I am no expert on this, how low can this story go. It seems everyday I see them down 10+%
As a sell side agnecy salesman said this morning in my office “what UBS said was bulls$^@, stop freaking people out!” Rescap and GMAC continue to hang on 
Despite what you see in the press, Fannie and Freddie will come out ok. Perhaps it’s a political move planning their inevitable bailout? They barely even touch subprime. Based on what I read, they would only take the subprime loans that didn’t include the teaser rates and those individuals would need to qualify for the maximum rate the loan could climb to for them to be accepted by Fannie and Freddie. As of yet I’m not seeing solid evidence they will go bankrupt.
They won’t go bankrupt but their equity could go to 0 in a restructuring.
^ Yep.
I agree with farley
KJH, what basis do you have for your opinion that they are OK? Do you know how little capital supports the enormous balance sheets of Freddie and Fannie? Did you know that Freddie has negative fair-value book value (and Fannie likely will as well once it reports 2Q)? Do you know how frequently these companies have come to the market to refinance? And did you know that Fannie agreed to a record yield on the three-month bills it sold yesterday? But let’s not worry about all that…
* I should rephrase that. While I do not believe the US Government will allow them to go under (hence be ok), they may have to issue new equity that would dilute the current holdings. Overall I think of this more as a political move. They create both the problem and solution to the problem thus saving the day.
To me it´s always been pretty much inconceivable how these agencies could come out of this real estate crisis unscathed. Even without the worst of subprime loans they have a humungous exposure to the ups and downs of the real estate market. Their outstanding bonds account for roughly 1.5 trillion bucks, or 10% of GDP. And just like banks they work with a notoriously small asset base. I am sure they could go bust, but if even Bear Stearns gets a bailout, then the Fed & Treas & whoever else will do what ever they can go rescue them. Can you imagine them going bust?!
As long as you keep robbing Peter to pay Paul…
The only people buying Fannie & Freddie are index funds and/or people who are spending other people’s money. Same with almost all financials, imho.
I’ve spoken to hedge fund managers who’ve been bullish on FNM all the way down from 30. Their rationale is that “government will introduce new legislation to bail them out.” Needless to say I have never invested in any of these funds.
Are there any index funds out there currently growing? If the big buyers are index funds, there is serious trouble.
Isnt it the time to short sell for these 2 companies?
the index funds have to rebalance as the price moves down… don’t they? Regardless, values don’t happen quickly. It will take time for these financials to figure out what they owe & what they are owed.
virginCFAhooker Wrote: ------------------------------------------------------- > the index funds have to rebalance as the price > moves down… don’t they? > > Regardless, values don’t happen quickly. It will > take time for these financials to figure out what > they owe & what they are owed. Not most index funds - a value weighted index stays value weighted if you just buy and hold (except dividends, etc). The only way they would be buying FNM is if there was money flowing into the fund.
ok, I still argue that anybody buying fnm or fre is not responsible for the money they control.
Richard Pzena has a lot of FRE and he bought it in the mid twenties!!! Would a straddle make sense in the case of FRE? at the cost of $6.90 approx, you can buy Jan 2009 calls and puts @ 7.50. Theres a big region where you dont make anything, if this goes to zero you dont make much, but if this rebounds…
People wondering if you should short stuff after it’s fallen 75%? Yes, I’m well aware it can always fall another 100%, but it seems the risk/reward is way out of whack to be shorting at this point.
bsivia, If you dont make much even if it goes to zero why would you buy the put at all…why not just calls?!