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

[Williams406]

 

 

My optimism is starting to wain with speed of things. All it took was to remember the captial rule was supposed to be published for comment by the end of 2019 and here we are ~1 year since Calabria made that comment.

 

Reading Tim Howard's take on Calabria's comments related to the GSE's poor corporate culture is the latest Huh? moment for me with respect to Calabria. The capital rule levels were another. I've wanted to add to my preferred position many times over the past year, but just can't get confident enough to do so. Having the advisers engaged is a big positive, but I'm much less confident in the principal players than I was during the Otting "all in alignment" days. I think the ball gets over the end line here, but it will have been more of a three-yards-and-a-cloud-of-dust grind than it probably had to be. And we aren't there yet.

[Guest cherzeca]

 

 

My optimism is starting to wain with speed of things. All it took was to remember the captial rule was supposed to be published for comment by the end of 2019 and here we are ~1 year since Calabria made that comment.

 

Reading Tim Howard's take on Calabria's comments related to the GSE's poor corporate culture is the latest Huh? moment for me with respect to Calabria. The capital rule levels were another. I've wanted to add to my preferred position many times over the past year, but just can't get confident enough to do so. Having the advisers engaged is a big positive, but I'm much less confident in the principal players than I was during the Otting "all in alignment" days. I think the ball gets over the end line here, but it will have been more of a three-yards-and-a-cloud-of-dust grind than it probably had to be. And we aren't there yet.

 

well said.  I am extraordinarily frustrated with Calabria, and his comment re GSE culture was outrageous, considering his predecessor at FHFA was credibly charged with sexual harassment. however, I come back to collins, and I am reasonably confident of Ps chances on both claims.  even if there is some new numbnuts fhfa director appointed by potus Biden (G*d forbid) a collins win is very good for the junior prefs.

[investorG]

The capital rule delay, assuming the final rule comes out by Halloween, may be orchestrated such that a potential 4th amendment / settlement in the lame duck session looks less 'lame' than if the rule was finalized in May - Mnuchin can say he needed to wait for it.

 

If Trump wins, I'd expect things to progress slowly but hopefully with higher likelihood of success.  Collins goes to trial, Calabria remains entrenched high on power.  If Tsy wins Collins, then the sr pref is partially monetized and if they lose the courts give Mnuchin the cover he likely covets.

 

If T loses, it obviously gets dicey.  From what I've read here Calabria can stay in power post Jan-21, perhaps a lot longer, if Mnuchin does the right thing and settles Collins before the admin turnover (which obviously is a big if).  A new legal challenge to Calabria's constitutionality would have to arise which could take years to flow through the system.  This would be a potential scenario consistent with Calabria's testimony, unless I'm mistaken above. 

[Guest cherzeca]

the whole question of fhfa director removal is before scotus, likely to be decided in march. so I don't see Calabria going anywhere until then if Biden wins.

[investorG]

the whole question of fhfa director removal is before scotus, likely to be decided in march. so I don't see Calabria going anywhere until then if Biden wins.

 

if Mnuchin settles collins wouldn't the fhfa director removal go away also - and so a challenge to his constitutionality would start anew?

[orthopa]

My optimism is starting to wain with speed of things. All it took was to remember the captial rule was supposed to be published for comment by the end of 2019 and here we are ~1 year since Calabria made that comment.

 

Calabria actually did address this in the hearing. He said the rule was supposed to be out in March and was delayed by the pandemic. In a late February interview he said that the rule would be released "in the coming weeks, months" so while he did cover his bases there, it does sound like he was ready to release it earlier.

 

To be fair, that is still 3 months after the end of 2019, and the delays are certainly frustrating. At this point, you either trust the administration to get things done in the lame duck period or you don't. And if you don't, it probably isn't worth holding. I think the shares will take a moderate to large short-term dip if Biden wins, but will have a similar-sized rally if Trump wins, so I'm just going to hold through the election.

 

Edit: this doesn't take into account the lopsidedness of Biden and Trump's respective chances of winning, but if there's anything I learned from the 2016 presidential election it's that I have become very hesitant to ever give a major-party presidential candidate a less than 45% chance of winning no matter what the polls say.

 

I should clarify that my optimism decreasing is more so in the speed of things happening, not so much the end game. I think at the end of this jr preferred gets par and I’m stubborn enough to hold till the end. Maybe its the 7 years of waiting since I started accumulating a position wearing on me.  :o

 

Its hard to figure out if Calabria is pandering to these ignorant bought for politician with their questions or really means what he says. That’s exactly why a timeline some have discussed with unilateral (non election determined) action by the end of the year is becoming more doubtful. Calabria said he would begin discussions with Mnuchin about the NWS in May of 2019. There was the Sept 2019 amendment but the Treasurys liquidation preference was increased along with capital retention. That being said Calabria and Mnuchin have been discussing an amendment for 16 months! Sheesh.

