Gambling on Fannie Mae Stock

[Chris Pascale]

"The Bulls Are in Control" so I'm getting ready for a good laugh on today's dip.

https://seekingalpha.com/article/4679030-federal-national-mortgage-association-stock-bulls-control-buy

[franklin4]

Interesting, obviously this is a years-long play that's entirely dependent upon them exiting conservatorship and, to a lesser extent, if/how the Treasury offramps its stake.

Federal law expects exits (i.e. assumes the conservatorships are temporary), but doesn't specify a timeline, which has blown way past anyone's expectations when this all went down in 2008. The current regulatory plans and financial activities of both GSEs, retaining earnings since 2019, are on a path to exit once that year's regulatory reserve requirements are met. According to my rough math, that could be as soon as 2028, around the 20th anniversary of the conservatorships. It could be sooner because those reserve requirements may have been set arbitrarily high for political reasons, so might be lowered in the future, meaning a faster exit. I'd expect significant movement if a Republican wins POTUS '24.

On the other hand, executive agencies love power and I could see FHFA HODLing. If there's another catastrophe, it would be pretty easy for Congress to make the arrangement permanent, wiping out all publicly-traded stock. Or FHFA moves the goalposts father down, undermining investor confidence with the same effect.

But these companies are kicking off a massive $9B/yr in earnings. If they were fully public today with a 15x P/E, FNMA would be at $37.90 and FMCC at $43.54.

That's the reason I asked about your choice between FNMA and FMCC, because FMCC has a higher fair value based on this theoretical EPS. I suspect FMCC trades at a lower market cap because its top line revenue is significantly lower.

I've tried to understand how conservatorship ends and am hoping someone has a better handle on that and is willing to explain or share speculation. I couldn't find much online. The gov't can exercise a warrant (link below) to purchase up to "79.9% of the total number of shares of Common Stock outstanding on a Fully Diluted basis on the date of exercise" at a tiny piece of a penny/share until 9/7/28, as compensation for the '08 bailout. It seems the warrant could be the mechanism to take (keep?) most of the value and end conservatorship. Based on the above comment from last year, if current outstanding shares would be worth ~$38 and then the gov't takes 80% of the value, does that suggest the diluted, post-warrant price might be one-fifth of that, ~$7.50? If a dividend was implemented the feds would get 80% of that, still a big chunk of income, the little people would get the remaining 20% and would have to stop their legal actions complaining about the net worth sweep. It doesn't sound that unreasonable...

https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/warrant/Fannie-Mae-Warrant.pdf

[LightStache]

Wow these twins have really taken off the past two weeks. Is there a specific catalyst or just momentum?

[Chris Pascale]

Wow these twins have really taken off the past two weeks. Is there a specific catalyst or just momentum?

Makes no sense based on share price reactions to the same old performances, but how long can a company make billions and people think it's a penny stock?

[WayDownSouth]

Wow these twins have really taken off the past two weeks. Is there a specific catalyst or just momentum?

Makes no sense based on share price reactions to the same old performances, but how long can a company make billions and people think it's a penny stock?

Forever, really. Soooo close to that $2 with Fannie! I would have exited this position yesterday 100%.

BUT...

I (as Chris Pascale) would be changing a stop-loss at $1.64 and move that $2.00 sell order up to "sell 25% at $2.25" just in case this is the beginning of something that is going to continue going wayyyyy up the hill. At least for now I'd do that if I were him. But I am not and, as I said I would have already exited completely yesterday.

This is a really nice run lately.

[ChpBstrd]

$1.65 @ChrisPascale! Tried to tag you in a thread but it won't let me tag you... Here is a link... Looks like a nice little catalyst, don't you think? @ChpBstrd might weigh in on his opinion of the influence caused here.

As always I'd DEFINITELY be pulling at least a little profit today but... MAN.. You might get your $2.00 wish as early at this week.

https://forum.mrmoneymustache.com/real-estate-and-landlording/a-'seismic-shift'-in-real-estate-fees/msg3242923/#msg3242923https://

IDK. I don't see the immediate connection between breaking up a private realtor cartel and breaking up the government-sponsored mortgage cartel.

Politicians are still going to be wary of privatizing Fannie and Freddie this year because they won't want to take the blame for the increase in mortgage rates which would occur immediately thereafter. That said, 2025-2028 is anyone's guess, because whoever wins the presidency will be a lame duck (assuming the continuation of the US Constitution) looking for quick liquidity to justify their tax cuts or jobs programs.

The best case I can imagine for a privatization this year would be if Biden put in motion a multi-year plan in November or December after losing to Trump. This would be a payback timebomb, getting Trump back for leaving Biden with a shitty withdraw plan from Afghanistan. I don't see that happening, because Biden doesn't seem to be that vindictive or organized. He's not prepared to do something on this issue.

The handful of spare change shares I own are speculations that Trump will say something this year implying that privatization is on the table as a way to pay for tax cuts. Why would he do that? Two reasons: To precipitate a housing crash while Biden is still in office OR to pay back his supporters who invested in Fannie or Freddie stock. Either scenario fits Trump's personality and interests. Him just saying something would cause FNMA or FMCC to more than double from here.

[Chris Pascale]

Wow these twins have really taken off the past two weeks. Is there a specific catalyst or just momentum?

Makes no sense based on share price reactions to the same old performances, but how long can a company make billions and people think it's a penny stock?

Forever, really.

I love this very correct answer.

For the long play, after taking my money back, 8 or 10 years doesn't sound unreasonable (surely someone said that in 2014), but a $10, $20 and/or $30 share price will surely get me to take some money out to do a few fancy things, like buy the used Subaru Forester mama's been wantin', or promote whatever book/project I'm in the middle of.

Speaking of which, I had a talk at Boston University Friday. Like a dope, I didn't realize my collar was flipped up, so let's just pretend I was being cool!

https://www.linkedin.com/feed/update/urn:li:activity:7177677993807376384/

[ChpBstrd]

It's interesting to see an "urban planning enthusiast" with a Twitter handle of "New Urbs" getting published in American Conservative.

Are conservatives about to start viewing government sponsored entities like FNMA as a part of market-distorting liberal overreach, or even socialism? Will they soon be making the case that government meddling in housing markets is why prices became unaffordable, and promising frustrated young renters that a purge of the government entities will restore affordability to housing markets?

https://www.theamericanconservative.com/we-have-always-subsidized-suburbia/

What image springs to mind when you picture “federally subsidized housing”? Most people imagine a low-income public housing tower, a homeless shelter, or a shoddy apartment building.

Nope—suburban homeowners are the single biggest recipient of housing subsidies.

The system masks a huge amount of government intervention. It isn’t evident to the average person, because it works through obscure mechanisms like insurance and financing terms. These don’t look like conventional cash subsidies, but they distort incentives, supply, and demand in the same way.

It actually makes political sense. If Democrats choose to defend the government's pet mortgage companies, they will be perceived as stalwarts of the status quo by lots of frustrated young people who would like to buy a home. They will be perceived as supporting the interests of wealthy older homeowners, if not landlords, at the expense of the youth. Why wouldn't conservatives put them into this position, and declare themselves modern-day reformers? There are enough refugees from California alone to swing some states.

At an aesthetic level, we've already seen a rejection of late-20th-century modernism in Trump's December 2020 executive order for classical architecture in federal buildings. The next step to watch for is a re-imagining of urban housing along some revisionist narrative of traditional appeal. Could the cons seize the concept of new urbanism by its roots in tradition and cultural heritage, and promote it as the better way to live without government subsidies? Will Democrats then try to defend suburbia?

The parties are realigning after the mutual failure of their older visions, and today's politics look a lot different than 20 years ago, so anything is possible.

[WayDownSouth]

Look at these incredible similarities between Freddie and Fannie... IMO it says same people buying the same stock. Seems to have peaked right around the time when this happened:

https://forum.mrmoneymustache.com/real-estate-and-landlording/a-'seismic-shift'-in-real-estate-fees/msg3242923/#msg3242923

Seemed to begin growing as that process began last year... Interesting to say the least.

[ChpBstrd]

The twist is that Fannie / Freddy are not rent-seeking entities that are directly increasing the costs of home ownership. They are, if anything, subsidies whose removal would raise mortgage rates.

So instead the government is going after closing costs and realtor commissions.

These are probably band-aids, and mortgage rates need to be 1-2% higher, as they would be in an unsubsidized private market, to deflate the housing bubble.

The case for Fannie/Freddy privatization is purely speculation that Trump will do it for his own political reasons.

[Michael in ABQ]

I've got some shares that are still in the black but I'm considering just closing out my position and taking some modest gains. Current cost basis is $1.24.

[ChpBstrd]

I've got some shares that are still in the black but I'm considering just closing out my position and taking some modest gains. Current cost basis is $1.24.

Maybe not a bad idea. Now that the Republican primary is over, Trump will likely be reaching out to moderates. That might not jive with ranting about mortgage socialism.

[Chris Pascale]

My portfolio took a $4,590 slide on Friday, but I'm up 135% on Fannie.

Averages are about $0.55 on Fannie (purchase range is $0.40 - $1.00) and $1.26 on Freddie (range is $1.065 - $1.57).

For me, nothing's changed. When my next $350 out of my last teaching paycheck clears in the Schwab acct I'll buy some more Freddie shares.

ETA at noon the next day: As with the way down, for no discernable reason, the Friday slide has mostly headed back up.

[WayDownSouth]

My portfolio took a $4,590 slide on Friday, but I'm up 135% on Fannie.

Averages are about $0.55 on Fannie (purchase range is $0.40 - $1.00) and $1.26 on Freddie (range is $1.065 - $1.57).

For me, nothing's changed. When my next $350 out of my last teaching paycheck clears in the Schwab acct I'll buy some more Freddie shares.

ETA at noon the next day: As with the way down, for no discernable reason, the Friday slide has mostly headed back up.

You still have a pretty strong support around $1.25, I'd say you're not doing bad at all but I think you should have pulled some when you were nearing $2 as I said above... I have the feeling this may pickup to over $2 based on a few specific observations but I think that if it happens it won't be until August. Maybe a $1.80 tap before then is my best guess. I'm just noting this to see how it plays out and have a little history here. Not to say "I told ya so!"... You know what you need and want. I wouldn't follow anyone's advice but I do like to pick away at these from time to time and see "what if"...

Are you putting more into Freddie and Fannie or moving solely into Freddy at this point?

[WayDownSouth]

By "moving solely" I meant solely adding new money into Freddy while holding the Fannie.

[Chris Pascale]

Just Freddie for the coming months to make the investments more even. Have about 2400 FMCC and 16,000 FNMA.

I'm feeling good about it, and am happy to keep buying more shares at the same pace. I'm also not that excited about taking the money back at $2.00, but maybe that'll change when I actually have it.

This thing is either a printing press, or a dumpster full of kerosene. Eventually, the switch is going to flip, connect the circuit, and, not to get too technical, will go boom or blammo.

[LightStache]

[snip]
The case for Fannie/Freddy privatization is purely speculation that Trump will do it for his own political reasons.

There's a case to exit conservatorship independent of Trump. The existing laws and agreements are setup for an exit when sufficient capital is retained. Once they've hit those thresholds, it'll be legally difficult for the executive branch to keep them detained. Of course all that can be changed given enough cause, but that's not the current course.

[LightStache]

Just Freddie for the coming months to make the investments more even. Have about 2400 FMCC and 16,000 FNMA.

I'm feeling good about it, and am happy to keep buying more shares at the same pace. I'm also not that excited about taking the money back at $2.00, but maybe that'll change when I actually have it.

This thing is either a printing press, or a dumpster full of kerosene. Eventually, the switch is going to flip, connect the circuit, and, not to get too technical, will go boom or blammo.

I bet you're happy you decided to switch over to FMCC for the last few months. Now that FMCC has closed the gap with FNMA, and considering FNMA's more bigly revenue, I think they're evenly valued now.

ETA: I have 16,793 shares of FNMA and 25,481 share of FMCC. If you consider them together, it's my largest single position and I'm no longer accumulating. Now I wait for '28.

