Yep that last exchange confirms that the OP is a moron who suffers from 'smartest guy in a very small room' syndrome.

I'm guessing the OP is surrounded by people who make him feel very smart. Unfortunately in the real world where things like bets on FNMA are made the people are just seriously 50 IQ points ahead of him. They've also spent 25x as much time doing the work, and are CFA's, lawyers, and god help us Washington insiders looking to make some money on the side.

Dude. You. Just. Aren't. That. Smart. Stick to things that you have a prayer of understanding. (And this is not me saying that I can accurately handicap FNMA. I can't.)

Stop. Be nice.

I know you think you are being nice, but take a step back.

Actually I'm totally not being nice. I was being nice earlier in the thread. Now he's shown his work and it's terrible. If he doesn't figure out that it's terrible quickly he's going to lose what (I'm sure very little) money he has on horrible alpha shredding fps plays.

I mean I KNEW the OP didn't have a clue when he was talking about beta as a fundie metric, but his last 5 posts were at the ~steelhouse level. People who think they know things when they really don't are absurdly dangerous to themselves, their families, and their friends. Smart people who think they know things when they really don't are doubly dangerous because people might just listen to them.

I literally only call the OP smart because he seems to know what FNMA is, and he's managed to put together a semi coherent if deeply horribly flawed argument. That's the kind of ******ation that smart people fall into.

Sure hope you made some money on this stock, this board overall crushed it. Buying at $.24 sold 1/4 at $3.50, thus the rest is literally house money. FNMA is part of the revolving door of the government. Sure hope you bought some BBY too, or BAC (one you trash and trashed me on), or KBH or DXM or all the other stocks you are your buddy claim are bad picks.

Private equity is going down. The ability to use phantom debt to avoid corproate income tax is criminal. Don't you find is suspicious that once the takeover of besybuy was stopped, the stock decides to skyrocket? These stocks are manipulated down and all the hedge funds collude to get the price as cheap as possible, Small stockholder gets screwed and the SEC is about as competetent as Eric Holder handling the Full Tilt Poker situation.

Fannie Mae, the US mortgage behemoth rescued during the 2008 financial crisis, will pay a $59.4bn dividend to the US Treasury, raising the prospect that taxpayers will soon receive a profit from the bailout. The company took $116.1bn in public funds to cover losses on trillions of dollars of mortgages it had purchased or guaranteed. The latest payout will take the total dividends it has paid to the Treasury to $95bn.

The odds 50:50 it stays and returns to $10-$20 a share. If they have negative equity, which is very small compared to $3 trillion. Why are they sending $59.4 billion to the treasury?

Furthermore, it refinanced a lot of its debt to very low interest rates. If rates and home prices rise does FNMA benefit?

That is why there is a receivership process. The conservatorship has different rules than a receivership would have.

If they were to pass legislation to liquidate the company outside of the receivership process it would definitely create some form of additional net liability for them imo.

The legal standard does not just look at what the company is worth outside of the regulation and then use that figure to calculate just compensation. Just hindrance of the property may be compensatable. In this situation there would be so many mitigating factors that it seems impossible to me that a judge could reach a conclusion on the value of the stock in current market conditions. They would probably at minimum compensate for the fair market value before the initiation of the conservatorship.

It would be an intensely complicated process that could be extraordinarily expensive both in time and in money.

That is why I think that even if they don't like how it looks politically that they will come to the conclusion that the best choice is to let the company out of the conservatorship.

If there is a continuous ability to own the stock and recover the value of the stock after the process has ended, it would be much harder for previous shareholders to claim that the process itself caused them a compensable loss of value.

You usually are, actually. I was wondering who took the gem out of your donut when I read your post.

This FNMA stock seems to be annoying you more than anything else I've seen lately.

This thread is an extension of what you call "showing my work" or "his work". My analysis might not be rigorousness enough to win a Nobel Prize, or exacting enough to satisfy the pedantic proclivities of people like you, but it is not valueless.

I think my grasp of the details is good considering the complexity of the situation. You don't have to bring up my family or speculate on how rich or poor I am based on my opinions about this stock. You don't have to apologize for it either because I am not offended.

I'm not going to assume people know more than me and go out and buy some 30 year Treasury bonds or something. I'm willing to lose my entire investment in this stock. I've acknowledged the possibility of that happening.

But I do think that because you say that you aren't in a position to personally handicap a stock like FNMA yourself, that you should not offer criticism of people like me who are trying to handicap it. How can you possibly judge my ability to handicap the stock when you are unwilling or unable to handicap it yourself?

LOL nobel prize. Your work isn't even in the neighborhood of right. It also shows that you know basically nothing about something you're busy touting as a great investment. You understand in broad strokes what FNMA is, but you clearly don't understand the law around it, what its real situation is, or basically anything else.

I'm about as peeved about this particular investment pitch as I am about morons investing in restaurants. Why? Because while you losing your own money is your perogative, coming onto 2p2 and talking about how great FNMA strongly suggests to me that you've been doing the same irl. Irl there isn't a BoredSocial around to call you out. Irl people might do something dumb like copy your terrible logic and lose rl money. Because even more than forum people (at least this forum) rl people are sheep. They like to listen to people who they think are smart when it comes to investing money.

Any time I see a situation where someone is probably going to take everyone around them down with them I get a little bit annoyed.

It's very rare for a company in bankruptcy to actually give it's common shareholders nothing at all.

However, in this case, the government really went out of its way to push equity down to zero (below zero actually). OP's right they'll probably (not certainly for many reasons) end up settling somewhere, but you have to be a fool to think equity holders will get much more than a token payment, typical of shareholders in other bankruptcy cases.

