bye bye Fannie and Freddie and other gibberish

Well -- its time for my once every few weeks post -- hope to get a little better about posting soon.

FNM and FRE dying today -- about time. What sucks is not making any money off of this -- what has been an obvious call -- an understanding of economics was all that was necessary to know they would eventually have to be destroyed by the system they created -- there is no one in the mortgage finance chain that cares about anything -- everyone makes assumptions but no one really checks or really underwrites -- maybe now given all that's happened but not last year when it mattered. Think about it -- the originator doesn't care whether you are going to pay back your loan or whether the home value can support the mortgage -- they are going to sell the mortgage to fnm or fre or some other securitizer. FNM or FRE doesn't care because even know they have a guarantee fee they are nationally diversified, only guarantee loans with 20% down payments and housing prices have never declined significantly across the board in this country.

Oops -- guess we can throw that one out. nationally diversified doesn't matter much when all houses are declining. 20% down payments don't matter when the home values are dropping by that much especially given the cost of carry -- i.e. a foreclosed home has lots of costs that must be covered and included in the loss estimates -- everything from taxes to fixing what's broke.

the person buying the mortgage securities doesn't care about credit risks either because they assume someone else did it -- like the originator or fnm or fre. they also assume they have the down payments and the national diversification, etc.. etc...

I still think deleveraging is occurring and that it will impact the economy and the markets. the only risk is that stocks already reflect that but I don't see that as being possible. international growth is slowing and that will pressure exports too.

Here are the stocks I want to buy more of --

FLIR -- they have solid demand and rapid innovation -- there is almost no limit to the number of applications for their infrared tech. Latest one I heard is building energy conservation as well as safety. They can use the temp readings from the infrared cameras to know where all the bodies are in the building -- lets them adjust the HVAC and the lighting to where the bodies are. Plus in an emergency, they can determine where the bodies are or were prior to the emergency. That might help the emergency responders focus their saving efforts.

UEPS -- bought a company that licensed their early tech to offer hardware and software within Russia and the FSU. This broadens their markets to include areas outside of Africa -- its a big deal yet the stock didn't react the day of the announcement because of EPS fears (they reported the next day). EPS report went well so the stock has jumped from the $24 to $27 level. Still love the story -- its going to be huge. Haven't bought more yet but on a pull back towards $25 I will.

LH -- at the right price -- closer to $70 I would love to buy more. At $75 its a little harder. While the last quarter came in a little light, the stock's valuation is low and the secular drivers are at their back -- its all about increased testing using genetic techniques that will improve outcomes. They are one of the biggest beneficiaries of ILMN's technology yet they sell at a fraction of ILMN's multiple.

TECH -- more genetic growth at a reasonable price. I think this one will pull back more -- maybe to $70.

What I would prefer to trim at the right price:

FDS -- anytime I can sell this with a 23x PE in this kind of environment I probably will. great company but they sell to financial services firms.

POWI -- $30 would be nice but its closer to $25. its a great story but is it as good as FLIR or UEPS? doubtful.

ILMN -- great story but its too big a position size given the risks that any slowdown will be met with sharp selling pressure. something between $85 and $90 would be great.


A few other buy ideas -- MXWL, ERII, SCHW

MXWL -- they are signing deals and winning more business but now the question is at what margin -- that was the big miss last eps report. I might average down if the stock gets a 10 handle to it.

ERII -- still researching and thinking about this one -- very interesting technology but its business model is kind of weak -- all a bet on fresh water and the need to find more of it -- or in this case to make more of it. the problem with the business model is that there is no annuity to the business -- just a razor not a razor/blade business.

SCHW -- its all about asset gathering because trading commissions only account for a small percentage of schwab's revenues -- maybe 20% vs. the rest which come from asset management and net interest income -- both of which are driven by the amount of assets within schwab. they will be hurt by a fall in the markets but not as much as a fund company like AB does.

good night.