[Michael in ABQ]

I decide to close out my FNMA position and take a modest profit. My cost basis was around $1.24, and I sold at $1.47. 18% return over 3 months. Of course, it was only 100 shares so not very meaningful in the grand scheme of things.

[LightStache]

Regarding outlook: I'm not sure if this can even be compared, but Fannie Mae will likely post 2023 profits around $15 billion+, and Netflix has $5.4 billion for 2023. The latter trades at over $500/share with about 1/3 of the shares. Since we live in a perfect world where things only make sense, Fannie Mae should be $500 right now.

I don't think that math works. FNMA has 5.9B fully diluted shares compared to 444M for NFLX, so NFLX has 92% fewer shares, not 1/3.

If you take $15B of theoretical earnings and divide by 5.9B shares, you get an EPS of 2.54. Multiplied by a 12x P/E ratio (same as NFLX) you get $30 per share.

...not that traditional valuation matters much at this point

I may have used a more sophisticated method than you. I googled total shares FNMA and got this...........nope, can't paste a screen shot of a top result that I didn't click on.

Thanks for the reply.

Revisiting this with an actual 2023 income of $17.4B produces an EPS of  ~2.95 x 12 PE = $35.40.

For FMCC with 2023 income of $10.5B gives you an EPS ~4.70 x 12 PE = $56.40.

[Chris Pascale]

I decide to close out my FNMA position and take a modest profit. My cost basis was around $1.24, and I sold at $1.47. 18% return over 3 months. Of course, it was only 100 shares so not very meaningful in the grand scheme of things.

18% is great, and in less than a year.

It's not worth the stress if it stresses you out. I'm personally not feeling much of anything over it. My overriding thought is I'm right about this. Am I really, though? Time will tell. After all, all companies go to ZERO at some point, and that's 1 of the 2 possibilities on this.

[Chris Pascale]

Regarding outlook: I'm not sure if this can even be compared, but Fannie Mae will likely post 2023 profits around $15 billion+, and Netflix has $5.4 billion for 2023. The latter trades at over $500/share with about 1/3 of the shares. Since we live in a perfect world where things only make sense, Fannie Mae should be $500 right now.

I don't think that math works. FNMA has 5.9B fully diluted shares compared to 444M for NFLX, so NFLX has 92% fewer shares, not 1/3.

If you take $15B of theoretical earnings and divide by 5.9B shares, you get an EPS of 2.54. Multiplied by a 12x P/E ratio (same as NFLX) you get $30 per share.

...not that traditional valuation matters much at this point

I may have used a more sophisticated method than you. I googled total shares FNMA and got this...........nope, can't paste a screen shot of a top result that I didn't click on.

Thanks for the reply.

Revisiting this with an actual 2023 income of $17.4B produces an EPS of  ~2.95 x 12 PE = $35.40.

For FMCC with 2023 income of $10.5B gives you an EPS ~4.70 x 12 PE = $56.40.

Thanks for the update. I'm holding about 16k FNMA and 2.7k FMCC. Just sent another $350 to Schwab, and it'll clear on Tuesday. When teaching paychecks come back in the Fall, I'll get back to it again.

[LightStache]

Regarding outlook: I'm not sure if this can even be compared, but Fannie Mae will likely post 2023 profits around $15 billion+, and Netflix has $5.4 billion for 2023. The latter trades at over $500/share with about 1/3 of the shares. Since we live in a perfect world where things only make sense, Fannie Mae should be $500 right now.

I don't think that math works. FNMA has 5.9B fully diluted shares compared to 444M for NFLX, so NFLX has 92% fewer shares, not 1/3.

If you take $15B of theoretical earnings and divide by 5.9B shares, you get an EPS of 2.54. Multiplied by a 12x P/E ratio (same as NFLX) you get $30 per share.

...not that traditional valuation matters much at this point

I may have used a more sophisticated method than you. I googled total shares FNMA and got this...........nope, can't paste a screen shot of a top result that I didn't click on.

Thanks for the reply.

Revisiting this with an actual 2023 income of $17.4B produces an EPS of  ~2.95 x 12 PE = $35.40.

For FMCC with 2023 income of $10.5B gives you an EPS ~4.70 x 12 PE = $56.40.

Thanks for the update. I'm holding about 16k FNMA and 2.7k FMCC. Just sent another $350 to Schwab, and it'll clear on Tuesday. When teaching paychecks come back in the Fall, I'll get back to it again.

At what point will you stop?

[Chris Pascale]

Regarding outlook: I'm not sure if this can even be compared, but Fannie Mae will likely post 2023 profits around $15 billion+, and Netflix has $5.4 billion for 2023. The latter trades at over $500/share with about 1/3 of the shares. Since we live in a perfect world where things only make sense, Fannie Mae should be $500 right now.

I don't think that math works. FNMA has 5.9B fully diluted shares compared to 444M for NFLX, so NFLX has 92% fewer shares, not 1/3.

If you take $15B of theoretical earnings and divide by 5.9B shares, you get an EPS of 2.54. Multiplied by a 12x P/E ratio (same as NFLX) you get $30 per share.

...not that traditional valuation matters much at this point

I may have used a more sophisticated method than you. I googled total shares FNMA and got this...........nope, can't paste a screen shot of a top result that I didn't click on.

Thanks for the reply.

Revisiting this with an actual 2023 income of $17.4B produces an EPS of  ~2.95 x 12 PE = $35.40.

For FMCC with 2023 income of $10.5B gives you an EPS ~4.70 x 12 PE = $56.40.

Thanks for the update. I'm holding about 16k FNMA and 2.7k FMCC. Just sent another $350 to Schwab, and it'll clear on Tuesday. When teaching paychecks come back in the Fall, I'll get back to it again.

At what point will you stop?

I'm not sure. When I was buying at $0.40, I wasn't sure I'd pay more than a dollar, but when it was nearly $2.00, I would have bought at that price had my funds cleared. I'm very comfortable with this gamble, and feel like the more time I get, the better off I'll be.

