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To: Real Man who wrote (371762)	7/24/2008 11:25:26 AM
From: Cynic 2005	Respond to of 436258

FRE and FNM common shares are riding the coattails of their preferred and debt. The thinking, perhaps, is that bailing the debt and the preferred shares will automatically bolster the common stock. When you see FRE file for $10 bil shelf, you have to ask: will the offering be in the form of common, preferred or debt? 1. If it is common shares alone, they have to offer 1 bil new shares at $10. Existing shares < 650 million. So, it ain't gonna happen in the form of common. 2. If it is a preferred offering, at what yield? I heard that yield on some of the preferred is over 13%. Yield on the new preferred will be much less. Therefore, there is less incentive to buy the new preferred as opposed to buying from the float. That means that the dividend on the preferred will have to cut to the level at which new (if any) preferred offering. This too is dilution to the common and hence not good. 3. Treasury backed debt offering seems to be the only way to go and hope stock will recover over a period of time. Some FRE and FNM buyers on Yahoo boards seem to think that this bailout package is to buy the common. I think the Feds could care less if the shares of these two go to zero. A Freudian slip by Republican Baehner (sic)on CNBC last week, [exact quote] "In the final analysis, that may be accurate." That was in response to Joe K's comment that Feds will let their common shares go to zero. I wish I haven't watched this bit. Only after I heard this, I decided not to buy FRE and FNM shares anymore. [I made a quick double on FRE on Fri, July 11. I was going to load the boat with FRE at 5.x-6 on last Wed. Heck, I want to be lucky than right.] Letting FRE and FNM go to zero and letting some other financials (like WM) fail is one of the few options Feds have left to retain some credibility and defend a run on the dollar. More about FRE and FNM common: reuters.com "This is a bailout for the mortgage market -- not for Fannie and Freddie shareholders,"