by Jack Lee
Two entities, Fannie Mae and Freddie Mac, the nation’s mortgage bankers, have been on a rampage back from the depths of near financial collapse. If there is a bright spot in this recession, this is surely it. Buoyed by government loans and a guarantee they will not fail, investors finally came to believe…hey, they really won’t fail! And they will continue to serve the mortgage needs of the world’s richest nation. That makes these two companies bargain basement buys of unprecedented value amid a plethora of financial disaster stories. It seems almost unimaginable that just 24 short months ago Fannie Mae stock was selling in the $60 range and that it would collapse to a low of just 30 cents last week. Today it seems just as
unimaginable it would climb 100% in a matter of days. Fannie Mae (FNM) was up in early morning trading 57% in an otherwise lackluster, mixed market. The U.S. central bank said on Tuesday it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system. That about matches the drop in holdings of agency debt and MBS by foreign central banks since the summer. The Fed also said it would buy $500 billion in MBS issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. It’s brother company Freddie Mac (FRE) was up 47% today. But, that’s not the real story here, it is about investor confidence returning to the market place, selectively of course, but it’s slowly returning. Stocks ebb and flow and there will be down days.
Confidence is a word you don’t hear much about in this besieged stock market. So it’s remarkable and refreshing that institutions and individual investors are coming back to shop where it’s almost a sure thing. There are few times in a person’s life when you could have bought a stock and doubled your net worth in two days, but that’s exactly the scenario now on some horrifically oversold stocks. Citigroup is another example of a skyrocket stock. Just days ago you could have picked up Citi (C) for $3 and change and today that stock is selling for nearly $7.
Unfortunately, the overall market remains precarious for even the most experienced investor. The near term prognosis is filled with gloom and doom. In fact, after this technical rally is over, a lot of downside is to be expected. Corporations are in survival mode and they’ve generally cut back hiring and spending and some have engaged in mass layoffs. Cisco, a darling of the tech stocks, stunned the market yesterday by saying it would lay off its US employees for 5 days to cut expenses. Other giants, like Bank of America (BAC), have seen their shares drop to lows not seen in decades. BAC is currently down over 4.5% in early trading with a low of $13.96 so far today and an all time decades low of $9.95.
How long will the current rally last? Some think it’s over already. Retail sales are off, durable goods down, real estate is still posting double digit declines each month and jobless forecasts were underestimated by the Feds and it came in twice as high as expected. But, there are still winners and in the winner’s circle so far today is Ford and GM, Ford is up 21% and GM is up 30%. These spikes are predicated on an expected bailout and new business plans going forward to regain market share and viability.
DISCLAIMER: The above information is the author’s opinion and any investments should be done with your own due dilligence in consultation with a licensed investment professional. The author holds financial positions in GM, Ford, Citigroup, FNM, FRE and BAC-X.