[WayDownSouth]

It still has support and is climbing at the rate of a dead sloth, but nonetheless climbing! I'd stay in it at this point for a bit but if it doesn't break $2 by EOY then I'll be saying "told ya so!"...

I'll think you'll do well. I wouldn't be buying more right now though, I would only be buying under $1.30 but that's me.

[ChpBstrd]

https://www.marketwatch.com/story/dont-listen-to-unscrupulous-dealers-promoting-this-trump-trade-analyst-says-8a022e0d?mod=home-page

Whalen argued that Trump, if elected, would ultimately decline to privatize the entities because the move would seriously disrupt the mortgage market, with unpredictable results for the American middle class.

“Through the end of last week, the two leading stocks in the world of mortgage finance were unlisted penny stocks issued by Fannie Mae and Freddie Mac,” Whalen wrote. He concluded that investors in these shares “take short-term trading profits rather than playing the long game that certain unscrupulous dealers are promoting.”

[Chris Pascale]

It still has support and is climbing at the rate of a dead sloth, but nonetheless climbing! I'd stay in it at this point for a bit but if it doesn't break $2 by EOY then I'll be saying "told ya so!"...

I'll think you'll do well. I wouldn't be buying more right now though, I would only be buying under $1.30 but that's me.

The dead sloth gave me a chuckle, but dead sloths are always funny. If you wind up with a "told ya so," I'll commend you. It's pretty sweet to be able to shove being right in someone's face. Almost as good as being like, 'I feel so bad to be right about this.'

I still check the stock price about every day - many times morning and night - and would both like for it to just 100x already, and for it to hang out another few years so I have more shares.

What I'm not going to do is dump any funds other than my teaching income into it. I mean, sure, I'm very sure that I'm right about this, but that doesn't really mean anything.

An article came out today with some ass-wipe saying that if Fannie Mae comes out of conservatorship it will surely fail. Why? Cuz, I guess. He didn't say why, exactly, and didn't cite the billions in profits. Perhaps he's taking the long view, where the Sun goes cold, we go cold, and then Fannie Mae has no loans to..........geez, I'm not sure what they do with the loans. Little help?

[ChpBstrd]

I think Fannie and Freddie have fallen off the radar as ways to gamble on a second Trump presidency. DJT has been a better proxy for Trump's odds.

Trump can start selling shares on about September 20. This, plus his falling poll numbers versus the new Democratic nominee have tanked the price of DJT.

I predict Trump will quietly sell a small portion of his DJT shares to fund his campaign and legal bills, and that this will tank the price of DJT. However, DJT options almost certainly have this risk priced in. Furthermore, a relief rally or short squeeze may occur if he for whatever reason fails to sell, or if Kamala Harris commits a major gaffe or falls behind in the polls. So it's too radioactive to touch, IMO.

[LightStache]

I think Fannie and Freddie have fallen off the radar as ways to gamble on a second Trump presidency. DJT has been a better proxy for Trump's odds.

I mostly agree, but they do seem to be tracking Trump's polling still, including rising today on the news that Kennedy will drop out and endorse Trump.

On a slightly more rational note, they also rose noticeably last week after the FNMA CEO Priscilla Almodóvar posted an infographic on LinkedIn showing improvements in their capital reserve position over time.

That implies some investor expectation of a recap and release under the current PSPA capital framework, which is a likely scenario under a Harris administration or is that too optimistic?

[LightStache]

The day after the debate, GSEs sank by 10%. Today they're up ~8% owing to election-related coverage in WSJ. This still shows a strong sensitivity to the election, which I don't like, because it implies a lot of pain if Harris wins.

The more recap-and-release becomes associated with Trump, the more resistance Dems will have to doing it during a Harris term. Ackman and Paulson are working against their own interests taking a hard pro-Trump stance. They should do what everyone else does and play both sides, or just STFU.

[RobertFromTX]

I think Fannie and Freddie have fallen off the radar as ways to gamble on a second Trump presidency. DJT has been a better proxy for Trump's odds.

I mostly agree, but they do seem to be tracking Trump's polling still, including rising today on the news that Kennedy will drop out and endorse Trump.

On a slightly more rational note, they also rose noticeably last week after the FNMA CEO Priscilla Almodóvar posted an infographic on LinkedIn showing improvements in their capital reserve position over time.

That implies some investor expectation of a recap and release under the current PSPA capital framework, which is a likely scenario under a Harris administration or is that too optimistic?

How many shares does Priscilla Almodóvar own? This is public information on an SEC Form 4 or Form 3.

[LightStache]

I think Fannie and Freddie have fallen off the radar as ways to gamble on a second Trump presidency. DJT has been a better proxy for Trump's odds.

I mostly agree, but they do seem to be tracking Trump's polling still, including rising today on the news that Kennedy will drop out and endorse Trump.

On a slightly more rational note, they also rose noticeably last week after the FNMA CEO Priscilla Almodóvar posted an infographic on LinkedIn showing improvements in their capital reserve position over time.

That implies some investor expectation of a recap and release under the current PSPA capital framework, which is a likely scenario under a Harris administration or is that too optimistic?

How many shares does Priscilla Almodóvar own? This is public information on an SEC Form 4 or Form 3.

Looks like 0. I think the current rules prohibit stock-based comp until the capital reserve requirements are met.

[ChpBstrd]

What do you know, this bet would have paid off!

Headline: Freddie and Fannie’s Zombie Preferreds Surge on Trump Win

@Chris Pascal are you still holding?

In hindsight it was a dumb bet not to take. 50/50 odds of a small loss or a big gain.

[Chris Pascale]

What do you know, this bet would have paid off!

Headline: Freddie and Fannie’s Zombie Preferreds Surge on Trump Win

@Chris Pascal are you still holding?

In hindsight it was a dumb bet not to take. 50/50 odds of a small loss or a big gain.

Thanks for thinking of me. I have held and will continue to buy.

I'm not unhappy with the results, but not feeling elated, greedy, anxious, etc.

Very comfortable with buying/holding.

[franklin4]

Thanks for thinking of me. I have held and will continue to buy.

I'm not unhappy with the results, but not feeling elated, greedy, anxious, etc.

Very comfortable with buying/holding.

