his role as conservator, which everyone over the age of 5 would agree that the NWS in antithetical to.  He will also, as regulator, draft and require capital requirements to be met.

 

Whoever is a "GSE" will have to fulfill those capital requirements, in their own capacity, as private entities.  Including Fannie and Freddie. 

 

This is all agnostic to whether there are 2 or 10 and whether they have a special charter.  With the very important exception that I can't figure out, that if administration wants to be in the drivers seat of a recap (as opposed to simply releasing them and making the board/mgmt figure it out), it likely will need to be clear on future state.

[rros]

In Calabria's mind, his role is not to determine outcome.  He will act appropriately in line with his role as conservator, which everyone over the age of 5 would agree that the NWS in antithetical to.  He will also, as regulator, draft and require capital requirements to be met.

 

Whoever is a "GSE" will have to fulfill those capital requirements, in their own capacity, as private entities.  Including Fannie and Freddie. 

 

This is all agnostic to whether there are 2 or 10 and whether they have a special charter.  With the very important exception that I can't figure out, that if administration wants to be in the drivers seat of a recap (as opposed to simply releasing them and making the board/mgmt figure it out), it likely will need to be clear on future state.

I largely agree. Calabria can and will correct the capital structure in the near term. May is around the corner. It seems unrealistic to expect it to be done in June or July. Anything that happens after that shareholders will have a little voice. May not be the front seat but they will have one. Or a working prospect.

 

In correcting the shareholders issue the Jrs. have the advantage. Commons will continue to be plagued with uncertainty as it will be difficult to assess future earnings or the final size of the companies until the final outcome, perhaps through legislation. For Jrs. instead, it is more important that companies regain their ability to retain enough earnings so as to cover their dividends. Whether they are reinstated or not.

[Guest cherzeca]

In Calabria's mind, his role is not to determine outcome.  He will act appropriately in line with his role as conservator, which everyone over the age of 5 would agree that the NWS in antithetical to.  He will also, as regulator, draft and require capital requirements to be met.

 

Whoever is a "GSE" will have to fulfill those capital requirements, in their own capacity, as private entities.  Including Fannie and Freddie. 

 

This is all agnostic to whether there are 2 or 10 and whether they have a special charter.  With the very important exception that I can't figure out, that if administration wants to be in the drivers seat of a recap (as opposed to simply releasing them and making the board/mgmt figure it out), it likely will need to be clear on future state.

I largely agree. Calabria can and will correct the capital structure in the near term. May is around the corner. It seems unrealistic to expect it to be done in June or July. Anything that happens after that shareholders will have a little voice. May not be the front seat but they will have one. Or a working prospect.

 

In correcting the shareholders issue the Jrs. have the advantage. Commons will continue to be plagued with uncertainty as it will be difficult to assess future earnings or the final size of the companies until the final outcome, perhaps through legislation. For Jrs. instead, it is more important that companies regain their ability to retain enough earnings so as to cover their dividends. Whether they are reinstated or not.

 

we have gone from a former congressman (and skirt-chaser) to an academic/bureaucrat as fhfa director.  in terms of what is involved in raising $150B in capital and releasing GSEs from conservatorship, calabria is clueless...which is good quite frankly, let's have Treasury and Mnuchin drive the bus.  if you think Calabria will push back on what Treasury wants to do, or will withhold doing what is necessary to get the recap done, you are giving calabria far too much credit.  I do wish however that he would shut up about competition, understanding that even he acknowledges that he cant make it happen on his own.

[rros]

In Calabria's mind, his role is not to determine outcome.  He will act appropriately in line with his role as conservator, which everyone over the age of 5 would agree that the NWS in antithetical to.  He will also, as regulator, draft and require capital requirements to be met.

 

Whoever is a "GSE" will have to fulfill those capital requirements, in their own capacity, as private entities.  Including Fannie and Freddie. 

 

This is all agnostic to whether there are 2 or 10 and whether they have a special charter.  With the very important exception that I can't figure out, that if administration wants to be in the drivers seat of a recap (as opposed to simply releasing them and making the board/mgmt figure it out), it likely will need to be clear on future state.

I largely agree. Calabria can and will correct the capital structure in the near term. May is around the corner. It seems unrealistic to expect it to be done in June or July. Anything that happens after that shareholders will have a little voice. May not be the front seat but they will have one. Or a working prospect.

