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Looking at my accounts and thinking of a new motor for my Porsche ;)
We don't want hedge funds holding the senior prefs, we want the senior prefs eliminated. What does it matter who the owner is if the shares carry the rights to "all profits in excess of 3B net worth"?
I'll bet you $10 that FMCKJ/FNMAS make it to $20 before the commons do. Insofar as my cost basis for both the prefs and commons that I hold is roughly the same, your strategy isn't very good.
I'm not sure it's very good at all to be honest; again- the preferred shares command a premium in no small part because they are perceived by the market as LESS RISKY. You may disagree; that's fine, but to come on here with a total absence of real investment logic and yell that everyone should SELL PREFERRED AND BUY COMMON is just silly.
Given the swirling clouds of doubt surrounding these issues aren't we all speculators to some degree?
As are logic-based rebuttals.
That post does nothing to support the "Common same as preferred" mantra and in addition is poorly supported by logic and facts.
My intent is to make readers aware that other points of view may have more rigorous support than shouting in bold font.
UNJUSTIFIED ASSERTIONS
You offer up no reasoning for your statement so it is difficult to know how you have come to this conclusion.
Reaching conclusions based on no justification does not seem like a wise investment strategy.
Porsche is the same as Ford. See, no justification. Is it true? Having driven both, I can tell you "No, it's not."
Best of luck to you.
GOOD POST mhill_fin
eom
"Anyone have a thought..."
Flat out manipulation? I think there's plenty going on behind the curtain.
Believing that something so complicated as capital markets can be described by so simple a system seems unlikely. A quick review of the last month's daily chart shows that this pattern does not hold true in the longer term.
Excellent advice can be found on investor forums; over the years I've made hundreds of thousands of dollars (really) based on ideas I first heard in a forum.
Unfortunately, unless one is sufficiently discriminating, the opposite could also become reality.
No difference between preferred and common?
It would be very illuminating to understand your reasoning for this statement, when a comprehensive review of the facts shows it not to be the case. The junior preferreds are superior to the common shares in the capital structure of the company and consequently are less risky/more likely to get paid out in the event of a complete wind down. This explains the price discrepancy- people pay more for safer investments and in turn must be paid more for risky investments.
Truly, one must look at the source of the information as well as the 'information', because people often have very different goals.
Even if the companies are completely taken apart, Uncle Sugar is going to by law owe me $25 each for my CKJs.
I owe common too, but have much less invested there.
Does it make sense, folks?
It does not. The staff at these companies is small enough that even were they to buy shares with their *entire* two-weeks pay the needle wouldn't even move. 30M shares of Fanny common changed hands on Friday at an average PPS of ~$1.35; total dollar volume ~$40m.
FnF employees can buy all they want and the market will not notice, unless a VP or Director goes public with a personally-funded big buy.
I suppose that's one interpretation. Naturally the wise investor will consider all the data before him or her before making investment choices, and one of the things which must always be considered is the veracity of each informant.
Each preferred share prospectus would need to be altered individually, so it's not a gang-vote of all pref holders, but rather a per-security vote.
Another way, 66.6% of FMCKJ holders would need to vote in favor of whatever the proposed adjustment was. Regardless of which way it went, that vote can have no impact on the holders/prospectus of FNMAS.
Sr. prefs get NO rights in this. The prospectus and its language applies only to the series it covers.
"Why realize the dta's..."
Because the GAAP rules dictate that it be so. You guys are reading too much into this IMO; they have to abide by accounting rules.
There's too much money to be made...
That has been a primary tenet of my investment thesis from the start. Eventually these guys are going to figure out they can make a killing and move to make it so.
Placing a bet which hinges on being able to predict politicians will behave in a greedy manner is like betting you could find some plumberbutt in Walmart on a Friday night.
You grasp that I'm not advocating this path, right? Nonetheless, it is within the realm of the possible, especially given our current gubmint actors. They'd spin it this way while giving the machinery to the big banks.
All *I'm* saying is that in this scenario pref>common, IMO.
NYT says we're repaying...
Article on CNBC
"The mortgage giants, which have required more than $180 billion in taxpayer financing since the government rescued them in 2008, have returned to profitability in recent quarters on the back of a stronger housing market and have begun to repay the Treasury for the loans. "
Might just be sloppy language, but nice to see all the same!
"Fannie Mae and Freddie Mac could be transformed into cooperatives...."
This is the sort of scenario where the prefs are safer than common, IMO. This arrangement could gut the common, but the prospectii of the preferred shares are immutable so long as the businesses aren't put into receivership.
Sure, they can bust up FnF and give away the bits, but they still owe me $25 per stub (FMCKJ)!
Of course there are differences of opinion on this issue. Many people feel that the superior position of the preferred shares in the capital structure of the company makes them less risky in the event of a shareholder wipeout.
It's possible too that the timing of the price appreciation will be very different between the two classes of shares.
Of course. Ostensibly they trade like any other equity.
Some of them trade with very low volume, however, and a big bid/ask spread.
You just need to know the tickers. FNMAS is one, FMCKJ another; there are twelve or 15 or so?
Newbie q...
There's no delicate way to put this: The situation is so complex that no short answer exists.
On the one hand, you have a fabulously successful pair of businesses which were taken over by the government in a time of stress. This cratered the share price (some would say intentionally).
On the other hand, you have a pair of quasi-government entities which live or die at the will of the politicians who control them.
Evaluated at the business level, it's a can't miss deal: record profits, greater than 90% market share, and a very accessible price.
Unfortunately, given the political nature of the situation, a biz-only analysis falls way short. The congressians could still contrive a way to kill them, rendering your investment completely (?) worthless.