Care to share the price at which you would stop buying? And the price when you would start to sell?

I'm thinking to take some gains if/when it reaches $3 but that's a pretty arbitrary number.

[Chris Pascale]

Thanks for thinking of me. I have held and will continue to buy.

I'm not unhappy with the results, but not feeling elated, greedy, anxious, etc.

Very comfortable with buying/holding.

Care to share the price at which you would stop buying? And the price when you would start to sell?

I'm thinking to take some gains if/when it reaches $3 but that's a pretty arbitrary number.

Next month I'll probably sell $9,000 worth to pay my daughter's Spring tuition, but don't have a set price right now.

When I was buying shares for under a $1.00 in 2022 and 2023, I thought for sure at $2.00 I'd withdraw all the capital, but as it approached that number I adjusted it upward to something like $5.00 or $6.00. I currently have a SELL order of 2,500 shares @ $40, but I'm not sure if I'll wait for it to get that high.

When I see that Fannie Mae made more money in 2023 than:
 - Netflix ($830/share)
 - Capital One ($185/share)
 - GE ($183/share)
 - Tesla ($330/share)
 - Zoom Video Communications ($85/share)

I just see that it has to go up much higher if it is to keep existing. Now, it could stop existing, which is why I'll curb my messages by saying something like this could be a printing press, but it could also be a dumpster full of kerosene.

Following a subReddit on this, there's a couple people saying the real values of FNMA/FMCC are about $40, and if the warrants are withdrawn, the values will be more like $200, but the other side of that is that the stocks could be diluted like crazy and in that scenario someone is guess-timating $5. These "real values" don't necessarily mean anything, though. After all, we saw GME go up to something like $800, and that was not the real value per share, and there are companies that have never made a profit, but somehow have a price per share. An example here is WNDW. They lose millions every year, but sometimes go up in value despite having no sales. It's weird.

[ChpBstrd]

Maybe the rationale is that the next tax cut bill will have to find sources of revenue to offset the fiscal damage and reduce the risk of an illiquidity event in the US treasury market (like former British PM Liz Truss experienced after floating a similarly implausible budget).

And if they don't offset some of the damage, and the bond market does seize up, then they will be forced to privatize anyway.

So maybe privatizing Fannie and Freddie is less of an idea than it is an inevitability, for a ruling party that wants to prioritize tax cuts in a country with a 136% debt-to-GDP ratio that spends more on .

I think the timing of privatization would be set to occur after the 2028 election cycle, so that the consequences land on someone else's desk. But moves could occur this year to lock in that outcome.

For example, the government could sell convertible bonds against its Fannie/Freddie stock that can be exercised in five years. Such bonds would provide immediate relief against interest expenses. They'd also serve as a separate source of liquidity for a government facing the risk of revolt in the treasuries marketplace, thereby making such a revolt less likely.

This plan would be a time bomb for the housing market, and the consequences would eventually prove highly unpopular, but it checks all the boxes as the logical thing to happen next. Even the potential loss of 15 and 30 year mortgage options could be mitigated for a time if the newly privatized companies were required to provide these services for a certain number of years as part of the terms of their privatization.

Note that this doesn't mean current shareholders won't be diluted. The convertibles would likely be for NEW shares, unless the ruling party wants to reward their insiders in what would be the biggest corruption scandal of the 21st century. So current shares essentially include a call option on that corruption scenario happening. I mean, they could still go waaaay up even per the terms of a dilutive offering. But the real reward would be if the capitalization structure of these giants was rebuilt to put everyone in common shares, rather than having a preferred/voting class that soaks up the earnings and a common class that gets nothing.

I'm actually more interested now than I was before the shares doubled.

[LightStache]

I think the timing of privatization would be set to occur after the 2028 election cycle, so that the consequences land on someone else's desk.

What consequences?

There's this idea floating around that the government exiting its stake will inevitably lead to a rating downgrade from sovereign level. The downgrade will 1) increase mortgage rates and 2) cause the GSEs to lose their competitive edge against private sector rivals.

But I fail to see why the government couldn't continue the same limited guarantee it provides today. It's literally the plan -- the government gets guarantee fees in exchange for its support. If nothing changes regarding the government's backing of the GSEs, rating agencies would have no logical reason for a downgrade.

[ChpBstrd]

I think the timing of privatization would be set to occur after the 2028 election cycle, so that the consequences land on someone else's desk.

What consequences?

There's this idea floating around that the government exiting its stake will inevitably lead to a rating downgrade from sovereign level. The downgrade will 1) increase mortgage rates and 2) cause the GSEs to lose their competitive edge against private sector rivals.

But I fail to see why the government couldn't continue the same limited guarantee it provides today. It's literally the plan -- the government gets guarantee fees in exchange for its support. If nothing changes regarding the government's backing of the GSEs, rating agencies would have no logical reason for a downgrade.

The specific consequences I'm thinking of are the elimination of 15-30 year fixed rate mortgages. These products are only available in the U.S. because of the government subsidy. In the rest of the world, people finance their homes for five years at a time, because it doesn't make good business sense to hold risky loans of such extreme duration - at least not at the sort of interest rates we are accustomed to, maybe 1-2% above treasuries. The loss of such loan options would be deeply unpopular.

So yes, it is possible the government finds a way to extract cash out of Fannie and Freddie while also ensuring 15-30 year loans are still government-guaranteed and underwritten. A return to the pre-2008 status quo is one possibility. But these companies might be worth more if they weren't forced to buy products which don't make sense, and which occasionally blow up or suffer extreme devaluation as we learned in 2008 and 2022. A short-sighted politician looking to extract the most cash as possible might set Fannie and Freddie free in exchange for a bigger payout that could be used to justify a bigger tax cut. If the consequences could be shifted to a time beyond their term, there's no downside.

[BicycleB]

I think the timing of privatization would be set to occur after the 2028 election cycle, so that the consequences land on someone else's desk.

What consequences?

There's this idea floating around that the government exiting its stake will inevitably lead to a rating downgrade from sovereign level. The downgrade will 1) increase mortgage rates and 2) cause the GSEs to lose their competitive edge against private sector rivals.

