Ogilby said once, if each of us hires people who are bigger than we are, we shall become a company of giants. I wish you all got bigger this year and continue to aim high. Merry Xmas. -Yuan
Brought 50 Shares of FNM at $35.20 yesterday. The market cap was at its intrinsic value according to my calculation. Fannie Mae has little chance going bankrupt since it’s government sponsored. I want to take advantage of this bad-beat housing market. Country Wide is the leading company in this area, but its status look pale compare to FNM. FNM has about 6500 employee, compare to 54000 in Countrywide, and FNM has more equity and income, which makes it highly efficient and low cost and I believe it will rebound faster.
To understand when the market is going to turn upward, we must understand what the current problems are with sub-primes, the root cause — liquidity. In the midst of this crises, investors are lossing confidence, avoiding and dumping mortgage related investments in fear of defaults, which can possibly come from refinance out of lower ARM, lower of house value that yield to a high loan-to-value which negatively affect home equity lines of credits.
With that in mind, here are some signs to look for:
1. Means to prevent default: lower mortgage rates, incentives or regulations that stabilize mortgage rate or shorten ARM and new refinance gaps, increase in borrower credit, and investor incentives to help boost investor confidence levels.
2. increase in house price, create more credit for equity borrowers.
3. Lower unemployment rate or big increase in inter-city moving to create housing demands and liquidity.
Here is a quote from the newest book I just finished from the one and only, Peter Lynch
”you could make a nice living buying stocks from the low list in November and December during the tax-selling period and then holding them through January, when the prices always seem to rebound. This January effect, as it’s called, is especially powerful with smaller companies.”
consider this in addition to our current correction makes it a worthy opportunity. GRMN, FNM, and CREE are possible candidates for me.
New Book Review Up: Beating the Street
I know we should not guess at future market trends because in the end we’ll be wrong about half of the time, and that make us feel like a nincompoop. Nevertheless, I want to start make some educated speculations and in the end, I will keep a record and see so how good I am at fortune telling, hence the new category of speculations.
The FED continuing efforts to lower rates is not enough to stop sub-prime crisis by iteself. What the market need is an internal industrial correction. The recent influx of major investors taken interests in badly beating financials will start a market momentum while easing off the sub-prime problem. We might see another quarter or two of losses from financials sectors, but with increases in numbers from new economic indicators and buyers starting to take advantage of bargains in the housing market and with the influences of the Chinese growth and its next year Olympic games anticipations, I believe the bull is getting ready to charge. My guess? before Xmas.
New Book Review Up: Common Stock Uncommon Profits