Four at Four: The Real Contrarian Move
Posted by David Gaffen
Bailout
# Any real contrarian investor with intestinal fortitude would be out there buying shares of Fannie Mae and Freddie Mac right about now, preferably both — the kind of gambit that would be forever hailed, like the defense of Thermopylae by Leonidas and his 300 Spartans, or remembered as disastrous, in the tradition of Pickett’s Charge. “I wouldn’t touch them with a ten-foot pole,” wrote Charles Payne, founder of Wall Street Strategies, in an emailed response to this question. But why not? After all, if it takes a government bailout for a couple of analysts to finally downgrade shares of Fannie and Freddie from existing “buy” ratings (Citigroup and Lehman Brothers, looking in your direction), and if major shareholders like Legg Mason’s Bill Miller held fast in the face of increasingly bad signs, shouldn’t an 83% and 90% decline in the stocks, respectively, bring out the buyers? The stocks closed at 88 cents and 73 cents a share, implying some sort of residual value, no? “Think about the long chain of events that must occur for these to have any value again,” says Barry Ritholtz, director of equity research at FusionIQ, dismissing the idea. The series of events would likely include several years of the government absorbing losses while mortgages are sold, profits are re-established, and the housing market recovers. Suffice to say that, well, it might take a while. “It’s a lottery ticket,” says Todd Harrison, founder of Minyanville.com.
Posted by David Gaffen
Bailout
# Any real contrarian investor with intestinal fortitude would be out there buying shares of Fannie Mae and Freddie Mac right about now, preferably both — the kind of gambit that would be forever hailed, like the defense of Thermopylae by Leonidas and his 300 Spartans, or remembered as disastrous, in the tradition of Pickett’s Charge. “I wouldn’t touch them with a ten-foot pole,” wrote Charles Payne, founder of Wall Street Strategies, in an emailed response to this question. But why not? After all, if it takes a government bailout for a couple of analysts to finally downgrade shares of Fannie and Freddie from existing “buy” ratings (Citigroup and Lehman Brothers, looking in your direction), and if major shareholders like Legg Mason’s Bill Miller held fast in the face of increasingly bad signs, shouldn’t an 83% and 90% decline in the stocks, respectively, bring out the buyers? The stocks closed at 88 cents and 73 cents a share, implying some sort of residual value, no? “Think about the long chain of events that must occur for these to have any value again,” says Barry Ritholtz, director of equity research at FusionIQ, dismissing the idea. The series of events would likely include several years of the government absorbing losses while mortgages are sold, profits are re-established, and the housing market recovers. Suffice to say that, well, it might take a while. “It’s a lottery ticket,” says Todd Harrison, founder of Minyanville.com.