But I fail to see why the government couldn't continue the same limited guarantee it provides today. It's literally the plan -- the government gets guarantee fees in exchange for its support. If nothing changes regarding the government's backing of the GSEs, rating agencies would have no logical reason for a downgrade.

The specific consequences I'm thinking of are the elimination of 15-30 year fixed rate mortgages. These products are only available in the U.S. because of the government subsidy. In the rest of the world, people finance their homes for five years at a time, because it doesn't make good business sense to hold risky loans of such extreme duration - at least not at the sort of interest rates we are accustomed to, maybe 1-2% above treasuries. The loss of such loan options would be deeply unpopular.

So yes, it is possible the government finds a way to extract cash out of Fannie and Freddie while also ensuring 15-30 year loans are still government-guaranteed and underwritten. A return to the pre-2008 status quo is one possibility. But these companies might be worth more if they weren't forced to buy products which don't make sense, and which occasionally blow up or suffer extreme devaluation as we learned in 2008 and 2022. A short-sighted politician looking to extract the most cash as possible might set Fannie and Freddie free in exchange for a bigger payout that could be used to justify a bigger tax cut. If the consequences could be shifted to a time beyond their term, there's no downside.

^This seems very Trumpy. Maybe the "call option" on this scenario is pretty valuable.

I mean, I assume that's the reason it already bounced up so much. But with most of the potential value still unrealized, there's room for a lot of surprises.

[LightStache]

I think the timing of privatization would be set to occur after the 2028 election cycle, so that the consequences land on someone else's desk.

What consequences?

There's this idea floating around that the government exiting its stake will inevitably lead to a rating downgrade from sovereign level. The downgrade will 1) increase mortgage rates and 2) cause the GSEs to lose their competitive edge against private sector rivals.

But I fail to see why the government couldn't continue the same limited guarantee it provides today. It's literally the plan -- the government gets guarantee fees in exchange for its support. If nothing changes regarding the government's backing of the GSEs, rating agencies would have no logical reason for a downgrade.

The specific consequences I'm thinking of are the elimination of 15-30 year fixed rate mortgages. These products are only available in the U.S. because of the government subsidy. In the rest of the world, people finance their homes for five years at a time, because it doesn't make good business sense to hold risky loans of such extreme duration - at least not at the sort of interest rates we are accustomed to, maybe 1-2% above treasuries. The loss of such loan options would be deeply unpopular.

So yes, it is possible the government finds a way to extract cash out of Fannie and Freddie while also ensuring 15-30 year loans are still government-guaranteed and underwritten. A return to the pre-2008 status quo is one possibility. But these companies might be worth more if they weren't forced to buy products which don't make sense, and which occasionally blow up or suffer extreme devaluation as we learned in 2008 and 2022. A short-sighted politician looking to extract the most cash as possible might set Fannie and Freddie free in exchange for a bigger payout that could be used to justify a bigger tax cut. If the consequences could be shifted to a time beyond their term, there's no downside.

^This seems very Trumpy. Maybe the "call option" on this scenario is pretty valuable.

I mean, I assume that's the reason it already bounced up so much. But with most of the potential value still unrealized, there's room for a lot of surprises.

I doubt it. If we can foresee it, then so will everyone else. Everyone knew the TCJA expiration was a way to game CBO deficit estimates, but those didn't matter so it passed. The 30 year mortgage is a cornerstone of the American housing economy. Even Trump couldn't make moves that would foreseeably put that at risk.

[BicycleB]

I think the timing of privatization would be set to occur after the 2028 election cycle, so that the consequences land on someone else's desk.

What consequences?

There's this idea floating around that the government exiting its stake will inevitably lead to a rating downgrade from sovereign level. The downgrade will 1) increase mortgage rates and 2) cause the GSEs to lose their competitive edge against private sector rivals.

But I fail to see why the government couldn't continue the same limited guarantee it provides today. It's literally the plan -- the government gets guarantee fees in exchange for its support. If nothing changes regarding the government's backing of the GSEs, rating agencies would have no logical reason for a downgrade.

The specific consequences I'm thinking of are the elimination of 15-30 year fixed rate mortgages. These products are only available in the U.S. because of the government subsidy. In the rest of the world, people finance their homes for five years at a time, because it doesn't make good business sense to hold risky loans of such extreme duration - at least not at the sort of interest rates we are accustomed to, maybe 1-2% above treasuries. The loss of such loan options would be deeply unpopular.

So yes, it is possible the government finds a way to extract cash out of Fannie and Freddie while also ensuring 15-30 year loans are still government-guaranteed and underwritten. A return to the pre-2008 status quo is one possibility. But these companies might be worth more if they weren't forced to buy products which don't make sense, and which occasionally blow up or suffer extreme devaluation as we learned in 2008 and 2022. A short-sighted politician looking to extract the most cash as possible might set Fannie and Freddie free in exchange for a bigger payout that could be used to justify a bigger tax cut. If the consequences could be shifted to a time beyond their term, there's no downside.

^This seems very Trumpy. Maybe the "call option" on this scenario is pretty valuable.

I mean, I assume that's the reason it already bounced up so much. But with most of the potential value still unrealized, there's room for a lot of surprises.

I doubt it. If we can foresee it, then so will everyone else. Everyone knew the TCJA expiration was a way to game CBO deficit estimates, but those didn't matter so it passed. The 30 year mortgage is a cornerstone of the American housing economy. Even Trump couldn't make moves that would foreseeably put that at risk.

Not gonna lie - in my imagination, it goes like this:
1. At some point the Pres or a surrogate says “we’ve heard of this idea, but are not gonna do it”
2. That was so the family and friends can buy cheap. They buy.
3. “Hmm, conditions changed. Maybe we’ll do it.”
4. Various demonstrations of intent and progress occur. Prices rise. People get upset.
5. The insiders sell.
6. The Pres decides not to do it any more.

In other words, actually wrecking the mortgage market isn’t needed to do a lucrative pump and dump.

That’s my imagination, though.

[ChpBstrd]

I think the timing of privatization would be set to occur after the 2028 election cycle, so that the consequences land on someone else's desk.

