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Fannie Results


FNM reported today better bottom line results. Their net margins fell. The company made more profits by expanding their mortgage portfolio: the negative effect of lower margins was outweighed by higher revenues. FNM has responded to lower spreads (higher volatility in the bond market has been a higher than expected cost to the company) by increasing their balance sheet through increased leverage. The company's last 10-K showed leverage of 62 times; the next 10-K will likely show higher.

I have commented on this strategy as applied to hedge funds: lower returns increased through higher leverage. As applied to any financial institution (whether a hedge fund, a bank, or FNM), higher leverage means higher risk.

As long as investors are willing to ignore the risk side of the equation, they can be happy with the returns.
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Position in FNM

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