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Commentary on national and local events from the standpoint of a Trenton city resident and state worker.

Tuesday, March 19, 2013

FNMA - Bottom Floor Get Rich Opportunity or Another

Case of Dead Cat Bounce

I know I haven't written here in a long time.  A lot has happened since my last post.  For one thing, the Trenton mayor got indicted for extortion and the Hamilton mayor got sentenced to three years in Club Fed for bribery.  Count one good government award for a Democrat (Trenton's Tony Mack) and another good government award for a Republican (Hamilton's Bencevengo).
 One thing hasn't changed.  I still work for the Office of Research and Information at the New Jersey Department of Labor.  And part of my job involves monitoring and writing about building permits and the housing market.
Although I work in the field of economics, very seldom do I do any research which would help me or anybody else make money.  It may be a popular conception that all economists work as financial analysts for Wall Street helping millionaires to become billionaires.  Not so, at least for government economists anyway.
However, that doesn't mean that I haven't discovered a money-making factoid here and there.   More playing fly on the wall watching the situation develop more than anything else, but I have acted a few times on what I have seen going on in the state's housing market.
In the latter months of 2011 I noticed building permits started increasing again.  I believe in the fall of 2011 Hovanian (HOV) hit a low point of about $0.80 a share.  Rumor had it that the homebuilder was about to file for bankruptcy.   In 2012, this homebuilder and most of the other large builders rose from the dead.  The HOV common stock now trades over $6.00 a share.
Not that I am a financial genius or anything.  I once had 3,500 shares of HOV.  I traded it and screwed up more often than made money.  I still have 1,400 shares though.
I missed out on most of the gain to date in homebuilding stocks.  HOV is the weak sister of the large homebuilders and I could have done better with DR Horton or Toll Bros or something else.  
Well, new year, new money making opportunity.  The Federal National Mortgage Association (Fannie Mae) is the nation's largest source of mortgage money for banks.  And compared to the homebuilders, Fannie Mae is a late bloomer.  In early 2008, FNMA traded for about $60 a share.  By early 2009, the collapse of the housing market took its toll on the company.  The stock price fell below a dollar a share and the stock was delisted from the New York Stock Exchange. 
Was it Rest in Peace for FNMA?  Not exactly.  Although the stock has remained below a dollar a share ever since, the company remained alive.  Now the company may be pulling off a resurrection, now that home construction has reached his highest level in 4 1/2 years.  And the revival of housing is finally being reflected in the stock price.  Last week FNMA could be had for about $0.25 a share.  As of the market's close today, the price reached $0.73, almost a three-fold gain.
I got in on this deal yesterday at $0.50 a share for 2,300 shares.  Now let's hope FNMA really is on the mend, and is not just another flash in the pan.  After all you probably know what those Wall Street types say about companies which are about to go under.  There is something call the dead cat bounce.  When you throw a cat off a high building it bounces when it hits the ground.  Of course by this point the poor creature is already dead.  It only bounced because of the energy of the fall.  Once this energy leaves, the cat remains forever motionless.   The same thing with stocks.  The stock price of a dying company crashes as it nears its end.  However, just before the company goes under, the stock price oftentimes bounces back.  Of course, once it finally goes under the stock is worthless.
Dead Cat Bounce or money machine?  Only time will tell, but at least its a better bet then say investing in a rare earth mine in Mongolia.

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