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Fannie Strange



I am pecking this with my left (non-broken) hand, so I must be brief.

The Atlanta Fed last night made more comments about Fannie Mae (FNM) and Freddie Mac (FRE). They remind us that a failure of these companies would force Congress to, "rush through a taxpayer-financed bailout to reduce the threat of 'substantial' financial market instability".

They recommend that Congress give a regulator power to shut down these companies and sell their assets in the event of default.

My comment is that there seems to be a chorus of disturbing comments from the treasury and the Fed about these twin sisters, shots across the bow if you will, warning the markets of risk.

Do they know something we don't? That is almost certain since FNM did not issue a third quarter 10-Q and certainly won't make next week's deadline for their year end 10-K.

For those still buying the stock despite the darkness, you have been warned. The only facts available are what the company has done to restructure their balance sheet. If you follow that trail you will find that everything is positive for the bondholders and negative for the stockholders (convertible and preferred stock issuance, a cut in the dividend, and higher capital requirements which will slow growth). The only other information you have is "reading between the lines" of government statements. Nothing good there.

Perhaps that is why we saw someone buy 20,000 January 2006 40 strike puts yesterday.

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Positions in FNM and FRE

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