 

In prepared speeches we have been told the time to build capital is now probably 6 times. We have been told the time to act is now 3-4 times. A bright spot was the firm capital rule comment period timeline. Maybe its just from being bludgeoned into submission by disappointment and missed guidelines for a year and a half (4 years including mnuchins comments day after election) but I don’t see a reason to be optimistic yet timeline wise. If Trump wins and the case is argued in front of the SC is there not an expectation that this will not come down to the days before a ruling if at all for a settlement? If we remember the en banc decision conveniently came the day after the treasury plan after being delayed for months. Maybe its coincidence and of no significance or maybe there is a lot of higher level stuff going on that "they" will take down to the wire that us peons are not privy too.

 

That being said when this is all said and done count me out on the next heavily government involved investment. The discount that the preferred may have traded with at any point in time due to government involvement, delay, court etc etc FWIW is/was highly appropriate and warranted.

 

[orthopa]

the whole question of fhfa director removal is before scotus, likely to be decided in march. so I don't see Calabria going anywhere until then if Biden wins.

 

if Mnuchin settles collins wouldn't the fhfa director removal go away also - and so a challenge to his constitutionality would start anew?

 

Common sense based on what Calabria wants to do would be to try to delay his removal in anyway possible and for as long as possible. History with the court cases has shown the common sense outcome seems to never come.

 

A trump win is a double edge sword, Calabria can stay longer but there then there is no rush and we right back to where we are now if not less regards to a sense of urgency.

[Guest cherzeca]

the whole question of fhfa director removal is before scotus, likely to be decided in march. so I don't see Calabria going anywhere until then if Biden wins.

 

if Mnuchin settles collins wouldn't the fhfa director removal go away also - and so a challenge to his constitutionality would start anew?

 

yes.  and so your point is interesting...that it is in calabria's own personal interest to settle and moot collins

[Guest cherzeca]

justice Ginsburg has died.  she was a fantastic trailblazer for women's rights, and for women in law.  and she was a tireless and devoted justice...who I disagreed with on almost all decisions. RIP.

 

why post this on a GSE thread?  if I had to guess, she would have been a vote for the government in collins.  now her seat will be empty while the court hears and decides collins.

[orthopa]

justice Ginsburg has died.  she was a fantastic trailblazer for women's rights, and for women in law.  and she was a tireless and devoted justice...who I disagreed with on almost all decisions. RIP.

 

why post this on a GSE thread?  if I had to guess, she would have been a vote for the government in collins.  now her seat will be empty while the court hears and decides collins.

 

I just saw this now also. How does this affect anything if at all? Is there such a thing as a split decision with one justice out or would it go to Roberts for the tie breaker? The never ending GSE saga.

[muscleman]

justice Ginsburg has died.  she was a fantastic trailblazer for women's rights, and for women in law.  and she was a tireless and devoted justice...who I disagreed with on almost all decisions. RIP.

 

why post this on a GSE thread?  if I had to guess, she would have been a vote for the government in collins.  now her seat will be empty while the court hears and decides collins.

 

I am shocked to see this. Is it too late to nominate a supreme court justice before election?

 

[Guest cherzeca]

justice Ginsburg has died.  she was a fantastic trailblazer for women's rights, and for women in law.  and she was a tireless and devoted justice...who I disagreed with on almost all decisions. RIP.

 

why post this on a GSE thread?  if I had to guess, she would have been a vote for the government in collins.  now her seat will be empty while the court hears and decides collins.

 

I am shocked to see this. Is it too late to nominate a supreme court justice before election?

 

I expect trump to proceed full stream ahead.  50 R senators need to vote aye

[muscleman]

A lot of home owners are unable to pay their mortgage now. Also increasing number of renters unable to pay rent. I wonder how this may affect FnF since they guarantee the mortgages?

[orthopa]

A lot of home owners are unable to pay their mortgage now. Also increasing number of renters unable to pay rent. I wonder how this may affect FnF since they guarantee the mortgages?

 

This is why the FnF has issued the forbearence guidedance, new proposed fee, etc. Has been dicussed in detail here in this thread over the last couple of months.

[Guest cherzeca]

what happens if SCOTUS decides Collins with 8 justices and they split 4-4?

 

[orthopa]

what happens if SCOTUS decides Collins with 8 justices and they split 4-4?

