Freddie Mac: Parsing the Euphoria

Freddie Mac actually reported that it earned money in its most recent quarter, to the tune of some $768 million. The stock had a huge gain of about 73 percent.

One analyst with whom I spoke questioned the euphoria which the report of net income sparked.

As a starter, its cost of funding is a mirage. The Federal Reserve is buying hundreds of billions of dollars of the company's debt and that same debt has the “effective” guarantee of the taxpayers. Without the Federal Reserve purchases and the taxpayer backing, the company would fold like a cheap suit.

He also noted that the GSE had reduced its provisions for losses and that aided the bottom line. He noted that the provision for losses was not in line with the actions of Fannie Mae (FNM), which of course runs a similar portfolio.

There was also a significant benefit from an accounting treatment of losses on “temporary impairment” of securities values. The GSE noted an impairment of $10.5 billion, but only $2.5 billion made it to the income statement. My interlocutor said that this was all quite proper (according to accounting canons) but he thought that when folks delved into the entrails of the statements, they would find it troublesome and less than inspiring.

Comments

[mbi4ever:]

John;

I think you should cover your short to say the least ;)
And to say that they have a "similar portfolio" is a joke.
FRE == subprime (crisis over)
FNM == subprime + Alt-A (working through)

Aug 11 02:13 AM

[cbc:]

The only game in town makes for a very healthy short today. I timed it right and did quite nicely. I guess I am a grumpy old man. Keep up your optimism.


On Aug 11 02:10 AM freefannienfreddie wrote:

> I note you conveniently fail to state your position. Clearly you
> are no doubt familiar with cheap suits, so short some more, dummy.
> The GSE's are the only game in town, their cost to borrow is zilch,
> they're making a huge spread, and whether you and all the grumpy,
> mostly old white guys who bitch about the Government intervention
> like it or not, they are not going away and will get healthy again
> as the USA gets healthy again.

Aug 11 10:35 AM

[cbc:]

You have got to appreciate this level of anger. It seems someone is not so sure of there position with FRE. Any one who really felt secure with FRE would have a giggle and move on but this anger seems to help convince the commentor themself and almost nobody else. LOL. I recomend a strong buy and hold here. right.............


On Aug 11 03:36 AM Fre Freddie and Fannie wrote:

> I agree this writer is an absolute worthless IDIOT!
>
> WOW between bruce kasting and this MORON this site should be called
> looking for Intelligance!
>
> Dude cover your shorts---oh your as---s---is so big your going to
> need a tent!
>
> At the end of the day all banks are getting a low yeild curve MORON!!!!
>
>
> Get a job Lehman bros! LOL
>
> What a jerk article

Aug 11 10:42 AM

[ts2:]

Wow, a lot of comments from the tin foil hat crowd.

Aug 11 10:46 AM

[Wireless Wiz:]

I thought people on this forum only got this fired up when someone says a negative thing about Apple! I guess I was wrong. This is the usual report from these companies. Profits up the wazoo on huge spreads until you factor in defaults and subsequent write-offs, which when you have a trillion dollar portfolio with some toxic assets, are surely much greater than an $800 million operating profit. Freefannie up top sorely misses the point in believing 1. there is any significant equity value in this company and 2. by only looking at wide spreads as the magic bullet.

Aug 11 10:57 AM

[metamorpheous:]

metaman:
Never Trust a "Hat-Tipper"; A.K.A. = Shill.

iamned is rigged for evoking, and I do not men eliciting, a visceral response from reeaders by constantly using charged languaged anticipated to trigger fear. No big dael, just "tipping my hat" to the hat tipper of the mind control wannabes.

Aug 11 11:54 AM

[Anthony Alfidi:]

Everything about Phoney and Fraudie has been false. This is no surprise.

Aug 11 12:33 PM

[Perry B:]

The only way to trade a long postion in this manipulated market. Is to just get lucky. Take your profits and move on. We have to have the uptick rule back or this up and down for no reason will continue. FRE is undoubtedly a trash stock as the author pointed out. But it is worth more than AIG trading at $26.00 If you figure the 20/1 split. Which any investor should. Without the uptick rule in place. Both these hyped - pump and dump stocks, have to be played with caution not passion. The author is right. FRE; is saved through the Federal Reserve buying a lot of these small FDIC condemned banks. Which means the GOVERNMENT will own most small banks. Banks, to small to be worth much to the big banksters, yet very profitable in the big picture to the FED. So FRE will be looking good in the future. It is to bad the government has such control. Todays FRE and FNM profits taken from retail traders. Just made one of these small failed banks very solvent.

Aug 11 01:29 PM

[Moon Kil Woong:]

Beware of any company the government dithers with. Their financials can't be trusted and you can't exclude blatant manipulation. If gambling is your cup of tea go ahead and play these. But i wouldn't really equate it with investing.

Aug 11 10:24 PM

[Randy Durig:]

Freddie Mac New Issue Bonds (Freddienotes) are coming Monday the 17th. investment-income.net/...

Aug 13 05:39 PM