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I have to agree with him on this one.
I think the regulated utility model is likely to be one that pleases all parties:
For conservatives, it finally does justice to the private shareholders who have been in this odd limbo for so long.
For progressives, it ensures a stable housing market with a view towards affordability.
For taxpayers, it minimizes their exposure to the risk of the mortgage insurance market.
Finally the for the economy, it removes some immense uncertainty and reduces risk to a minimum, at least in the mortgage industry.
The treasury itself can even make a profit, or keep a portion of its common shares (like golden share rule of 10% or so).
I realize this is a bit of a late reply, but yes that would be the idea.
And it would fit perfectly with a regulated utility model. Honestly I think a preffered share model is likely to be the eventual way government will do public-private partnerships, as it does not have the disadvantage of extorting the public sector like current models do (since the rate of return is fixed, private investors are basically just there for a return, all the operations of the company are otherwise controlled).
Really? Perhaps its different in different countries. But whatever the, just substitute the values.
My own reform proposal.
Since everyone is doing it I figure I would join in on the fun with a reform proposal of mine own. Its somewhat in line with Watt's idea. Let's call it the Order and Justice Plan.
Cancel the senior preferred shared by treating them as having been paid in full.
Exercise the warrants the government currently has.
Merge the two companies (perhaps with ginnie mae as well)
Restore junior preferred share dividends.
Convert non-government common shares to jr. preferred at a par value of 60$ (or other negotiated number) with a 5% annual dividend.
Issue an equivalent of 60 bn $ worth of preferred shares with 5% annual divys.
Keep the company as public utility controlling mortgage insurance much like the TVA is with electricity.
The advantages of this plan are that it makes all shareholders whole including pension funds that may have lost during the crisis, all the while recapitalizing the companies (in such a way that their current profits more than suffice to cover divys) and creating a completely controlled public entity to manage mortgage insurance.
You would have be pretty insane to short at that price.
Don't get me wrong, it probably makes sense to short from 3.1 and above. But with recent news under 2.9 is just madness.
As Navy said, there will still be some decent trading opportunities on this stock going forward, and possibly a big (150%+) gain at some point, but some people have calm their proverbial tits.
Ah so this explains the issue.
Thank you for posting this. If you could link the source even better!
Sure the market overeacts, but this imbalance is extremely strange.
I mean the pref are still up some 25%, and yet common is down a penny or two at the time of writing.
What in your opinion is causing this yuge(tm) discrepancy?
Thank you!
I hope everyone can come out with at least some gains here; Of course a win-win-win would be great for everyone.
They could take the opportunity to make mortgage insurance a consolidated public utility; But I think its unfortunately unlikely.
You are of course right.
As long one gets in or out in the right direction a reasonable gain can be made.
I just wish I did it in the first 2-3 big ups and downs after the court case :D Was just too preoccupied with other things in my life. Oh well.
Working on reversing my losses from the drop in february. I am about a 3rd of the way there (realized, or 50% (including recent gains).
I say if they do actually resolve this in 2018 we get maybe another 2-5 cycles out of this.
I will keep an eye on the news closely; And of course look to you and the infamous Along4zride for guidance XD
Yessir!
I know you got back it at around 2.7-75. I got back in at 2.88 Why am I always late to the train! I guess better late than never...
My my how the tables have turned!
At this juncture, it is Mr. Watt who is relatively closer to the interests of shareholders, while Mr. Mnuchin further away.
True, its always within context.
I try to take into account recent happenings when making investment decisions; So if a stock has not dipped below a certain threshold very often over a period I tend not to wait for such a drop. Instead it is safer to by back in just above it.
Hm, so low volume...
That just confirms my fears of day trading manipulation. I think I might sell a portion and see what happens.
Any reason why we would be up today?
I realize its just a small gain but I am always on the lookout for news. Nothing on GSE links suggest anything substantial has changed.
I always get scared when we are up on no news because I fear a catastrophic crash if only because day traders are manipulating things.
To be honest
I am happy to trade an make 5-10% in day trading fnma. I have only really done it once so far though.
Tried to do the same but volume was pretty anemic.
Managed to make 50$ cash profit tho XD
Technically no at least for me.
I am not a citizen of the U.S. you see ;D
Alrighty then.
I guess I will take a quick small profit then.
Thanks for this.
Quick question: Is there any news supposed to come out today?
What is mysterious is why people believed that anything would happen...
There is no pressure on Mr. Watt to change anything at present, nor would he gain anything from shaking the boat this early.
So I await another bottom. Hard to say where it will be? 2.4-2.6 like we had for a while? 2.7, 2.8? We will see.
I actually went back to cash today at around 3.09
Looking at the chart since the february fall it looks like the is a stable resistance average at around 2.8ish, so it might make sense to buy back around there.
As far as I can tell, there is unlikely to be large scale moves until the end of the quarter so it is reasonable to SOME trading and take advantage of the programs, jitters and the news cycle.
Why the gains today?
I haven't logged in for a while; Been lurking.
Any reason for the price surge today? There doesn't seem to be any news, either here or on GSElinks.
Staying long to be sure, but there is always money to be made in spikes that occur for seemingly no reason.
Not in any standard definition of the word.
I suppose this has to do with the anglo-american ideological conflation of government regulations and programmes with socialism.
The difference is important here because if indeed the government was attempting a socialist programme it is unlikely that they would be simply eating up a bunch of profits from what are essentially mortgage insurance agencies. Rather it would have seized them outright, and moreover abolished competition in such markets.
