The meta-question for investors interested in Freddie Mac (OTC: FMCC), circa 2012, is this: How much tolerance does the American public have for more things that rise from the dead? Zombie-genre art has always been a porthole into the public psyche. From the slow-moving, brain-eating, collectivist undead of the 1950s and 60s, to the camp Nazi-Zombies of the 70s and 80s, and on to the swift, trust no one, terrorist undead of the post-9/11 world. So, deep down in the reptilian brain, will other investors trust that the American homeowner (a maligned bunch of corpses if ever there was) has finally reached up through the dirt heaved upon it since the crash in 2007?
The answer to that largest question remains unclear, but Freddie’s stock did bound forward in search of fresh meat by 19.6% yesterday, closing at $0.284 on news that it posted $1.2 billion in net income in the second quarter of 2012. For investors, homeowners and the taxpayers (who ultimately back the loans when they putrefy), this is undoubtedly good news. But there may be something in the numbers that attracts the wiser eye.
In the real world of zombie reanimation, it is tough to see which corpses are going to make it, and which are going to be gnawed to the bone by the ravishing hordes (in this case, enraged Congressional Republicans and lenders in the front of the queue). Over the past several years, Freddie Mac has called on the government for loans to keep it from sliding back into the grave in 10 of the past 15 quarters (including the second quarter of 2012). That is not a hopeful quotient. However, on the other side of the ledger, Freddie has paid back more in dividends to the US government than it has taken in aid for the past six quarters – and a pale, deathly eye opens.
It is not at all clear which way this rough beast staggers, but Freddie says the real poisonous loans accrued between 2005 and 2008 are becoming a smaller abscess on its portfolio. Time will tell.
The end of all this may be depend more on politics than the underlying economics, which makes sense. As noted above, zombie tales are actually stories about what fascinates and terrifies the collective unconscious of a given age. Do we, as a society, want to keep poor folk in their houses, even if they have to nail wooden planks to the windows to keep their creditors at bay, or do we want to nuke the whole darn city and start over again? In the case of Freddie Mac, looking into the Nielsen Ratings for The Walking Dead might be as valuable as following the business pages in the Wall Street Journal.
Also, remember, election day – the time when voters stagger like a horde in one direction or another – is on November 6. What is that in regards to second quarter reporting? Ninety-five Days Later?
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