|
FANNIE
MAE PREDICTED THRU 2004 AND 2005 Background: WASHINGTON, June 15 (Reuters) “Rapid expansion of the assets of government-sponsored mortgage finance enterprises Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) could have a destabilizing effect on the U.S. economy, Federal Reserve Chairman Alan Greenspan said on Tuesday. The size of the subsidy, that is debatable but I am sure is there, creates a problem of expanding assets -- mortgage assets or indeed any set of assets -- in a way which could become destabilizing if it continues on very much beyond where they are, because they have become very large financial institutions," Greenspan said in response to questions from the Senate Banking Committee. Research Results: The weekly closing prices from Jan 1977 were used in the dataset to determine the key cycles in Fannie Mae’s price pattern. The largest cycle currently in the price data is a 133-week cycle which is now going down. Chart 1 shows the prediction of FNM from the period beginning in March 2003 thru June 2004. The chart was updated quarterly but it was found the overall waveform matched over a period of about 25 weeks before a trend line adjustment was necessary and a significant adjustment was necessary in 2003 indicating a possible intervention by the Fed in limiting the growth of Fannie Mae which is just being acknowledged by Mr G. Chart 2 shows the 133-week cycle in FNM from 1995 thru 2004. The amplitude of this major cycle was clearly growing and correlates highly with the expansion of M3 money supply beginning in 1995. The growth in the amplitude of this cycle was clearly constrained by a “major financial action” to limit its growth which strongly suggests the Fed as the source of the action given the magnitude of the asset portfolio of this GSE. It is possible the accounting scandal at Freddie Mac in mid-2003 caused the Fed to take immediate action to protect a subsequent failure at Fannie Mae. Anytime a major cycle begins a significant growth in amplitude it will result in a “crash of the equity” without a major intervention to “interrupt the cycle” – meaning “cash infusion.” Chart 3 shows the predicted future price action of FNM if the current long-term cycles continue to hold. There is a coming major downside trend in this “quasi-stock” which tends to follow other predictions of a coming drop in the NYSE Composite Index by mid-2005 which could be followed by another rally – another refi round in late 2005? If the trend line falls as a result of the drop in 2005 this rally could simply become a sideways trading pattern and not a real rally. Chart 4 presents the best fit to a prediction for 2005/2006 for FNM which suggests it may join in a bear market rally after August 2005 with a possible final top in mid-2006. This suggests the end of the “refi-game” as well as the real estate market “bubble” will come to a clearly defined end by mid to late 2006. Summary: 1. As a “pure speculation” regarding the behavior of the 133-week cycle, FNM and its shareholders may have avoided a “bullet” in early 2004 by the Fed intervening in FNM sometime in Fall of 2003 in a major way to prevent a subsequent crash in FNM. 2. The party may be over for FNM for 2004. It appears to be making a top and there is no clear reason on the basis of stock cycles to remain in this equity thru July 2005. However, a nice rally may be in the offing after July/Aug 2005 if the waveform holds – stay tuned for subsequent “updates.” 3. There is a coming final top to FNM in 2006 (Feb to May?) for a long time to come. It may or may not be higher than the current top in 2004. In general, we found that tops in FNM tend to occur with the phasing of the 19, 25, 36 and 49 week cycles (monthly and quarterly?). This suggests a possible date for the end to the real estate “mania” or coming absolute top in the US real estate market. 4. Beware of the late Nov 2004 or early Dec 2004 timeframe in this equity because the 133-week cycle will be at/near the point of maximum downward acceleration and this may result in a significant coming drop in the stock price as well as “chaotic trading.” 5. Mr G is probably willing to speak out at this point about the “rapid growth of assets” could cause a destabilizing of the US economy since it appears he clearly “solved this problem over 133 weeks ago” by the data. This means Mr G is very conservative in any remarks he makes and has the “game in hand.” 6. Funny thing, Mr G did not make any comments about the expansion of the M3 money supply since 1995 causing a destabilizing influence on the US economy. This is probably because the fiat currency game cannot currently remain stable without a continuing major expansion in M3 to prevent deflation. 7. Congress has already “bought the farm” on Fannie Mae despite what it says to the contrary. It is already “too big to fail” but it is a holding tank for commercial banks to offload risk with no liabilities – very slick move.
CONTACT
INFORMATION |
