This week I was mostly busy writing, and I encourage everyone to read the post I put out on Wednesday, Short Thoughts: The AI Cloud Oligopoly, Stages of Grief & a Flashing Bear Market Indicator, subtitled Other Peoples’ Money, Market Breadth & Market Structure, The Difference This Time
I’m always chasing a certain standard I am seeking to establish here. Thank you all for your feedback. I am continually trying to get better at this.
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Short Thoughts: The AI Cloud Oligopoly, Stages of Grief & a Flashing Bear Market Indicator
Fannie Mae & Freddie Mac
This past week I made a move in both Fannie Mae & Freddie Mac. Both stocks have retraced essentially all their gains since Trump’s election, and they put in a giant head-and-shoulders-and-elbows top for added emphasis. All that is left is the dominant hand to forcibly shove the shares off into the nether.
What that chart predicts, technically, is worthless stock. The summer has been just brutal for anything away from the AI trade, with many beat up stocks breaking to brand new lows and market breadth ever narrowing toward the Y2K mark.
The Twins’ stocks, which took a bit of the meme juice, are coming close to expelling that poison from their bodies.
I have written extensively on Fannie Mae and Freddie Mac here on CU, and I encourage reading of those pieces - three big ones plus some other mentions - for context on this discussion.
It has always been the case that the two most important stocks in over-the-counter “pink sheet” history, for maximal return, require both the end of conservatorship and the cancellation, or severe reduction, of the senior preferred (SPS) liquidation preference (LP), which is growing all the time, offsetting any and all good earned income put away at Fannie and Freddie.
Per both stock price action as well as recent sell-side commentary from KBW, Wall Street’s base case seems to be coming around to the idea that Treasury will convert its senior preferred stock (SPS) into common stock. In that setting, common shareholders are diluted at least 90%. Worse, that percentage is growing every quarter as the liquidation preference grows.