So, you can buy FMCKJ for $5/stub. Eventually it could be worth $25 (face value). Eventually it could be worth zero. Eventually it could be worth some fraction of face. Eventually it may begin to pay dividends again.
Commons are about a buck each. Where will they be in 10 years? Zero'd out by the politicians? $10?
You have to get a grasp of the entire situation (good luck!) and then determine how it fits your risk/reward profile. I will say that was easier to determine when you could get commons for $0.20 and $25 prefs for $0.50.
Tsy rate/fix is in...
Look at the 1 year chart; not sure this is it. Soon though; I think it will be related to a reduction in QE.
Civility is good and is in keeping with iHub's Terms of Service. It's beneficial to remember that some posters are less sophisticated and may not have the well-developed understanding of the situation longer holders have. Also, keep in mind that everyone has different goals.
If you know what I mean.
A wise board reader parses the datastream carefully.
Yeah, I just saw that.
Too bad :(
Should make Cramer cover the difference ;)
I saw the $10B figure yesterday too, but that TheStreet article by Phillip Van Doorne claimed another $40B+
Is the DTA in the 10Q/K?
"...send out the clowns...."
I'm starting to believe you. A careful read of the document that Joe Stocks posted is in order: Demarco's Latest Comments
My take is that this document was crafted to lead the congressians to the conclusion that the best path is a modified Fnf. Many of the things that would be required to make his "Issuer Approach" work have been presented in a way that will appeal to those in power: (""This type of structure requires a significant amount of regulatory safety and soundness over sight to protect against the moral hazard associated with providing a government guarantee. It also relies heavily on federal regulators rather than private investors to measure risk and set the capital needed to absorb losses across a wide array of possible economic environments. " More government, more power, and a reliance on We Smart People in Congress.
Contrawise, many of the disadvantages of the "Securities-based approach" are things that should scare the crap out of any politician not term-limited: "More volatility in the price of mortgage credit... Amount of capital available... A non-government guaranteed secondary market might not be available for all borrowers..."
Could well be he sees what we see- the best path is a modified version of what we had.
Joe, thanks for the link; Tfud, thanks for continuing to beat the 'Demarco is misunderstood' drum. Y'all should drop by the googleboard at some point.
This. FnF serve a vital role and to some degree are irreplaceable. You don't get to 90% market share in a zillion dollar business thru irrelevance.
Plus as I see it the value of my prefs can't be taken away legally.
It's this combination of elements that justify the investment.
Joe Stocks is correct:
"Of course things could change but by reading what they actually said I think one for NOW would have to walk away thinking that there is no current indication that there is any thought being given to "net investment". "
At the same time, you have to know it's near the top of what the decision makers are thinking about. "How are we going to get out of this?!"
Thinking more on this "Where is the money coming from?!" question...
Fanny isn't in danger of needing another Treasury draw to cover, are they?
(Ewwwwwww!)
That's the $60b question, ain't it?
There was talk earlier this year that they were increasing their cash position and subsequent supposition they were doing so in advance of releasing the DTA and making a big payment to TSY.
Everyone should re-read TFud's post (reproduced below for your convenience).
It's a pretty succinct summation of the current situation politically.
"that is why it is important to get 5th ammendment money into the tsy before these guys figure it out. once tsy accepts money from a profitable company, i think the geni does not go back into the bottle. i think that is why demarco is still holding back the big bucks. once he can stick tsy with money, they stuck. don't forget CBO said fnf not profitable til 2021 or something crazy like that. congress thinks it has plenty of time to break up fnf."
"...10s of billions of dollars..."
Wow, nice find....
That's another significant difference between the prefs and the common; there can be no reverse split for the preferred unless 66% of holders so vote.
Agree; I *never* use stops as they're visible to the market maker. IME a good alternative is to use the 'alert' feature your broker (hopefully!) offers. TDA will text me if one of the stocks I'm monitoring crosses a particular price point; very handy.
Yes, and in the past the opposite has been true. A wise investor will not make judgements based on short-term price movement but rather weighs all the evidence from a variety of sources, casting those of doubtful merit aside.
As ever, people should do their own due diligence to filter the signal from the noise.
"No one here is really interested in the commons..."
I must respectfully disagree with this and the sentiment that *only* the prefs should be discussed here.
Personally the bulk of my holdings are preferreds, but I bought over 10k commons between .20-.40 as a highly speculative (and cheap!) investment.
I do agree with everything else Jared said- the prefs are more highly valued by virtue of their place in the capital structure of the company. The only ways they can be dealt a losing hand are thru receivership or if 2/3 of the holders vote it so (unlikely!). It could be that the payoff potential of the commons is higher, but in terms of 'safety'.... Preferred.
The astute investor reads the prospectii carefully.
Consulting the prospectus for FMCKJ reveals the interesting distinction that at least some Freddie preferreds have a par value of $1.00. I believe the par on FNMAS may be $0.01 but as I don't own it I never read that one specifically.
Again, these discrepancies are a reflection of the payoff hierarchy- the prefs are paid before common in the event of receivership.
That one's funny. At the end Bob Corker disagree's with DeMarco's timing estimate: DeM's 5 years vs. SenBob's 1.5.
I wonder which one is in a better position to know.
I'd work the math on both scenarios and see how it worked out, if there was an obvious better choice.
Model 1: Sell CKJ, lop off 30% of the profit (or whatever your LT tax rate is), buy XXXX for the balance, multiply by the difference in RV (if that's your thesis, some target below that if not) and that's your nut.
Model 2: Stay in CKJ, multiply by whatever your price target is (make sure the underlying rule is the same) and compare that result to the one above.
If they were close and you needed more accuracy make sure and take out taxes in both scenarios and allow for the fact that you already paid tax on part of the gains in model 1.