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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (1565)	10/18/2003 6:31:34 PM
From: mishedlo	Read Replies (4) \| Respond to of 110194

I do not believe FNM or FRE is without risk. I believe you misunderstand Mauldin if you think that he thinks these are without risk. What he was saying was that FNM had to pay a great deal to hedge that risk. FNM could indeed have a disater..... BUT.... Will such disater cause the FED to raise short term interest rates. I do not think so nor does he. If that premise is correct, then betting against the implied 1.5 rate hike should be a winner. I would not do so over leveraged in futures because if there was a "temporary" spike in thos efutures caused by some incredible FNM F*up I would nnot want to get wiped out (yet correct in the end). Options on the futures have a predefined risk and one merely only needs to be eventually correct by DEC of 2004 that US short term interest rates are NOT going to rise by more than let's say 1/4 - 1/2 point. There is a way to play that with options. I am not sure why but the FED went out of its way TWICE last couple weeks saying that FNM is NOT guaranteed by the US Govt. Is there a freaking problem brewing that caused those statement? I have no idea. Clearly FNM lost $ this last Q, regardless of what they posted. Over $1B in derrivatives went up in smoke, yet wall street cheered their "earnings". I do think one day that FNM will nosedive hard. It could even "fail" but Mauldin does not think that would be allowed. I do not know. Being to beig to fail and "risk free" are decidely different IMO. What if FNM took a 65% haircut and had to be restructured? Technically not a failure, but certainly not pretty. Bears have been betting against this POS for years however and it just keeps on ticking. That does not make it "risk free" It could be "too big to fail" however. If FNM has caused an imbalance that has forced up fed fund interest rate hikes then I want to take advantage of it. But.... I want to know what I am missing if anything, and still struggling to get answers about exactly what EuroDollars are dependant on. M