Saturday, March 30, 2019
THE TIME TO OWN GSEs FNMA & FMCC IS UPON US
As many day traders continue to buy and sell shares in Fannie Mae and Freddie Mac trying to score a quick profit. CAP2GS Hedge Fund continues to add to our Common and Preferred positions of the GSEs. Our thesis remains that the U.S government will eventually look to maximize the value of their 80% stake in the GSEs. This is what all americans want and deserve.
I’ve heard many argue that preferred shares have a contractual right which common shares don’t. This of course is absurd. When the Conservatorship was put in place and the Government stands in place of all share holders this automatically provides common shareholders contractual right. Many don’t understand the law behind it and provide misinformation AKA Fake News. The Government will allow the preferred to be made whole and they will be able to convert to common shares. What many fail to realize this will occur once common shares are worth $30 a share.
The Government is not giving away profit that they can take for themselves. The Government realizes that maximizing the price of common shares of the GSEs maximizes their return. Why would the government do anything that has common shares decrease in value, it doesn’t make any sense.
Mr Market will behave and act as it pleases. Once the recapitalization plan is executed people will realize that our foundation is based on capitalism and not socialism. When government implements a policy that serves the good of many and violates the rights of a few there must be just compensation. The courts will uphold the constitutional rights of all shareholders. This will be when things get real interesting. As there will be a run to own common shares.
In the interim the Government will continue to plan for recapitalization. What people should focus on is how the GSEs are being managed. Year after year the GSEs continue to be cash cows. It will get incredibly difficult to justify the continued conservatorship when none of the policies implemented serve the purpose of HERA. What everyone needs to evaluate is whether FNMA and FMCC are profitable. Eventually the Extra funds taken during the NWS will have to be returned and when this happens the GSEs will be appropriately capitalized.
Investing is about being discipline, finding the facts for yourself and not listening or following the crowd. As a a great investor once said “ If you invest in a strong business it doesn’t matter if you don’t get a quote on the value of the business in 5 years or 10 years. As long as the business fundamentals keeps getting stronger”. Fannie and Freddie are strong and there is no denying this. We at CAP2GS Hedge Fund continue to preach patience and Keeping Your Eyes To The Future.
Christian Paul MPA
Eyes To The Future
at March 30, 2019 2 comments:
Email This
BlogThis!
Share to Twitter
Share to Facebook
Share to Pinterest
Labels: Fannie Mae and Freddie Mac