The path that is being followed with respect FNMA by the us government is simply dysfunctional. It is not reflective of one coherent programme or another, but rather by piecemeal contradictory aimlessness.
Although it doesn't seem to me like you have anything against preferred owners, unlike them with the common (which is weird because the outcomes have almost identical effects on both classes of shares, save for the weirder and less likely scenarios).
That's why I am long,
The fact that the treasury can make a very quick large of money via the warrants by ending the nws is what motivates me to hold. Moreover the higher the sp, the more money the treasury would make.
Not only that, but since they would own 80% they could still get a substantial portion of the profits anyways via dividends (though not as much as with the nws).
Make Fnf and regulated utility and we are good to go. Merger would be great too (spreads risk over more mortgages and lowers admin costs)
Well not quite in my case;
But as long as the stock goes for more than 6$ ps everyone will be in the green.
And all that is needed for that is for the government simply not to do some drastically bizarre things. Simply ending the nws, exercising the warrants and allow recapitalization is enough to get us to 15ish ps. Assuming they issue more shares to raise capital, then 10$ps is reasonable.
I can see sp doubling for both common and preferred.
More than that though depends on what else happens (Ie if the cushion to be built is small, and if the nws is ended or merely temporarily suspended)
Going to a annual dividend, while better than the status quo is still riskier than having a fixed capital buffer.
A better strategy if they want to continue the NWS is just to temporarily suspend it so as to build up reserves to a specified level and then have it continue above that (assuming the entities are not otherwise reformed beforehand).
Despite it not being that favorable to shareholders, it at least means the company has some nominal value, and signals that the plan isn't to just destroy the companies (which at the end of the day would be incredibly stupid given that the treasury owns warrants on the stock).
Thank you!
Good news all around, eh?
I can't seem to find another source other than this twitter feed that confirms Phillips said this (that the Trump Adminsitration want Fannie and Freddie "out of government control"*.
If anyone could provide such a link I would be grateful.
(*Public utility model would still imply a lot of control, but its still a good outcome for shareholders; Possibly a better one if it implies less risky behavior)
You think they might merge the companies?
It would make for more streamlined operations and probably save a few million yearly. Anyways...
They might recap and then nws everything above the recap limit.
However, it still is good compared to the status quo insofar as it means receivership becomes out of the question and the company with have a net worth greater than 0.
A small note on how the government exercising the warrants can work:
Usually when governments own shares in a company they either do so directly through their ministry of finance/economy (or equivalent) or they use a sovereign wealth type fund.
Eg. of first: Tennessee Valley Authority (US)
Eg. of the second: Temasek Holdings (Singapore)
Unfair comparison
Venezuela is essentially in a civil war scenario (with foreign backing heavily one side) whereas the U.S. is not at all.
There is no emergency state justifying the continued treatment of GSEs in the current manner; Hell even if their was, it still wouldn't make much sense (the recap and exercise of the warrants would far more prudent if the government wanted to maintain control while ensuring stability).
Omg, please let this happen.
It will be amazing! I really do hope to see you doing such a thing; Truly it would be great!
XD XD XD
There we go. A lot clearer this version.
Ah okay.
That wasn't clear before.
Apologies but I think you have made a few errors:
First a terminological one: I didn't calculate anything, I laid out a relationship between variables.
Moreover there is nothing wrong with the equation in the abstract.
Finally, I did put a suggestion at the end of my original post for taking account restored preferred dividends:
"Perhaps another variable that could be added (deducted from net earnings in the bracket is dividends to preffered shares)
I am not sure your equation does that correctly, since it seems deduct the dividends from after they are multiplied by price to earnings ratio. Maybe just a error made in haste.
Still, it remains that you still have an indeterminacy; You are stuck a function, not answer for pps.
Well if you do not lay out^ your reasoning in clear steps do not expect your audience to intuit your procedure.
Its not clear to me at least what final price per share will be since in part it is dependent on the number of shares issued (or inversely, for a given target pps, so many shares would be issued).
Given the government has fixed amount of warrants, where it to want to maximize its gains it would likely want to limit the amount of shares needed for recapitalization.
Do you need me to lay out the resultant optimization proof? Prima facie it shouldn't be too hard. Something like Max(5billionshares*X) where X is the number of shares, subject to the constraints of the equation given, and #recapshares >0
(^ Side note: Different people like different presentations, I tend to prefer the standard Definitions, Axioms, Theorem, Proof, Corollary setup, or something analogous to it)
For some reason my post did not link to your original that i was referring to. I quote you here:
"$12.31b Earnings * 14PE = $172.34b Market Cap
$12 pps * 5.893b sh. out. = $70.716b
($172.34b - $70.71b) - $19.13b = $82.49 Recap
$82.49b / $12 pps = 6.874b additional shares required
6.874b additional shares + 5.893b current shares = 12.767b total shares required
$172.43b - $19.13b Jr. Pfd = $153.30b Market Cap attributable to commons
$153.30b / 12.767b total shares = $12 pps attributable to commons.
Add back $19.13b for Jr. Pfd's and you arrive at total Market Cap of $172.34 for the entire business."
Line 2 is where the implicit assumption of 12$ per share is.
Now, I my post was just describing the relationship between the variables. I can put in a general form:
(Net Earnings)*(Price per earnings ratio)*(1/(# Shares Outstanding + # Shares From Warrant Exercised + # Shares From Recapitalization)) = Price Per Share
Since every variable save for price per share and # of shares from recapitalization are more less known estimates, the result is a function between the former two.
Perhaps another variable that could be added (deducted from net earnings in the bracket is dividends to preffered shares)