Wednesday, October 30, 2013

What is Stock Market?

What is Stock Market? When used in general conversation, the term “stock market” often conveys a loose sense of a single market on which companies trade their securities. In reality the “stock market” is an overarching term that typically refers to the numerous stock exchanges operating domestically. The most common of these are the New York Stock Exchange (NYSE), NASDAQ, and American Stock Exchange (AMEX). There are also numerous international stock exchanges around the globe including the London Stock Exchange, Kuala Lumpur Stock Exchange, Bombay Stock Exchange, and Toronto Stock Exchange to name a few. Nevertheless the common use of the phrase “stock market” will typically exclude the financial actions taking place on these exchanges because Americans simply don’t have access to them.

What is Stock Market - the meaning? Yet even amongst domestic stock exchanges, there are divisions that distinguish between each trading place from the other. Each stock exchange typically maintains its own set of listing requirements and there are levels of prestige that surround the well-known exchanges. It is considered a privilege for instance to be trading onto the NYSE, and invited companies must typically reflect a similar level of prestige in regards to the size of their operation. The NASDAQ and AMEX are typically stepping stones for public companies aiming for the NYSE and often serve to be respectable trading grounds in themselves. Some stock exchanges like the Chicago Stock Exchange, Philadelphia Stock Exchange, and Arizona Stock Exchange are rarely even mentioned in passing.

Sunday, October 20, 2013

Is Fannie Mae (FNM) good investment?

Is Fannie Mae (FNM) good investment right now? We’ve held off on this one for some time, but it has come to a point where we currently believe that the moment of truth is at hand and it’s time to make a stand in our own belief.  In our opinion, Fannie Mae, the Federal National Mortgage Association (FNM) has reached near-bottom levels.  Having fallen to floor prices not seen since the late 1980’s/ early 1990’s, Fannie Mae has recently seen share prices down over 80% in the last 12 months alone.  With today’s opening price of $6.68, a massive panic accounted for the discount of the company that opened under speculation of a government takeover bid as investors ran to buy the company’s bonds & ditching the company’s stock.

But as the volatility increases on recent action, one can only ponder the irrationality of the market in respects to the tangible fiscal situation of the company. With fears of insolvency sparking fond memories of the recently departed Bear Stearns, the question posed remains to be whether or not Fannie Mae will likely discover itself to be in such a similar situation.  It is our position that Fannie Mae will not and absolutely cannot ever be found insolvent.  The consequences of such would lead to more dire issues than a mere housing disaster and credit crunch.

But will the government take the company over and place the burden upon the taxpayer?  After all, this is the current fear that sent today’s share price opening near a 50% spread of last night’s close.  In an extreme outlook, the possibility remains viable… but impractical.  After all, Fannie Mae was converted to a private corporation and removed from the federal budget back in 1968 for a good reason.  Likewise, there are many more feasible options for the government to invoke that that would be less intervening than a full-on takeover.  Revising the line of credit the GSE’s have with the Treasury Department and/or opening a credit line with the Federal Reserve are two possibilities that would likely be looked upon prior to any spontaneous annexation of the company.

Last of all, analysis of FNM’s ability to issue debt is addressing the frontlines of the situation facing Fannie Mae.  Over the last week, we’ve seen that there was little trouble for the company to issue short-term debt.  Due to its overwhelming significance to the housing market, the amount of access Fannie Mae has had and continues to have in regards to raising capital is without a doubt abundant throughout the world.  Fannie Mae has more sufficient capital at its disposal than its unfounded comparison of Bear Stearns because of its all-important role on the backbone of the U.S. economy.  At the current price of $10.25, there is definitely room to go further south as witnessed by the opening of today’s market at $6.68.  But as a long-term investment worthy of attention, we must recommend this company now at the cross roads of fear and irrationality while investors slowly come back to their senses.