This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Fannie Freddie Preferred Rally Takes a Breather

NEW YORK ( TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) preferred shares opened a tad lower Tuesday, despite fresh reports of hedge funds involved in the trade.

The Freddie Mac "Z" shares (FMCKJ), one of the more widely traded preferred issues, were down 2.46% to $4.75 in early trading Tuesday, close to 20% of their $25 issue price. While the chance to quintuple one's investment if these securities are paid in full is still nothing to sneeze at, the shares' rally has been accompanied by relatively little in the way of new developments, and this investment remains a long way from a sure bet.


Freddie Mac "Z"s are up about 1700% since 2010 -- no, that's not a typo -- and they have rallied more than 50% vs. a 24% loss for Freddie Mac common shares, since my colleague Phil van Doorn and I debunked the common stock rally by pointing out in a pair of March 21 stories that the preferred shares represented a far better investment.

In fact, this has always been fairly obvious to me ever since I first started reporting on hedge fund involvement in the investment in January 2011. It was so obvious to me, in fact, that I never bothered to argue the point, until the nutty common stock rally got everyone's attention.


Fannie and Freddie preferred shares remain an intriguing play, and there are some good arguments as to why they may pay off even if the GSEs aren't privatized.

Tuesday morning's downtick in the shares came even after Bloomberg News reported that hedge funds Paulson & Co, Claren Road Asset Management and Perry Capital own preferred shares and are lobbying to privatize the Government Sponsored Enterprises (GSEs).


However, I broke the news of the lobbying activity three weeks ago, and the mere fact that big hedge funds own preferred shares and are lobbying for a particular outcome doesn't mean it will happen. Indeed, Paulson had been rumored to own GSE preferred shares for as long as two years, a thesis that always seemed plausible since Robert Lacoursiere, one of his former analysts who now runs his own hedge fund, has long followed the companies.

The only certainty when it comes to Fannie and Freddie preferred shares is their ultimate value is likely to hinge on either Congress or the courts. In other words, investors holding out for $25 a share won't get there without a very long wait.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FMCKJ $4.01 0.00%
FNMA $2.44 0.00%
FMCC $2.36 0.00%
AAPL $123.25 0.00%
FB $83.30 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs