Monthly Archives: August 2009

I have been reading John Hempton’s Bronte Capital blog for awhile and he just posted a series of posts that is a must read. He claims through a thorough analysis that Fannie Mae and Freddie Mac could earn their way out of the crisis and pay back the government in full. This is a stunning contrarian call. This call has profound economic and political ramifications if correct.

Here is a snippet:

Pre-tax, pre-provision operating profits of Freddie Mac are running at over $15 billion. If the government were not demanding 10 percent on its preference shares the companies would be sufficiently well capitalised to repay their interest in 4 years. With the drag of having to pay the government $5 billion per annum it will take a bit over five years. Either way the operating profits of Freddie Mac are big enough to ensure the government gets its money back. If you do the same analysis for Fannie Mae its is even better. However Fannie has less aggressively marked private label securities to market so it has less chance of recoveries from their current marks. The consensus view that the GSEs are forever toast – and forever a drain on the US Government is very likely wrong.

Here is the link to the latest post:

Bronte Capital on FRE and FNM

I follow insider buying and selling quite closely. Right now there is basically no insider buying and it has been like this for at least 2-3 months. It has completely dried up. Last week, there were 10 buys for $10 million and 136 sells for $1.2 billion.

Thanks to zero hedge for this top down view: Lots of selling, no buying