The very low prices you consider to be undervalued should be a warning bell. Even the people betting on FNM think it's a low probability event they'll get a decent piece of the new company or liquidated assets.

http://www.bloomberg.com/news/2013-0...isconnect.html

It is actually the most common way things happen. Remember the massive payout shareholders of GM got? I don't remember it either.

http://wallstreetpit.com/100168-what...ie-fnma-worth/

It's really not.

GM was another case where the shareholders got wiped out due to government involvement.

Usually, even in the worst bankruptcy cases, the original shareholders get some token payments like 1% of the reorganized firm with some warrants that can give them more equity down the road. They are still essentially wiped out but a total wipeout like GM and (as it seems likely now) and FNM is rare. More common in liquidation cases but still relatively rare.

Yes, since that puts equity in the home to cover the costs of foreclosure.

What about if interest rates rise from 3% to 10%?

Corker and Frank are insane re-insurance? They want the federal government to cover $4.5 trillion in debt at 3% interest rates. What if the interest rates rise to 10%? Do they expect the savers to chip in $10 trillion.

http://www.valuewalk.com/2013/06/fan...losed-housing/

Then the above article is really distrubing, they combine properties into a large massive sale so only the large private investors can afford them. Sort of like the way that rich guy bought an Hawaiin Island for next to nothing because the bigger the price tag, the bigger the discount. They should be auctioning them off online for individuals, investors should be excluded. They could get far more money selling them individually.

Ok let's run the numbers differently to show how good of a buy this stock is. I am going to outline the different possible outcomes and I will be conservative on the chances of each outcome happening. I will overestimate the probability of the negative outcomes so that a highly skeptical person would probably agree with my reasoning.

I'm going to assume we make this bet 100 times and then calculate the expected outcome of our 200 dollar investment. 2 dollars is the current stock price and assuming we were to make this bet 100 times how much would we be ahead based on the share prices that would happen if the various outcomes that are possible occur in relation to their likely chance of happening?

5 percent of the time they will be let of out the conservatorship after having paid dividends that equal the liquidation preference. Both the Senior Preferred Stock and the common stock conversion option are canceled and the company is allowed to resume operations. The stock price in this situation should be a minimum of 200 dollars per share.

10 percent of the time the common stock option is canceled but they must buy back the Senior Preferred Stock with its 117 billion liquidation preference. The stock price in such a situation should be 100 dollars per share.

10 percent of the time the common stock option is exercised and the senior preferred stock must also be paid back. The share price in such a situation would be 8 dollars imo.

75 percent of the time your entire investment is wiped out with no legal recourse.


So I make my 2 dollar bet 100 times under those pretty conservative odds. What is the outcome?

75 times I lose 2 dollars or -150
10 times I get my 2 dollars plus 6 dollars profit for a total of +80
10 times I get my 2 dollars back plus 98 dollars or +1000
5 times I get my 2 dollars back plus 198 or +1000

1000
1000
80
-150
-------------
1930/100 = 19.30 expectation per share

I wanted to add one more thing that should be clarified. The time in which the information becomes known also matters. To be the most conservative possible I am going to make the assumption that the outcome will not be known before 2018 in all situations even though there is a strong chance the outcome will be known before that point.

Given that the outcome would be not known for five years it is important to calculate what the maximum price is that someone should pay in order to have an outsized return over the entire five year potential waiting period.

In order to come to that number I can give the current maximum price that someone should pay today and then adjust that price for each year that the outcome is unknown. I then added an outsized return amount of 30 percent per year compounded yearly to calculate the various maximum prices in the future that someone should pay if the information about the companies has not changed significantly.

The maximum price to pay in each year:

June 2013: $5.20 per share
June 2014: $6.76
June 2015: $8.79
June 2016: $11.42
June 2017: $14.85
June 2018: $19.31

The government has already shown it's willing to buck industry norms by giving GM shareholders absolutely zilch and pension funds 40% (normally the pension funds would go behind unsecured debtors, only a step before equity holders.)

The move is political. They know the bankers won't fight for it and they know it's a freebie they can hand out to make the bailouts a little more palatable.

If there are really a piles of excess profits, it's far more likely they'll dole it out in some kind of mortgage relief to keep people from foreclosures.

TLDR: lol@75% wipeout. The stock is priced at more like 99% wipeout, for good reason too.

PS: I said back then Fannie and Freddie will probably become worthless but I was also sure they'd bounce off ~$1 a share because at that point people will come in and go for that long shot. The probability of common equity holders getting anything has gotten even closer to zero since.

Fannie Mae and Freddie Mack Shareholders Sue - June 10th 2013

http://www.bloomberg.com/news/2013-0...-takeover.html

The Just And Legal Way Forward For Fannie Mae And Freddie Mac:
http://seekingalpha.com/article/1492262

There is a lawsuit that was entered today...

Northeastbeast: This is how you make an intelligent play on FNMA. I'm guessing it went something like this...

1. Buy 100M shares of FNMA for well under a dollar. (probably for less than .25)
2. Wait until the right inflection point (now).
3. Hire a high end law firm to come in and sue everyone possible on your behalf.

You win rarely. That being said if you do win it's a 36 bagger... which means if you own enough stock it's 100% worth the risk to purchase the stock and spend 25M on suing people.

I agree with this on a serious side. We as small investors are always last to know the market. We also cant manipulate the market like large investors, funds, banks, firms can. They have the money to make money.

Exactly. There are opportunities out there that only the little guys can take. Things like micro cap stocks, scalping futures markets, and other detritus left lying around that is too small to take the big boys notice. On the other hand knowing your circle of competence might be the #1 key to long term survival in the markets.

It just takes being an expert in something. If you are an expert in worms then you can make money there. Its just hard to play stocks like this without luck being involved. But I guess that's with anything.