What consequences?

There's this idea floating around that the government exiting its stake will inevitably lead to a rating downgrade from sovereign level. The downgrade will 1) increase mortgage rates and 2) cause the GSEs to lose their competitive edge against private sector rivals.

But I fail to see why the government couldn't continue the same limited guarantee it provides today. It's literally the plan -- the government gets guarantee fees in exchange for its support. If nothing changes regarding the government's backing of the GSEs, rating agencies would have no logical reason for a downgrade.

The specific consequences I'm thinking of are the elimination of 15-30 year fixed rate mortgages. These products are only available in the U.S. because of the government subsidy. In the rest of the world, people finance their homes for five years at a time, because it doesn't make good business sense to hold risky loans of such extreme duration - at least not at the sort of interest rates we are accustomed to, maybe 1-2% above treasuries. The loss of such loan options would be deeply unpopular.

So yes, it is possible the government finds a way to extract cash out of Fannie and Freddie while also ensuring 15-30 year loans are still government-guaranteed and underwritten. A return to the pre-2008 status quo is one possibility. But these companies might be worth more if they weren't forced to buy products which don't make sense, and which occasionally blow up or suffer extreme devaluation as we learned in 2008 and 2022. A short-sighted politician looking to extract the most cash as possible might set Fannie and Freddie free in exchange for a bigger payout that could be used to justify a bigger tax cut. If the consequences could be shifted to a time beyond their term, there's no downside.

^This seems very Trumpy. Maybe the "call option" on this scenario is pretty valuable.

I mean, I assume that's the reason it already bounced up so much. But with most of the potential value still unrealized, there's room for a lot of surprises.

I doubt it. If we can foresee it, then so will everyone else. Everyone knew the TCJA expiration was a way to game CBO deficit estimates, but those didn't matter so it passed. The 30 year mortgage is a cornerstone of the American housing economy. Even Trump couldn't make moves that would foreseeably put that at risk.

Not gonna lie - in my imagination, it goes like this:
1. At some point the Pres or a surrogate says “we’ve heard of this idea, but are not gonna do it”
2. That was so the family and friends can buy cheap. They buy.
3. “Hmm, conditions changed. Maybe we’ll do it.”
4. Various demonstrations of intent and progress occur. Prices rise. People get upset.
5. The insiders sell.
6. The Pres decides not to do it any more.

In other words, actually wrecking the mortgage market isn’t needed to do a lucrative pump and dump.

That’s my imagination, though.

Yea I think when one accepts that the Democrats are going to be a minor regional party for the next generation, and that we now have a ruling party with a firm grip on the electorate and courts packed with toadies, ideas about how "they can't" do whatever no longer make sense. Do we think popularity limits the behavior Recep Erdogan, Vladimir Putin, Nicholas Maduro, Xi Jinping, or Viktor Orban? 

The concept of a presidential pump-and-dump makes sense in the context of a 78-year-old president who is selling cryptocurrency and NFTs, steering foreign dignitaries and lobbyists to his overpriced hotel, and who once took people's tuition money for a fake university. He was legally bulletproof and unaccountable before he became the supreme leader of the ruling party in U.S, with control over all 3 branches of the government and about half of the media.

Consider selling on the next big pump, to get in alignment with the pattern.

[BicycleB]

Part of my "evidence" was the price of DJT. I looked at a graph of that recently and it spiked wildly to 50 before the last election, but then in the last couple days before election, it crashed to 30ish and has stayed there, more or less. My interpretation is that insiders hedged the election by pumping for a couple of weeks, finishing their sales a couple days early (mostly at 45-50), and then ceased pumping. 30 turned out the the "real" price.

I have no way to prove any of that except the prices. If insiders were the ones, though, it's interesting to me that that one stock peaked prior, while other securities perceived as Trump-related (TSLA, crypto, and of course FNMA) rose most after the election instead of before. With DJT being most directly of benefit to the Pres and his associates, at least its behavior fits the story, while the others appear to result from the enthusiasm of outsiders.

For a FNMA pump to benefit the Pres, he or his proxies have to first load up. Doing that and pumping it appear not to have happened during the election runup. Will they happen during this administration, I don't know.

[LightStache]

Part of my "evidence" was the price of DJT. I looked at a graph of that recently and it spiked wildly to 50 before the last election, but then in the last couple days before election, it crashed to 30ish and has stayed there, more or less. My interpretation is that insiders hedged the election by pumping for a couple of weeks, finishing their sales a couple days early (mostly at 45-50), and then ceased pumping. 30 turned out the the "real" price.

I have no way to prove any of that except the prices. If insiders were the ones, though, it's interesting to me that that one stock peaked prior, while other securities perceived as Trump-related (TSLA, crypto, and of course FNMA) rose most after the election instead of before. With DJT being most directly of benefit to the Pres and his associates, at least its behavior fits the story, while the others appear to result from the enthusiasm of outsiders.

For a FNMA pump to benefit the Pres, he or his proxies have to first load up. Doing that and pumping it appear not to have happened during the election runup. Will they happen during this administration, I don't know.

The price action of DJT can easily be explained by the Illuminati and Lizard People (I-LP) conspiring to influence the election. That stock bears the President-elect's name so it was the important one to manipulate ahead of the election. The I-LP used their control of major brokerages to stop low priced sell orders from executing. Now that the election's over, they had to allow some volatility to maintain the appearance of free markets. Totally agree that Ackman, Trump's team, and the Rothschilds have been working with I-LP on a pump and dump scheme targeted at Fannie and Freddie. I have no evidence of this except the prices, but there can be no other explanation.

[BicycleB]

Part of my "evidence" was the price of DJT. I looked at a graph of that recently and it spiked wildly to 50 before the last election, but then in the last couple days before election, it crashed to 30ish and has stayed there, more or less. My interpretation is that insiders hedged the election by pumping for a couple of weeks, finishing their sales a couple days early (mostly at 45-50), and then ceased pumping. 30 turned out the the "real" price.

