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I See Dead People


What was that price target again?


Editor's note: Be sure to participate in the Minyanville/Ruby Peck Foundation gold coin auction to invest in a piece of history and a child's future.

Lost in yesterday's reports of new "pervasive" accounting irregularities was the news that Aunt Fannie's (FNM) play stash - a.k.a. its assets portfolio - continues to shrink at a 20% plus clip.

The portfolio is now down to about $770 billion. Yet, the Street "analysts" still carry EPS estimates of $7.58 for this year and $6.65 for '06 vs. their guesses of $7.10 and $7.20 in January of this year. Leaving aside how these fortune tellers can make any guesses as to earnings when the company itself does not know how many losses are buried under the floorboards, shouldn't common sense suggest that the shrinking of the asset base, from which most of FNM's earnings are derived, will necessarily result in a shrinking of EPS?

I state the obvious only because given the reactive behavior of FNM's stock price - the last leg down started when the dividend was cut, even though such cut had been openly discussed for months - the next leg down just might start when EPS estimates, and the "BUY" ratings with $80 price targets, get re-adjusted south.

Chart wise FNM is not going to find much support until $33 - a very minor consolidation area going back to 1996 - and then the $19-23 range, a base from which it broke out back in '94. Incidentally, at the end of 1994, FNM asset base was about $268b and that year FNM earned a $1.94/sh, with a 2-10 and 2-30 yield curve roughly as flat as today.

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Position in FNM
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