Fannie Mae-No Politics (FNMA)

[obiterdictum]

If we're down to only the more serious players now, and those who were pumped and under-informed are now out of fnma or are more informed about the complicated political and legal nature of GSEs, then does that suggest that the "more serious and informed" shareholders are also less likely to be impressed and swept into a buying frenzy when the August earnings report comes out?

A key word in the previous statement is gradually and so there is no definitive statement about the current distribution of shares. Longs who have invested and are holding and have no further money to buy cannot buy. Those that do have additional funds to invest can buy and depending on their confidence, understanding and access to the market may buy more as the political legal situation shows more and more favor to shareholders' concerns.

Being really long does not mean that you trade FNMA or FMCC daily or on daily or periodic dips and daily bounces to increase the number of shares in one's position. Some of these are short term traders and they will sell all if they see significant profits on the horizon or anticipate a serious downturn in pps. There is no abiding concern about the companies real extended future or fixed income possibilities. They are simply playing the market to their advantage and may or may not turn to investing long term if conditions strongly suggest that move as the best one.

So we can distinguish between longs in the traditional sense who hold anticipating a gradual, positive rise towards a significantly high pps target or fixed income with dividends in the future without concern with the inevitable bumps and holes in the trading road and short term traders and day traders taking profits as they see fit, shorts betting in the day or short term against pps increases, traders playing simultaneously the long term by holding a number shares and the short term by selling portions to hedge or increase their positions with readiness to sell out all, if things go south and the other varieties of traders making transitions between these, or settling momentarily at one of these and changing as the trading environment changes in all the ways that it can.

Then there are hedge funds, mutual funds, institutional funds, investment banks, etc. with signifcant holdings and with clear cut investment strategies based on making returns to clients, and the MMs changing and fluctuating inventory of shares used to make market and to turn profits by trading in front of all others knowing precisley their payment for retail order flow and institutional client subscriptions and something of the order flow of competing MMs. Then there are the HFT prop shops and trading desks and herds of momo traders, alert based profit seeking traders who periodically and so on who sweep into the trading environment when they discover the scent of green.

Retailers do not have a clear or precise estimation or any idea whatsoever really about the complete distribution of the 1.16 billion FNMA shares among these types. Retailers have no means other than buying trading reports, obtaining insider trading information or conducting business espionage to know who owns what in what quantity and for what purpose.

All traders in the GSE stocks are affected in one way or another by the winds of change and make adjustments beforehand, during or after those winds correlate with an increasing or decreasing FNMA pps since trading is what is being done. This board is an example of the winds that come in and the changing sentiment and strategy that is found among traders and those invested for the long with eyes open. There are temporary hot and excited entrances and trading frenzies to cool and calculated trading planning and executions to cold exits with gain or loss as fortunes come and go with changes in the trading environment.

Traders are not concerned with GSE specifics or future in the general sense. They are more concerned in the moment with volatility, volume, pps direction, gapping, and other trading conditions that allow them to trade efficiently for gain and without loss or with minimum loss. Fannie Mae is their ATM. When the ATM runs out of cash to draw on they are sidelined until the cash flow is replenished with the next wind of change and new influx of cash. Or more usually they jump in with the appearance of an influx of cash that is made through volume manipulated by MMs and/or large shareholders trading DMA who intentionally discover and move prices up or down by purchasing 100, 200, 500, 1000 to 10,000 shares that increases the share value of their overall holding that they can sell at profit to those chasing and following their drive ups or drive downs where they buy low priced shares released or shorted to do it again on the upswing. Then there is HFT front running, MM churning, and other means to artificially increase the appearance of volume, etc.

So, the hard facts that were always there to the informed are now gradually coming to light for the consumption by the underinformed and this where the newly informed start. The consequence at first is a natural chilling effect, a turn to skittish sentiment about previous bets and plays, since the sides are drawn, the stakes are clear, the battle ring is set up, bets are being made again and bets are being changed as everyone considers the opponents, their strengths and weaknesses and begin weighing in on possible outcomes of the fight. That is where we are gradually heading now and without the uncertainty of what is was all about and so the serious players will come to the fore. The GSEs will not remain an ATM in perpetuity.

If so, wouldn't that keep some downward pressure on pps in Aug?

There is no way for me to gauge downward or upward pressure. We will see what happens as it does (up, neutral or down in closing price) and then as a trading community make the usual unsubstantiated or "alchemical" explanations of what happened.

Or, should we expect the earnings report to attract an entirely new set of enthusiastic but less informed buyers and result in a significant increase in pps anyway, regardless of the more informed shareholders who bought in earlier and then realized that the political risk to their pps is higher than they may have known when they bought?

Hard to tell in that new ones coming in may be more informed in their participation as traders and investors and will be more serious than some of those picking up several thousand dollars trading short term. The game seems to be gradually changing out of the enthusiastic pump for immediate gain that is done by some without knowing what is at stake. What is actually stake and who the stakeholders are will gradually become common knowledge. This will affect all - long time holders to minute traders.

From now through the Congress summer recess and September, there will be preliminary assessments of the lawsuits, the US Treasury and FHFA's role in and legality of the 3rd Amendment and the current and future status of the conservatorship. There will be discussions, pro and con, wise and dumb, for either side. There will be the usual news blackouts, smoke and mirrors, hedges and dodges, etc. The unknown in this is how long it will take to settle in court or out.

If shareholders are more informed now, and institutions are starting to buy, shouldn't we expect the shareholders to be less moved by Aug report than we might hope?

We do not know if institutions are starting to buy. Perry Capital bought in 2010 and we imagined they recently came on. If any institutions buy now, it would take 45 days to know and how could that be done if we do not know the candidates or if they need to file ownership. As far as current shareholders go how much more money do we have available to buy more? We already estimated the earnings for the GSEs, as has many others capable of doing that. The hope of many is that the value of the shares will rise dramatically.

Is the expectation of Aug report really already "baked in" to fnma pps to the point where Aug might only provide a tiny bump in pps?

It may be baked in for the community of traders on this forum and all will go with the flow. It may or may not be baked in for those outside of it. I have no way of knowing the expectations of others without hearing what is being said or a survey of opinion. If the GSEs' earnings reports are positive, and they will be, there is a good chance that the pps will rise. How much of a rise? I do not know.