Fannie Mae's Decline Is Disheartening

I have to say that I’m amazed by the decline and fall of Fannie Mae (FNM). Not that the company doesn’t deserve it, but to anyone who know who remembers the esteem with which this stock was held, the recent fall has to be disheartening. In the last six weeks, the shares are down -41%.

Shares of Fannie Mae were a no brainer for years. From late 1981 to late 2001, the stock went from 50 cents a share (adjusted for a 12-for-1 split) to $80 a share. Throw in dividends and that’s about another 100% to your return. That’s a return to investors of over 30% a year for two decades!

On Friday the stock broke below $38 a share, a level it first hit 11 years ago. Fannie Mae was loved by everyone. Peter Lynch touted it in his books. It was politically popular. Who could be against homeownership? Unlike the tobacco stocks, which everyone hated.

Here’s perhaps the most amazing stat: Both Fannie Mae and Altria (MO) are projected to earn $4.68 a share next year. Yet, Altria is going for $73 a share, which is close to twice FNM’s price.

Comments

[BillCust:]

What you said is very ignorant of the fact that Fannie Mae LEVERAGED 250x on credit and 40x on interest rate. Credit itself is leveraged 10-20x to house prices assuming 5%-10% down.

There are already talks in the Bush gov't about "Conservatorship". Now you go ahead and dig what it means cuz I sure as hell know you just don't have a skin enough in this game, Jr.

Thanks to people like you I will continue to make big money. Comparing $ earnings to stock price? You are funny sir.

2007 Nov 19 09:14 AM

[Eddy Elfenbein:]

What the hell are you talking about? That was the dumbest comment I've ever seen on Seeking Alpha.

2007 Nov 19 02:09 PM

[BillCust:]

Eddy, think outside the box just for a little while. The dumbass running the book in Fannie Mae has 45 basis points capital on credit portfolio heading into a COLLAPSE in the housing markets of CA, FL, NV, AZ. To top that off , the spread of FNM debt to the mortgages are shrinking and that's GONNA CRIPM Q4 numbers in REAL TERM, not just unrealized Fair value crap.

The damage IS already in. It's just waiting to be reported. You wait and see FRE report tomorrow which will show an utter collapse.

2007 Nov 19 02:24 PM

[Eddy Elfenbein:]

That's a constructive point. I wish you had said that the first time.

2007 Nov 19 03:39 PM

[BillCust:]

Eddy, you there?
You see what I mean?

Lots to learn, friend.

2007 Nov 20 10:23 AM

[Austrian Sc...:]

Not everyone was in love with the GSEs. Many saw them asw an unholy alliance between business and government. A way to privatize profit and social the risk. Many foresaw the risks that we now appear to be witnessing come true.

2007 Nov 26 10:01 PM