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No rotation today. Commons flat and FNMAS up 4.4% on low volume. Even the zero-volume prefs have higher bids and asks on Level 2 than they did yesterday.
The problem is that, as (the real) Tim Howard has pointed out, utilities and competition don't mix. If the MBS market is going to be tightly regulated and have capped returns like a utility then it makes no sense to have more than one. You want to encourage, not discourage, economies of scale. You would also want to concentrate the best available talent.
Housing finance is such a highly political issue that I can't see a fully private solution. It would kill the 30-year fixed mortgage.
I am not nearly as excited about this. In fact I find this bill to be negative. If the Senate ends up insisting on an explicit guarantee it is one step closer to eliminating FnF's influence in the mortgage market.
Here is a quote from the Milken Institute's written testimony for the House Financial Services Committee two weeks ago:
You're right. If the payment is made I would expect it to be on Dec 29.
In the past we didn't even know whether the payment was made until Treasury added it to their list of NWS payments the day of. I don't think there will be any advance notice either way.
I don't remember Fannie and Freddie ever making NWS payments before the last possible day. The payments aren't due until December 30.
Junior Preferred Shares. Not my creation but it's much easier to type!
The commons have been steadily strengthening vs the junior prefs, true, though they are not quite as strong as right before Trump was elected. That day I bought some FNMA for $1.67 and some FNMAG for $4.80 so that ratio was under 3:1. Right now it's a little over 3.4:1 for the ask prices ($10.00 vs $2.92).
So don't interpret pref prices falling as a signal that commons are definitively the better bet. It and the opposite (prefs strengthening vs commons) have both happened in the past, and neither should affect a solid investment thesis.
To me the funniest thing about the AJ plan is that it could make Bill Ackman the richest man on earth. Pershing Square owns (I believe) 14% of Fannie's 1.16B commons and 10% of Freddie's 650M commons. At $1000 per share that comes out to over $220B for Pershing Square alone. If Ackman owns a good chunk of Pershing and gets his 20% cut of the upside of the rest, his net worth could approach $100B!
And yet Bill Ackman has made no mention of the plan and talks about the government's 79.9% stake as if it is inevitable. Why would he not endorse a plan that makes him the richest man on earth? Because it's nonsense.