Fannie and Freddie Preferred Stock - Update

On July 14th I wrote about the trading activity in FNM/FRE preferred shares. It was clear then that there was a buyer. The buy side interest has continued:

Both fnm and fre have series A-Z preferred’s outstanding. All of these individual shares have appreciated 200-300% in the past 40 trading days. The common stock has not budged.

There are a number of possible explanations for this unusual price action.

-A broad base of ‘punters’ saw the signs that I saw and said, “What the heck.
I would give this a very low probability.

-A large Prop desk is behind this
The buying is going on across 40 separate share issues. This is a well organized effort by a large player. This is a good guess, but those ‘desks’ are very close the desks that run the big Agency business that goes on every day. That is a stinky conflict.

-The Agencies are behind the buying.
That can’t be. They are NYSE listed and subject to disclosure. In addition they are owned by the Treasury. As such the must live to a higher standard of disclosure. A ‘sneaky Pete’ buy back just doesn’t fit in with that picture.

-This a completely random event of no significance.

The market cap of these securities has appreciated by $1.5 billion over the past five weeks. Big money. Someone appears to be wired. If the Agencies and FHFA have a plan for the pref they should share it with the public.


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