FYI, Bill Nygren had a top 1% 10-yr performance. I pay a great deal of respect to long term track record, but it doesn't mean those with a good long term performance won't make HUGE mistakes. Bill Nygren, in his latest interview, sounded a lot more humble and admitted what he got wrong on Wamu and reassess Wamu's valuation in a different and much more conservative way which IMO is a step to the right direction. Even Warren has got some investments wrong. To say admitting mistakes equates giving up a tested methodology is simply wrong. I am a value to GARP investor, so I don't detest value/contrarian approach. I just don't think Pzena is looking at his holdings with an perfectly objective view.
I think Greenblatt might have somehow forgot Benjamin Graham and Warren Buffet.
"Current those CDO/MBS are selling with over 30% discount, like what is happening in ETrade, Citi, Bear Sterns, Mer....."
No way are agency securities selling below 70. What planet are you on?
"the basic idea is that we already have a pretty good idea what net income is going to be for Freddie in about 2012"
Really? You may guess what the net income is like for the next few years (2012 is too far out), but I doubt anyone can say with confidence what the net income is going to be from now till 2012.
You have to have a pretty good idea on both revenue and cost to get a sense on the income. There are so many uncertainties on both revenue and cost. On the revenue side, it depends on delinquency ratio, default rate, recovery rate, impact of teaser-freezer, volume of mortgage going forward, fees from writing gurantees, etc. On the cost side, it depends on how much capital needs to be raised through either debt or preferred, what the financing cost will be, where to dollar is going (because foreigners are big holders of FRE and FNM debt), how much guaranteed loans come back to bite FRE, etc. How can anyone say that he has a pretty good idea what the net income will be going forward?
A much better metric to evaluate the situation is fair asset value. Once you arrive to an estimate on the fair asset value with a set of conservative assumptions, you get a sense of what the book equity is and then multiply it by say 1.5x and compare to market cap. I've done it in a rough way and I see a high probability that book equity goes below 0.
to your first question, the answer is yes. the title of CFA doesn't mean one can read or think logically or independently, but that is a start.
Show me how he gets the $120 number and I will be glad to tell you where he got it wrong.
FNM and FRE may survive only because they may raise capital endlessly, even at cost that makes no sense. They may survive only because government may take over. But none of that is gonna protect equity holders. Current market price has NOT priced in the down side risk appropriately.
1) mortgage insurance may be worthless as the insurers themselves are on the rope too.
2) In the past 5-6 years, people had a very funny way to tell what is crazy and what is not. You think FNM didn't do crazy business? You may want to think again.
Cash loss has come and is coming in much more intensity soon. Cash loss will be on loans with high loan/value ratios (if not already >1 at this point) and with high balance. Looking at the 60% loan/value ratio is irrelevant.