Wednesday, January 6, 2010

A Warning for Fannie Mae and Freddie Mac Shareholders: Lessons From Alternative Energy Investing (FRE; FNM)

Freddie's trading down a couple cents at $1.41, Fannie's down 3 at $1.12.
Yesterday's post "Rep. Barney Frank: Lenders Fannie and Freddie now a 'public policy instrument' (FRE; FNM)" sealed the fate of the former GSE's.

We covered Keefe Bruyette's zero valuation in "KBW says Fannie, Freddie common shares worthless", "Fannie, Freddie shares dive on zero-value prediction" and "Fannie's And Freddie's Last Man Standing".

By any measure of GAAP the giants are bankrupt. The life support from the treasury does nothing to alter that fact.

Now that we have the government explicitly saying that the profit-seeking part of the weird old quasi-public mission is history there is no reason to own the stock.

One of the talents required for investing in the area known as political capitalism is the ability to correctly interpret government policy. It is as important as understanding the interplay between a company's cash-flow statements and balance sheets. Maybe more so.

This ability is crucial in cleantech/greentech/alt-energy and helped inform our analysis of General Motors.
Back in February '08 we posted "Short GM to Zero: Obama Auto Team Drives Imports":

The stock was recently $1.86 up nine cents.
From the Detroit News:

The vehicles owned by the Obama administration's auto team could reflect one reason why Detroit's Big Three automakers are in trouble: The list includes few new American cars.

Among the eight members named Friday to the Presidential Task Force on the Auto Industry and the 10 senior policy aides who will assist them in their work, two own American models. Add the Treasury Department's special adviser to the task force and the total jumps to three....MORE

Although the tone was humorous the result was dead serious. We followed up in March with
"GM Shares Crater As Auto Team Meets At White House":
Shares of GM have been getting hammered due to growing speculation the beleaguered auto maker is edging closer to filing for bankruptcy.

The stock dropped as low as $1.28 (down 58 cents/more than 30%). At that price, GM shares were trading at their lowest level since April of 1933.

Today's sell off is fueled largely by fears GM executives are more open to the idea of filing for bankruptcy. Going into chapter 11 would wipe out GM shares, and those who still hold GM stock are thinking it's probably better to get something instead of nothing for their investment....
And again in May with "Hey! How are We Doing With "Short GM to Zero: Obama Auto Team Drives Imports":

The stock just traded at $1.20 down 24 cents (16.7%) on the day. The original thesis still stands.
(don't ya just hate the term "investment thesis"?)
The company was insolvent back in November. The only question was political.
The "Auto Team..." post was just shorthand for which way the wind was blowing.
Originally posted February 23, 2009...

Short GM to Zero: Obama Auto Team Drives Imports

...Since that date the Dow Jones Industrial Average, of which GM is a component, is up 1263.61 points or 15% while GM is down 35.48%. It is going to zero.

Take the hint.
We've had a lot of posts on FNM and FRE, here are the results of a keyword search using the 'Search Blog' feature.
I've been at the market my entire adult life, I'm getting tired of these two.