 

In correcting the shareholders issue the Jrs. have the advantage. Commons will continue to be plagued with uncertainty as it will be difficult to assess future earnings or the final size of the companies until the final outcome, perhaps through legislation. For Jrs. instead, it is more important that companies regain their ability to retain enough earnings so as to cover their dividends. Whether they are reinstated or not.

 

we have gone from a former congressman (and skirt-chaser) to an academic/bureaucrat as fhfa director.  in terms of what is involved in raising $150B in capital and releasing GSEs from conservatorship, calabria is clueless...which is good quite frankly, let's have Treasury and Mnuchin drive the bus.  if you think Calabria will push back on what Treasury wants to do, or will withhold doing what is necessary to get the recap done, you are giving calabria far too much credit.  I do wish however that he would shut up about competition, understanding that even he acknowledges that he cant make it happen on his own.

Well... we have him on record for an out-of-conservatorship-6-month marathon. If it is just talk to prop the stocks he surely must realize it isn't working. May be someone drops us a better bone. With meat.

[Midas79]

Respectfully, what does this have to do with Calabria correcting or not the shareholders' issue? This matter, the one we all care about, was born from an improper administrative action, not from Congress legislating. In fact, Congress followed the right path to protect shareholders based on Calabria's own contributions to HERA.

 

My fear is that Calabria will do too much of what Watt did: make no move and wait for Congress. However, I have re-read the article after taking a break, and it isn't as bad as I thought. Calabria has talked about a sense of urgency, and he is committed to getting FnF out of conservatorship. I don't think the article is entirely positive, but I have backed away from the ledge!

 

If/when Calabria makes a move to correct this faulty structure value is automatically added to all shares. And that value will not disappear. It will travel along with any reform.

 

For the juniors, I agree. But a capital raise could dilute the commons badly, especially if it's large-scale and fast. There will be value added, but much of it could accrete to the new common shareholders.

[rros]

Respectfully, what does this have to do with Calabria correcting or not the shareholders' issue? This matter, the one we all care about, was born from an improper administrative action, not from Congress legislating. In fact, Congress followed the right path to protect shareholders based on Calabria's own contributions to HERA.

 

My fear is that Calabria will do too much of what Watt did: make no move and wait for Congress. However, I have re-read the article after taking a break, and it isn't as bad as I thought. Calabria has talked about a sense of urgency, and he is committed to getting FnF out of conservatorship. I don't think the article is entirely positive, but I have backed away from the ledge!

 

If/when Calabria makes a move to correct this faulty structure value is automatically added to all shares. And that value will not disappear. It will travel along with any reform.

 

For the juniors, I agree. But a capital raise could dilute the commons badly, especially if it's large-scale and fast. There will be value added, but much of it could accrete to the new common shareholders.

I ask myself everyday if I am being gullible in believing their words, while the real game is a waiting one. Government can wait forever.

[muscleman]

Respectfully, what does this have to do with Calabria correcting or not the shareholders' issue? This matter, the one we all care about, was born from an improper administrative action, not from Congress legislating. In fact, Congress followed the right path to protect shareholders based on Calabria's own contributions to HERA.

 

My fear is that Calabria will do too much of what Watt did: make no move and wait for Congress. However, I have re-read the article after taking a break, and it isn't as bad as I thought. Calabria has talked about a sense of urgency, and he is committed to getting FnF out of conservatorship. I don't think the article is entirely positive, but I have backed away from the ledge!

 

If/when Calabria makes a move to correct this faulty structure value is automatically added to all shares. And that value will not disappear. It will travel along with any reform.

 

For the juniors, I agree. But a capital raise could dilute the commons badly, especially if it's large-scale and fast. There will be value added, but much of it could accrete to the new common shareholders.

I ask myself everyday if I am being gullible in believing their words, while the real game is a waiting one. Government can wait forever.

 

That's the problem of fundamental analysis. A lot of times this kind of uncertainty drives me nuts and then I sell, and then right after I sell, the stock goes 3x.  :(

I don't have this problem any more after I give up on FA. The chart continues to look incredible. It is one of the best looking chart in all of my holdings right now. I see lots of buying and no sellers on the market. What's really funny is that on Tuesday, the collaborated bashes by John Carney and Gasparino happens to be the lowest volume day of this week for FMCKJ. That tells us that the last group of weak holders (Chris call them LIFO guys) are out. So now we have no sellers and eager buyers, so guess what's gonna happen next.  :)

 

 

 

 

 

[rros]

Respectfully, what does this have to do with Calabria correcting or not the shareholders' issue? This matter, the one we all care about, was born from an improper administrative action, not from Congress legislating. In fact, Congress followed the right path to protect shareholders based on Calabria's own contributions to HERA.

