Colin Posted July 10, 2008 Share Posted July 10, 2008 This how stocks come back – government corporations paying 10 and 12%! Fannie Mae (FRE) and Freddie Mac (FNM) are government-sponsored enterprises that help the mortgage market function by purchasing pools of loans and packaging them into securities. Yet their stocks weaken last, wobbled this year and crashed recently with the bad mortgage market news. The two now sell for 11 and 16% of what they were once worth! http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/?postversion=2008071007 While FEE and FNM are NOT government guaranteed, rescuing them may cost as much as $1T! Yet the U.S. federal government can not let them go out of business. If one or both these federal firms can’t function, the result is depression-era chaos. Although FRE and FNM prices were stable for a decade (!), they crashed recently. I believe they will stabilize again in the next several months, possibly a year or two, and recover much of their original price. In the meantime, even if they cut their dividends, I expect them to continue to pay income 2 to 3 more than jumbo CDs! Income values like these will attract investors back from commodities into stocks. Quote Link to comment Share on other sites More sharing options...
Daddy Dee Posted July 10, 2008 Share Posted July 10, 2008 Thanks for the link Colin. Quote Link to comment Share on other sites More sharing options...
oldtimer Posted July 10, 2008 Share Posted July 10, 2008 I think you are right on this one colin. Didn't read the link, but what you wrote is a pretty obvious case. Part of the problem in the mortgage market was the accounting "scandal" with these firms. Plus the outcry that they were too big and controlled too much of the market. Well, we saw what happens when others gain more control, now there's been a lot of backtracking: Hey, "Fannie and Freddie weren't so bad after all!" Quote Link to comment Share on other sites More sharing options...
johnyholiday Posted July 11, 2008 Share Posted July 11, 2008 "The Great Shake Down of 1907 & 2008" http://www.youtube.com/watch?v=eBqwtRubyJM&feature=user ...http://www.youtube.com/watch?v=0Jjotm_MXRk&feature=user Quote Link to comment Share on other sites More sharing options...
garymd Posted July 11, 2008 Share Posted July 11, 2008 I absolutely agree with Colin on this one. It's a no-brainer IMO. Something else to consider for those looking for a good investment or two right now................do some homework on bank stocks. There are many banks out there with little to no home loan foreclosure risk and with earnings still very strong. They've been dinged along with the rest of the bank stocks for no reason other than the fact that they are banks. Quote Link to comment Share on other sites More sharing options...
Colin Posted July 11, 2008 Author Share Posted July 11, 2008 http://ap.google.com/article/ALeqM5g7v1q_PT9pvY2DMPVZaaDH3OD4YQD91RLEMG3 shares are down to $6 and 4 in pre-market trading. a tenth of what they were, Fed may take them over (which would hide their debt) Quote Link to comment Share on other sites More sharing options...
Daddy Dee Posted July 11, 2008 Share Posted July 11, 2008 Fannie Mae and Freddie Mac own or guarentee $5 Trillion in loans. The taxpayers are on the hook anyway even without bail out action? no? That makes them harder to fix I'd think. Quote Link to comment Share on other sites More sharing options...
Colin Posted July 11, 2008 Author Share Posted July 11, 2008 Sorry, but I can’t handle Cramer type rants without factual substantiation or a succinct re-telling of personal experience. Could FRE and FNM fall even further on bad news? Yes. Should I wait the next 2-3 months or possibly years for a bottom to form before jumping in with purchases? Yes. Can they cut the dividend? Yes. Can stocks drive lower from here? Yes. Is there precedence for a bail-out? Yes. Do corporations with government charters need to be taken over? Mmm, not sure about that one http://www.marketwatch.com/news/story/contrarian-analysts-citi-say-fannie/story.aspx?guid=%7BAA8A2D9A%2DA0EE%2D4F40%2DB01A%2DA28C151EDD4C%7D Quote Link to comment Share on other sites More sharing options...
RT FAN Posted July 11, 2008 Share Posted July 11, 2008 Looks like the Fed just opened the "Discount Window" for them. Should stop the blood flow for awhile. Quote Link to comment Share on other sites More sharing options...
