Taking The Load Off Fannie
Conflicted over your feelings for Freddie and Fannie? You know they were cruel to Jamie Dimon so how do you trade when Citi’s Bradley Ball says “buy”?
Poor Jamie Dimon. Write-downs at JP Morgan had been modest compared to peers, however now Dimon’s bank says its investments in Fannie Mae and Freddie Mac preferred stock dropped by half to $600 million this quarter.
In a filing with regulators on Monday, the bank said the decline could affect its earnings. The precise amount of losses for the third quarter is difficult to determine, given the oscillations in the preferred shares' values, it said.
However, at such low levels Citigroup analyst Bradley Ball sees value in Fannie Mae and Freddie Mac. Although he admits outcomes are uncertain he expects shareholders' interest to be preserved. He cut his price target on Fannie shares to $9 from $21, and on Freddie to $6 from $16, but he rates both stocks "buy."
I wish I knew how Citi was making its forecast, says CNBC’s Steve Liesman on Fast Money. As far as I can tell nothing has been decided with Freddie and Fannie and nationalization is very much on the table.
Liesman thinks the “real” issue is common stock versus preferred. If the government comes in it would probably wipe out common equity, he says. But there’s talk that might not be the case with the preferred.
Bottom Line: Despite with Citi says all options remain on the table.
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Trader disclosure: On Aug 25, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (CSCO) Call Spread, (RIMM) Call Spread, (TIE) Call Spread; Pete Najarian Owns (AAPL) And Is Short (AAPL) Calls; Pete Najarian Owns (XLF) And (XLF) Puts And Is Short (XLF) Calls; Pete Najarian Owns (LEH) Put Spread; Pete Najarian Owns (MS) And Is Short (MS) Calls; Jon Najarian Owns (AAPL), (C), (RMBS); Jon Najarian Owns (TIE) Calls; Jon Najarian Owns (BRCM) Call Spread; Jon Najarian Owns (LEH) Put Spreads, (STI) Put Spreads; Terranova Owns (YHOO), (AAPL), (RIMM), (SA), (VLO), (EOG), (NOV), (POT), (X), (KOL), (GS), (FCX); Terranova Owns (AIG) Puts
Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd.; Phoenix Investment Partners Owns More Than 1% Of (ABD), (ARE), (BRE), (CNTY), (CLB), (OFC), (DLR), (ESS), (EXR), (FL), (IAT), (IGE), (LNET), (MAC), (OIIM), (PSPT), (DBC), (DBV), (SLB), (SKT), (BLV)
Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO; Phoenix Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
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