 

My fear is that Calabria will do too much of what Watt did: make no move and wait for Congress. However, I have re-read the article after taking a break, and it isn't as bad as I thought. Calabria has talked about a sense of urgency, and he is committed to getting FnF out of conservatorship. I don't think the article is entirely positive, but I have backed away from the ledge!

 

If/when Calabria makes a move to correct this faulty structure value is automatically added to all shares. And that value will not disappear. It will travel along with any reform.

 

For the juniors, I agree. But a capital raise could dilute the commons badly, especially if it's large-scale and fast. There will be value added, but much of it could accrete to the new common shareholders.

I ask myself everyday if I am being gullible in believing their words, while the real game is a waiting one. Government can wait forever.

 

That's the problem of fundamental analysis. A lot of times this kind of uncertainty drives me nuts and then I sell, and then right after I sell, the stock goes 3x.  :(

I don't have this problem any more after I give up on FA. The chart continues to look incredible. It is one of the best looking chart in all of my holdings right now. I see lots of buying and no sellers on the market. What's really funny is that on Tuesday, the collaborated bashes by John Carney and Gasparino happens to be the lowest volume day of this week for FMCKJ. That tells us that the last group of weak holders (Chris call them LIFO guys) are out. So now we have no sellers and eager buyers, so guess what's gonna happen next.  :)

In a strange kind of way, LocusofTexas got it right.

 

This, whether we like or not, is a gamble of the rankest kind. What makes this a sordid speculation is government's involvement. Not the kind of involvement known through 10k's, that is, Congress providing GSE's charters and public mission or government entanglement as a "sponsor", but the type of pervasive involvement that is so vast and widespread that involves both houses of Congress and all branches of government in an insidious type of way: politics.

 

I imagine that the day Warren Buffett reached a similar realization, way before any hint of any nws, he promptly concluded fundamentals really did not count or, if they did, they would take a back seat to anything even remotely connected to a politico farting, deciding -was it a large position in Freddie Mac?- it was time to pack and leave with a boatload of profits. Not to risk such fart would end up smelling worse than a rotten egg.

 

Judging this bet on a fundamental basis or a technical basis is an exercise in futility. Charts also looked GREAT on the day this article was published making it the first public acknowledgement of hedge funds' involvement on the Jrs.

https://www.bloomberg.com/news/articles/2014-03-10/westhus-reaping-fannie-windfall-to-rival-big-short-mortgages

 

That day, my friend, was the historical peak (or the day before if you want more precision). A day later, the sell-off began. And within 2 days Crapo announced a plan to eliminate and replace Fannie and Freddie:

https://www.forbes.com/sites/nathanvardi/2014/03/12/fannie-and-freddie-preferred-shares-fall/#567834e9423e

 

Then, a few months later, Lamberth hand-grenade blew us up into pieces.

 

Fundamentals? Technicals? Coincidence? Inside trading?

 

The only right way to handle a bet on these shares -and I only focus on the Jrs.- is by trying to assess in the best possible manner cumulative information from many different sources interpreting this data in many different ways with a great deal of latitude and an enormous amount of humility that allows for admitting errors. Sometimes major ones. And this assessing, in general, is more like reading tea leaves in its simplest form.

 

Today, I like to think Mnuchin is not yapping. He told us last year, to our great disappointment, that the GSEs were a 2019 story. We got crashed. But we now know he was honest. Why would he publicly say such thing last year and why continue to say it today, in an open forum, that not only this is a 2019 story but one that will unfold within the next 6 months? Why not continue to delay the story to 2020 and beyond? Given he was honest last year, I'd like to think it is true we may see things accelerating in the next few months.

[Guest cherzeca]

so following on rros and locus, what is basis for a position in pref? 

 

failure. 

 

specifically the failure of fierce enemies of the GSEs to come up with anything workable to replace over 10 freacking years.  There Is No Alternative.  now, they are in modify mode, with calabria cheerleading for "competition".  I consider this a huge annoyance (harms capital raise execution prospects) but a victory nonetheless.  TINA.  and what I consider to be a favorable outlook for collins en banc. and a real banker at Treasury (mnuchin) who spent a successful career seeing firsthand the advantages of the GSEs