What Is Fannie's Fate?


Traders up and down Wall Street are grappling with scandalous thoughts perhaps best kept to themselves. What would happen if they got in bed with Freddie and Frannie?

No, not like that. We mean shares of Freddie and Fannie are trading at such depressed levels that if they bounce back, it could be quite a bounce, indeed.

Of course the odds aren’t great. Just this morning on CNBC billionaire investor Warren Buffett said that while Fannie and Freddie have looked for cash from the private sector, it won't be enough to save them. (In other words Buffet thinks the government will have to step in.)

However, Freddie Mac spokesman David Palombi has been quoted as saying "senior management has been talking with a wide array of possible investors this week," suggesting they are sounding out private-equity and other investors about buying its shares.

Both the institutions were conflicted explains Richard Baker, Managed Funds Association CEO & president on Fast Money. “On the one hand Congress said to them help low income first time homebuyers by providing access to credit they otherwise couldn’t get and on the other they were being pressed by shareholders to get double digit rates of return.”

Baker feels the only way to extract Freddie and Fannie from the current quagmire is to “allow these enterprises get on their feet without any restraints on their products.” However, because so many individuals, banks and pension funds hold Fannie and Freddie stock he thinks every avenue will be exhausted before shareholder value is lost completely.

Joe Terranova reminds the traders Freddie and Fannie have to roll over debt at the end of September and the market is unsure whether they will be successful.

“It’s a question if they can lay out a legitimate analytics to convince investors that their assets are real,” concludes Baker.

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Trader disclosure: On Aug 22, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Karabell Owns (AAPL), (FMCN), (GLD), (GOOG), (JPM), (NOK), (SLB), (RIO), (WFR), (CHL): Tatro Owns (C), (GS): Quint Tatro Is The Principal Of Tatro Capital: Tatro Capital Owns (AAPL), (FXI), (QQQQ), (SPY), (T), (XLF): Jon Najarian Owns (SCHW) Calls, (AKAM) Calls: Terranova Owns (CME), (FCX), (YHOO), (SU), (AAPL), (EOG), (KOL), (GS), (NOV), (POT), (RIMM), (X), (SA), (VLO): Terranova Owns (AIG) Puts; Terranova Is Long October Crude Oil Futures; Terranova Is Long Crude Oil Time Spread (Long Dec. 2008, Short Dec. 2012); Terranova Is Long Sept. Mini SP Futures

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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