Tom, A total disaster in the market has generally been pretty good for Fannie and Freddie debt securities and pretty bad for their stocks. As long as there is no political attack on their quasi-govt. status, the bonds will look good in a non-inflationary crash, though the spreads with Treasuries will widen. But the stocks require a solid market to generate that fee income. People have to feel secure about their financial futures to pay silly prices for housing, which is where the new financing income is coming from. Any decline in the stock market beyond what we've already seen could severely hamper that reality. Also, in an unbalanced market and economy, as we have been experiencing, these two tend to get distorted geographically. My guess is that any stock market crash will find them heavily into very fat Silicon Valley real estate.
I consider Duramed a 1000% 3-5 year story, which is why I own the stock and not the calls. However, it is a 3-5 year story that could start coming true at any time. My suspicion is that June calls will pay off handsomely, but with the stock at $4 and change, I am willing to buy the cow with her milk. |
