Fannie Mae-No Politics (FNMA)

[Vi]

I'll reiterate that it is and will continue to be a very
difficult market this year, in both directions. Technicals
help somewhat, but there are still a bunch of hedge funds
betting in every possible direction. I believe there was
a hedge fund bubble, so that number will have to be reduced,
which means we'll continue to have a lot of swings both ways. I think the
GSEs are severely underpriced given their current status, so
investment is warranted. However, it's not gonna be easy (see
above) - one day we could be up 20% the other day down 15%.
You can find a lot of severely underpriced stuff in this market,
and that's probably the only way to play it, as technical
plays are dangerous. Most funds work off technicals.
When FNM/FRE finally moves, it could stay overbought for some
time. My guess is $3-7 is where they should be, without R/S,
given what they are (government enterprizes that own the mortgage
market). There is substantial risk of further deterioration of
the crisis. The key risk is the deterioration of the government
bond market against the Fed, which will put an upside pressure
on interest rates and the mortgage rates, scrambling any
possible housing recovery. The treasury will issue a lot of
bonds this year to finance the stimulus.