Jeff Matthews Posted July 11, 2008 Share Posted July 11, 2008 Yes, interesting. Also interesting is the fact that "short sale information" is one of the standard "press fors" in the automated answering systems for mortgage lenders. They are going to need to unload some serious inventory before long. It's a great time to have cash ready. Too bad I spent mine. [:'(] Quote Link to comment Share on other sites More sharing options...
oldtimer Posted July 11, 2008 Share Posted July 11, 2008 Most of those loans are going to be just fine. They involve credit worthy people who pay their bills. I am talking 96-97%. Fannie and Freddie only buy mortgages that meet their underwriting guidelines. The price of these securities is far below their true worth, that is the problem. No one wants them in this environment. My personal opinion is that this is a panic in the true sense of the word and as history has witnessed many times. Quote Link to comment Share on other sites More sharing options...
johnyholiday Posted July 11, 2008 Share Posted July 11, 2008 "Price is King" let price prove the banking index direction, a break down of Megaphone formation, melt down,if formation holds,a melt up....RST=resistance/support/longterm..... markets trend ~30% of the time ,an cycle ~70% of the time......question is ,is it cycling? or trending?,???.....johny Quote "there are no good stocks! only good trades!" Quote Link to comment Share on other sites More sharing options...
Daddy Dee Posted July 11, 2008 Share Posted July 11, 2008 http://washingtontimes.com/news/2008/jul/11/office-of-thrift-supervision-shuts-down-indymac-1/ FDIC closes down IndyMac. The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history. Quote Link to comment Share on other sites More sharing options...
oldtimer Posted July 11, 2008 Share Posted July 11, 2008 Every ***** goes to jail at least once. Quote Link to comment Share on other sites More sharing options...
fenderbender Posted July 11, 2008 Share Posted July 11, 2008 Every ***** goes to jail at least once. Pigs get fat...hogs get slaughtered!! Quote Link to comment Share on other sites More sharing options...
oldtimer Posted July 11, 2008 Share Posted July 11, 2008 Right on! Where the H are you dude? You sound a lot like the brother I never had. Quote Link to comment Share on other sites More sharing options...
Gilbert Posted July 12, 2008 Share Posted July 12, 2008 Thanks for sharing Colin, I agree with your assessment. Pretty straight forward. Quote Link to comment Share on other sites More sharing options...
artto Posted July 14, 2008 Share Posted July 14, 2008 I I’m not taking sides here but Colin and those of us who agree with him might want to reconsider what all of this really means...........................to us. http://www.bloomberg.com/apps/news?pid=20601087&sid=ana3QllbJTkY&refer=home Now don’t get me wrong, I’m not a big fan of ultra conservative commodities investor Jim Rogers, but it’s also a valid point of view. On the other hand I wouldn’t be surprised if Rogers is squirming for another reason. Oh yes, isn’t he in that upper 0.5% who own 99% of the wealth in this country and is likely to start being required to pay taxes on it equivalent to the rest of us? Figure it out Jimmy. You had the easy street for eight years, now it’s your time to start paying for all the government debt this fiasco is going to cost the taxpayer. Welcome to the club! Quote Link to comment Share on other sites More sharing options...
Colin Posted July 14, 2008 Author Share Posted July 14, 2008 Don’t see the Bloomberg link, know Rogers argument from his Forbes/Fortune? articles promoting his book, and yes, commodities have cycled back higher as he predicted. Federal government frees up super cheap loans for its market making mortgage companies: http://www.marketwatch.com/News/Story/white-house-fed-step-rescue/story.aspx?guid=%7BF942EDC2%2DE975%2D4F01%2DAF6F%2DF1D7591E4526%7D This should put a floor under the stock prices. Quote Link to comment Share on other sites More sharing options...
artto Posted July 14, 2008 Share Posted July 14, 2008 BUT.....when any private corporation, such as Bear Stearns or now Fred and Fannie, need perhaps TRILLIONS of dollars, there isn't even a QUESTION about where is the money. I agree with what you say and mean Mark, except for what I quoted above. Bear Stearns is/was not a "private corporation". They are a public corporation with the general public as both equity (stock) and debt (bond) holders. Fannie and Freddie are "GSE's" ~ Government Sponsored Enterprises, which were created by the United States Congress.So was Sallie Mae (although allowed to relinquish government sponsorship & go fully private 1995). So was the Farm Credit System & so on. Fannie & Freddie are in fact private corporations (just like the Federal Reserve Bank), but (unlike the Federal Reserve Bank, or true privately owned companies-no publically traded stock) publicly chartered so that they have access to sources of capital outside the government. The buyers of their securities offer them high prices, as the implicit involvement of the Federal government gives them a sense of financial security. The keyword here is implicit. GSE securities carry no explicit government guarantee, and therein lies the caveat. Quote Link to comment Share on other sites More sharing options...
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