Lot's of chatter here and there about problems with Fannie and Freddie or more correctly an escalation of problems and a question of solvency.Not sure what the problem is, we were able to get this baby (pictured to the left) to appraise for $610,000 on a cash out refi. Humor attempt.
I have to believe that the fear exceeds the reality, that is my starting point going in. Of course I could be wrong and in the context of managing client portfolios being right, or wrong, it doesn't really matter.
For now it makes sense to be defensively postured (as I've been writing about) and if things get worse I would add more defense as opposed to sell some offense (offense as defined by the stocks held).
To the topic at hand, an outright failure at Fannie, Freddie or both would greatly increase the chance that "normal bear market" turns out to be wrong. In the WSJ article linked to above there is a mention of increase the loan limits for the GSE's and I remember when that happened I had the feeling that this was not a good thing (I did not write about it so no credibility on that point).
There is now plenty of opinion out there that says the GSE's are de facto insolvent. Of course Jimmy Rogers has been saying this, essentially, for many years now.
Were they to fail, and here I'm not sure what that would mean (shareholder equity goes to zero, the gubment bails out the debt one way or another, loan creation is further impeded as one of many possible scenarios?) I would expect financials take another big tumble, the dollar to take a big tumble then one way or another the dollar would have to be defended (wouldn't it?) which would lead to higher rates.
Of course I have been wrong (or early?) about interest rates for a while as I thought they would have started to normalize a long time ago. If the Fed were to raise their rate but the market, fearing slowdown, kept the rest of the curve low then the dollar would have problems. The Bernanke Fed has done a couple out of the box things so maybe it could pull another rabbit out of its hat in that scenario.
I don't know how right or wrong any of this will be and again it does not matter. Keeping things very simple, if there is call to be defensive I would be defensive and the details of why there is a call to be defensive are less important.
These sorts of things of course matter to the country and society but you can't solve the world's problems with your portfolio. Protecting of assets is paramount.
7 comments:
Roger.
I'll give you that 610K if it includes all that land too. :-)
Never fear, the big boys are on the Freddie/Fannie case:
http://tinyurl.com/6jsujc
For those with little or no life, a live look at the big board:
http://mfile.akamai.com/23042/live/reflector:59900.asx
Stock can go to zero for all I care. But that "Implied" govie backing had better come through on their bonds. I'd be willing to bet good peanuts that 90% of all insurance companies assets are in FNMA, FHLMA, ie....AGENCIES. Those boys fail and the US of A bought the farm. So, they won't fail. We will pony up good, hard earned income of our own, ( government has no money, it's all our money we sent to them ) to bail them out. I'd like some interest on my tax money next year...
Roger- what is your take on the attached article about absolute return using ETF's that was posted today on seekingalpha?
http://seekingalpha.com/article/84375-alternatives-and-absolute-return-with-etfs?source=wl_sidebar
the link is here
as someone else commented it is a lot of ETFs, looks like 20. I saw this earlier today and thought about doing an analysis but there are no percentages given so it would be tough to really look under the hood.
generally i find it is difficult to mix together broad based, like PXF, with single country like EWT, with theme like PIO, with quasi-active like PKW
They all seem to be sectors which are fashionable at the moment, apart from S Korea which has been talked up by Buffett (and thus is probably fashionable too, although I've not heard it) and Singapore.
In my humble opinion you probably couldn't go far wrong using this mix for the next 12 months, although whether it outperforms cash will be the acid test.
Roger I already have several of these with gold, agriculture, grains, BRIC and Treasuries ETFs/funds. Would it be foolish to add one or two others after the market has taken a hammering (like now!)? Although I'm wary of adding any Oil I guess it would be pragmatic not to ignore the sector and I'm of the opinion Real Estate has further to fall, to get nearer historic levels. I've seen Water ETFs touted endlessly...
anon 344,
i blogged one time along the lines you are asking.
to use an extreme example. if you bought Citi at $9 on the way down to $5 in 1990 and held on, after bottoming it went up 3000% in ten years. a crappy entry point turned into a hold of a life time.
That looks like a nice fix-her-upper for some keen handyman. Chimney looks in good shape but it really needs a new front door & it probably could use more insulation inside but you would want to keep that natural look on the lovely plank siding outside. Come to think about it that the same prescription for my investments: ie fix up what you've got to make it better and stronger.
Where did you say that place was?
Willy
Post a Comment