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Post 06 Nov 2011, 6:36 pm

Not sure if there's much demand for an investment topic. Gold is still going up since we discussed it some time back.

Currently I'm wondering about Fannie Mae or Freddie Mac, as a contrarian bid. They suck balls in terms of performance and their share price of $0.24 seems unrelated to reality, but what they have going for them is possibly unlimited government support. And if that really is the case then presumably it isn't necessarily a terrible risk to buy a penny stock that can't bankrupt you out. Also the other major leg in this is that Obama and generally both sides of the regime view eliminating the remaining pretenses of the private side of these as anathema. So if that is indeed the case the government will in time sort these out and the stocks will eventually increase in price rather than get wiped out.

The 200 billion government lawsuit against the banks for dumping toxic assets on Freddie and Fannie at least hold out the hope of these two possibly digging out of there hole.
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Post 06 Nov 2011, 8:13 pm

The gov't would close down fannie and freddie if they could figure out how. Once they do, they won't exist any more, which means their common goes to zero. The odds on that have got to be very, very high that this is how it's going to end. The brand is just so damaged, and the debt to the gov't so high, even if the markets completely recover, it's better to shut them down and give the franchise to someone else.

If you're looking for contrarian risk in housing, I'd look at RDN or MBI, the still solvent, though highly stressed insurers of a lot of that debt. If things really do recover, they will hugely benefit. Fannie and Freddie may still just be shut down.
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Post 07 Nov 2011, 8:32 pm

I agree with you that they should be shut down, have too much debt, etc. but I think the play in this rests in the fact that the government hasn't done that. Are you referencing anything you've read? I'd like to see it.
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Post 09 Nov 2011, 5:24 am

I don't know where I read/heard/learned of this. They provide an important function in a still stressed banking environment. They couldn't be shut down now without potentially serious consequences, so it makes sense that govt has propped them up because they don't have an alternative to perform that function.
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Post 09 Feb 2012, 12:06 pm

Well Fannie is at $0.32 and Freddie is at $0.34. Considering each penny gain is equal to 4% that's pretty impressive for something that shouldn't even exist.
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Post 15 Feb 2012, 3:55 pm

Woohoo! $0.37 on a down day.
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Post 02 Apr 2013, 1:47 pm

Another year later and this zombie stock FNMA is settling in @ $0.90
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Post 02 Apr 2013, 2:06 pm

Good for you! RDN did even better. Up to 10 from about 2 in that time. Relatively small recovery in housing reflects giant gains in these highly levered housing stocks.
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Post 02 Apr 2013, 2:54 pm

Cool. Did you get to enjoy the benefit of having a position in RDN?
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Post 02 Apr 2013, 4:21 pm

I didn't own their common, but I did own their bonds, which nearly doubled as their common quintupled. Not the same risk, not the same reward.
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Post 02 Apr 2013, 6:34 pm

Never hurts to double! Yes as I take a higher risk I put less in to offset my total exposure.