I have no way to prove any of that except the prices. If insiders were the ones, though, it's interesting to me that that one stock peaked prior, while other securities perceived as Trump-related (TSLA, crypto, and of course FNMA) rose most after the election instead of before. With DJT being most directly of benefit to the Pres and his associates, at least its behavior fits the story, while the others appear to result from the enthusiasm of outsiders.

For a FNMA pump to benefit the Pres, he or his proxies have to first load up. Doing that and pumping it appear not to have happened during the election runup. Will they happen during this administration, I don't know.

The price action of DJT can easily be explained by the Illuminati and Lizard People (I-LP) conspiring to influence the election. That stock bears the President-elect's name so it was the important one to manipulate ahead of the election. The I-LP used their control of major brokerages to stop low priced sell orders from executing. Now that the election's over, they had to allow some volatility to maintain the appearance of free markets. Totally agree that Ackman, Trump's team, and the Rothschilds have been working with I-LP on a pump and dump scheme targeted at Fannie and Freddie. I have no evidence of this except the prices, but there can be no other explanation.

Well played, @LightStache

[ChpBstrd]

Part of my "evidence" was the price of DJT. I looked at a graph of that recently and it spiked wildly to 50 before the last election, but then in the last couple days before election, it crashed to 30ish and has stayed there, more or less. My interpretation is that insiders hedged the election by pumping for a couple of weeks, finishing their sales a couple days early (mostly at 45-50), and then ceased pumping. 30 turned out the the "real" price.

I have no way to prove any of that except the prices. If insiders were the ones, though, it's interesting to me that that one stock peaked prior, while other securities perceived as Trump-related (TSLA, crypto, and of course FNMA) rose most after the election instead of before. With DJT being most directly of benefit to the Pres and his associates, at least its behavior fits the story, while the others appear to result from the enthusiasm of outsiders.

For a FNMA pump to benefit the Pres, he or his proxies have to first load up. Doing that and pumping it appear not to have happened during the election runup. Will they happen during this administration, I don't know.

The price action of DJT can easily be explained by the Illuminati and Lizard People (I-LP) conspiring to influence the election. That stock bears the President-elect's name so it was the important one to manipulate ahead of the election. The I-LP used their control of major brokerages to stop low priced sell orders from executing. Now that the election's over, they had to allow some volatility to maintain the appearance of free markets. Totally agree that Ackman, Trump's team, and the Rothschilds have been working with I-LP on a pump and dump scheme targeted at Fannie and Freddie. I have no evidence of this except the prices, but there can be no other explanation.

Well played, @LightStache

IDK, it's fair to ask why DJT rallied before the election, but others did not rally until after. A naive but logical explanation might be that the others had as much downside as upside riding on the election, whereas DJT had upside either way. However this does not pass the common sense test. In fact it seems more likely the reverse was true. The implication is that there was an arbitrage opportunity, which has since passed.

Another possibility is that some of these tickers had excess value only in a less-likely Republican sweep scenario, whereas DJT would rally even if Trump faced a divided Congress.

[ChpBstrd]

At this point in the saga, FNMA and FMCC are sort of languishing and wearing off their post-election bumps. It seems they are being neglected for lack of attention, especially in comparison to cryptocurrency bets and companies where Don Jr. is getting a board seat or advisory role. I would fear that privatization could be on the back burner, as there are so many less politically perilous ways to graft the system than endangering the 30 year mortgage.

OTOH, either of these entities could announce tomorrow that Don Jr. is taking an advisory role, and the stocks could jump 50%.

A tax cut bill WILL be floated in the first half of 2025, and if these companies are not privatized as part of those negotiations, it will probably be a signal that it's time to run for the exits. It's the kind of political risk that won't be floated early in the negotiations, but will only be announced after backroom deals have secured majority support. So you'll have to wait until actual bills are filed to know what is happening, and even then there could be differences between the House and Senate versions.

[LightStache]

At this point in the saga, FNMA and FMCC are sort of languishing and wearing off their post-election bumps. It seems they are being neglected for lack of attention, especially in comparison to cryptocurrency bets and companies where Don Jr. is getting a board seat or advisory role. I would fear that privatization could be on the back burner, as there are so many less politically perilous ways to graft the system than endangering the 30 year mortgage.

OTOH, either of these entities could announce tomorrow that Don Jr. is taking an advisory role, and the stocks could jump 50%.

A tax cut bill WILL be floated in the first half of 2025, and if these companies are not privatized as part of those negotiations, it will probably be a signal that it's time to run for the exits. It's the kind of political risk that won't be floated early in the negotiations, but will only be announced after backroom deals have secured majority support. So you'll have to wait until actual bills are filed to know what is happening, and even then there could be differences between the House and Senate versions.

Interesting! I agree they are languishing from lack of attention, but my picture of the risks is quite different. I'm focused on comments from the mortgage industry that they want an explicit guarantee, so it's a question of whether their lobbyists will be powerful enough to stop a release using existing executive authority. I don't assume legislative action is required. I also have no awareness of Don Jrs. goings on and hope he steers well clear of Fannie and Freddie. No need to muddy the waters!

I expect a pop in January when the topic is broached in Bessent's confirmation hearings. Other than that I don't foresee any catalysts.

[Chris Pascale]

At this point in the saga, FNMA and FMCC are sort of languishing................

..........I expect a pop in January when the topic is broached in Bessent's confirmation hearings. Other than that I don't foresee any catalysts.

Agreed on both. I'm expecting an Inauguration Day bump, which would be silly unless there's going to be a planned release that day, and I'd like to think there'll be a bump when the 2024 earnings are released about 2 weeks later.

However, earnings releases have not had sensible impacts on these companies in the past decade, so why start now? Fannie Mae Q3 income was $4B, and the stock price dropped really hard. Hilariously, shortly before that, Netflix posted a $2B quarter, and the price jumped significantly.

My attitude is that the longer this takes, the more shares I can buy. If it drops down to a $1.00 or less again, I still feel the same way.

These companies are only going 1 of 2 ways. Only 1 makes sense with them holding $100B in cash, and pulling in consistent multi-billion-dollar profits, but the fact that I was able to start buying so late is an indicator that nothing has to make any sense, so a $0.00 share price is possible, if not probable.