Fannie and Freddie Shares Soar Though Value in Question

It’s very hard to come up with scenarios where they’re worth any money. There’s a tremendous amount of sentiment trading in general.

- Bose George, Analyst, Keefe, Bruyette & Woods

(Source: “Fannie, Freddie Shares Soar, Puzzling Analysts: Stocks Considered To Have No Value”, The Washington Post, August 25)

This is probably the best example of the kind of speculative mania driving the stock market right now. These stocks are purely speculative vehicles with no intrinsic value and yet traders are buying them up in massive volumes as a kind of bizarre call option.

Comments

[prudentinve...:]

Is it possible that the buyers have insider information? Perhaps uncle Ben will soon render them worthwhile by buying even more of their worthless paper at a nice price?

Aug 26 08:10 AM

[Johnc222:]

The U.S. Government is buying FRE's Junk,....they are reaping benefits from the yeild curve and asset sales.

The Government had asked FRE & FNM to acquire alot of this paper from the Banks,..so by them(U.S.) taking it on their balance sheet seems appropiate.

Also, why is the U.S. Treasury taking a Divy from FRE, this makes no sense, since the money would be better left at FRE for operational purposes.

The U.S. Treasury didn't help these financials to make money, that wasn't the motivation. By converting their perfers to common they would allow FRE to get back on it's feet,...that much faster.

After all FRE paid the U.S. 1.1 Billion on the last Divy. That money should be kept at FRE for operational expenses.

Time to convert.

Aug 26 08:13 AM

[S2009:]

"It’s very hard to come up with scenarios where they’re worth any money"

Greg, This "article" of 60 words looks like typical Yahoo Finance bashing. Take three ultimate scenarios you want, run the numbers in front of everyone and prove here where FRE/FNM is heading to.

Aug 26 08:38 AM

[stevey:]

when they're traded at 0.60 they are call options with no time decay, now at 2.00 I am not sure ...

Aug 26 08:46 AM

[Tony Petroski:]

Puzzling.

There's no "insider information," and the public isn't fascinated with trading these entities.

What's the game?

Aug 26 08:51 AM

[e3l4i0e:]

Call it what you will, the fact is the housing market will rebound someday, and at these prices can u realy go wrong? I bought 10K stock in FRE/FNM when they were 30 cents, now I am sitting on ten of thousands with no plans to take it out. I would tell anyone to buy in right now its the foundation of our lives and its not going anywhere.

Aug 26 09:11 AM

[Zenilvana:]

There should dump sites for all those Trillion of toxic wastes, currently clogged in U.S Financial systems. Rather then banks or their coherts clutching hopeless assets in their balance sheep, FNN and FRE could be a convenient vehicle to carried around. After all, they belong to tax payers who do not care much about its location
Someday when the economy of due inflation are to lurking around, this trashes will turn out to be the treasure of real assets. Someone figured out Government could not let it be buried in rot too long, causing nation's Trillion dollars gasifyed for nothing forever. The elected people will do some tricks to reward Wall Streeters including you and me in due course. Is this fancy talk, or what?

Aug 26 10:03 AM

[Poor Dude:]

Between the two, they hold title to nearly 1-3rd of all the private (non-commercial) real estate in America. How can that be worthless?

I admit that I'm a little confused by their relative values, though. FNM owns twice as much property as FRE, and FRE held proportionately MUCH more of the toxic stuff than FNM did. So I'd expect FNM to eventually be trading somewheres around double what FRE does, in the long term.

Right now, I think our market is just trying to slowly readjust its thinking from an imminent collapse of the western banking system and a world-wide Greatest Depression, to a less serious (but still disastrous) future of hyper-stagflation. And in the new scenario, real estate will still have value.

Aug 26 12:29 PM