Last month’s issue contained an article on Fannie & Freddie. Well, their stock continues to get pummeled – down 22-24% on Aug 18th alone.  This brings their past 12 month stock performance to a loss approaching 95%. There are now reports that existing share-holders will be wiped out as the odds are increasing that Fannie & Freddie become nationalized. This news rattled equity markets (and to be fair, this is what we see happening in the coming weeks).    
Here’s an interesting question – will they be rolled into GNMA – the existing similar organization that does the same thing but is owned outright by the federal government?. The Government National Mortgage Association is a small group of 70 federal government employees that manage to do the same thing as Fannie & Freddie. 

Interestingly, if you had exposure to the mortgage backed securities market via the Vanguard fund (VFIIX), you made +1.39% in the past 12 months. Not a great return, but then not a 95% loss either. Plus VFIIX has been throwing off interest payments of around 5%, so you really made approx 6% in total returns. VFIIX is a GNMA mortgage back bond fund that we use from time to time.  We rotated out of it because virtually everything related to asset-backed debt has been treated as toxic for the better part of a year.  We will rotate back into this fund in the coming months.