 

 

Thanks cherzeca.

 

The logic would then follow that if RBG was a vote against Ps then any trump nominee should be a vote for. Senate would essentially be voting in someone who would on paper go against the own administration/Treasury/Mnuchin in this case.

 

Double the reason to try to move to a settlement. Maybe/hopefully this was the plan anway and none of this matters although its quite ironic.

[Luke 532]

what happens if SCOTUS decides Collins with 8 justices and they split 4-4?

 

 

This is beautiful.

[orthopa]

https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FHFA_StrategicPlan_9222020.pdf

 

Not a lot of meat for shareholders but pretty clear cut FHFA is going to end the conservatorship. Attention is paid to the fact 2021 is the start of the framework for ending the conservatorship. Unlikely a consent decree is enacted before the end of 2020 but even so still time before inauguration and if/when Calabria forced to leave.

[Luke 532]

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

[SnarkyPuppy]

Sometimes the simple explanation is the best explanation. 

 

At this point in the history of these companies, who the hell else would be buying these shares? 

 

-You either have purchased or passed on the story by now. 

-There are no natural incremental buyers who care. 

-Combine this with Mike Green's thesis on passive flows taking from discretionary managers & the fact that these trade OTC and are excluded from ETFs/indexes.

-Add in perceived legal risk / election risk / timing risk / political risk.

 

The discount seems understandable if you aren't one of the few psychopaths who have followed this for years. 

[Luke 532]

The discount seems understandable if you aren't one of the few psychopaths who have followed this for years.

 

LOL, I agree.  I made a similar point to somebody earlier today.  I understand why they trade where they do, but those prices don't represent the actual risk/reward in the trade.  Big difference.

[Guest cherzeca]

The discount seems understandable if you aren't one of the few psychopaths who have followed this for years.

 

LOL, I agree.  I made a similar point to somebody earlier today.  I understand why they trade where they do, but those prices don't represent the actual risk/reward in the trade.  Big difference.

 

GSEs are in a lot of "too hard" piles.  that creates opportunity/risk

[orthopa]

 

https://files.acg-analytics.com/wl/?id=shIIixOKejR2zEc8DlZsZiDRgmhHAutt

 

80%+ chance PSPA by inauguration day (if Trump loses)*

 

95% chance of SCOTUS unwinding NWS (obviously, if no settlement prior to their decision)

 

This equates to a 1% chance that neither happen: (1 - 0.95) x (1 - 0.20) = 0.01.  Or, in other words, a 99% chance we either (A) win SCOTUS or (B) PSPA by inauguration.

 

*Note: the 80% PSPA chance was from a few months ago during a call ACG opened to public, but they confirmed this week when I asked that % still valid.

In other words, my take-away, pricing of junior prefs represent a severe discount in the market that doesn't represent what is actually happening behind the scenes.

 

Open question for the floor. Why isnt there a 100% chance the PSPA isnt done by inauguration day? If Trump is out, Mnuchin is out and Im not so sure I want a Biden appointed Treasury Secretary or underling negotiating with Calabria. Secondly if Trump loses what do either Calabria as an independent regular or lame duck Mnuchin have to lose negotiating the PSPA in the weeks after the election.

 

I cant think of a more common sense assumption regarding the PSPA if Trump loses and why that chance isnt 100%. Unless they want to dump the chance of a SC loss on a new administration.

[Luke 532]

 

Open question for the floor. Why isnt there a 100% chance the PSPA isnt done by inauguration day?

 

I have reason to believe she is actually much more confident than her publicly stated 80% chance, but I'm not at liberty to discuss details of that belief here in this forum.

[Guest cherzeca]

here's how I think about it.  right now, govt's litigation strategy is 180 degrees opposite of its policy position.  continuing to litigate makes no sense if you want to implement policy of recapping GSEs. now, adopting that strategy took a lot of fortitude because many in congress oppose, but the administration held firm, and those opposing in congress have largely moved on to other sound bite opportunities.  but why continue to litigate if it is at odds with policy, now that congress is off the GSEs?

 

so the reason must be govt wants some form of political cover, together with the Goldman Sachs theory that you don't act until you have to, because different and better options may arise. Mnuchin was born and bred at Goldman.

 

now, what happens if Biden wins? my guess is that the wait for political cover will be over...in essence, letting Biden appoint Ds to DOJ/FHFA and have Parrott back holding the housing reins is political cover enough for Mnuchin/Calabria to act before inauguration to prevent this.  this is DC actor speculation, which ACG should know better than I do, but that is how this scenario makes sense to me.