Stocks in the dumpster for about five weeks now. June is off to a bad start. The talking heads and stock touts are running out of positive things to say. I’ll try to chime in with something positive.
There are plenty of stocks that are still up for the year. Some big name like Netflix (NFLX +55%) and Electronic Arts (ERTS +56%) are examples. I went searching for the best performing stocks YTD. You’re not going to believe who’s on top of the list. The Preferred shares of both Fannie Mae (FNMAM) and Freddie Mac (FMCCM) have gone on a tear. They are up as much as 500%!
I’ve been following the busted Pref of the Agencies for years now. I can’t offer up a good reason why they have quintupled this year. There is no news that I know of that would account for this. At some point, the legal status and the rights (if any) of the Pref holders will be addressed. I don’t see that happening anytime soon.
The answer is always the same. “More buyers than sellers.” The “why” of it, I can only guess at.
-Computers are running the float on the shares.
The price level is (sort of) irrelevant.
-Distressed paper traders are running the float.
They gun prices to make profits.
-There is some short covering.
A distinct possibility.
-A hedge fund or two is making a Hail Mary bet.
-The market for this paper is out of whack and no one really gives a damn.
-Treasury (or the Agencies themselves) is bidding (quietly) for the paper.
We better not find out that it is the last guess on my list. I would not rule this out as a possibility however.
I am absolutely not recommending that folks dip their toe in this water. It could well be a trap. If you don’t own this already (at a few bucks lower), go on to something else.
My first article on this was July 14, 2009. This is what I had to say back then.
The common stock will be worthless. The Preferred stock is going to be tendered for. My guess on that price is in the $5-10 range.
At this point that’s looking like a decent call.
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Freddie Mac will be profitable this year according to an FHFA report from October. Gator capital has explained this. Kyle Bass has also been buying.