Fannie Mae's Weird Rally

I've seen a lot of financial institutions see their stock soar on the day they release atrocious quarterly results, and in fact I had them in mind this morning when I kicked off a blog entry with the words "Fannie Mae's stock is certain to tank today".

Ahem. FNM closed up 8.9% at $30.81 per share, for no obvious reason. Which is not to say that journalists didn't try to find one: both Reuters and Fortune seem to have decided that it was the conference call which did it.

Really? This conference call? I skimmed the whole thing, and couldn't see anything particularly upbeat in there, even after realizing that when the Seeking Alpha transcribers had CEO Daniel Mudd saying that "we will feed stock this book business that we are putting on for many years to come," in fact he was saying "feast on this book of business".

Of course, the reason that Fannie Mae is doing such great business is that at the moment it's pretty much the only game in town. As house prices continue to fall, Fannie Mae continues to lose money - and if house prices ever recover, then it will have competitors again. Yes, the mortgages it's buying now might well be profitable long into the future, but I don't see any of Fannie Mae's management making the case that the profits from its present business will ultimately exceed the losses being suffered in the markets.

Even Mudd himself seemed pretty downbeat at times. "The summary is, we still believe that '08 and '09 will be tough years as home prices return to the trend line," he said. "No news there, but an updated forecast there."

And on any call where an executive starts talking about "creating a significant long-term shareholder value as we ramp everything up to serve our mission," you have to wonder if there's really any substantive good news. There's certainly bad news:

Florida is very over built. It will take a long time to correct. Values continue to fall and delinquencies continue to increase hitting 232 basis points in March up from about hardly 60 basis points in December and up from 49 basis point a year ago.

Still, all that said, I was very wrong: I said the stock was going down, and it went up. Yet more reason, if any is needed, never to listen to me on the subject of stock prices.