Ginnie Maes Over Fannie Mae and Freddie Mac

Bob Brinker's favorite fixed income investment includes Vanguard's GNMA Fund (Charts of VFIIX).

This is an excerpt from David Korn’s September 13/14, 2008 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

"Caller: Do you have any predictions on where shares of Fannie Mae/Freddie Mac are going in the next few years? Bob said he did not and has never recommended either Fannie Mae or Freddie Mac on Moneytalk and has instead recommended Ginnie Maes. Bob noted that the GNMA fund that he recommends is trading near 1% of its 52-week high, during which the common shares of Fannie/Freddie have declined over 90%.

David Korn: The common shares of Fannie Mae and Freddie Mac were components of the S&P 500 Index Fund and the Total Stock Market Index Fund, which are funds that Bob Brinker recommends and which most of us own in some part in our portfolios. Standard & Poor's announced last Tuesday that it was removing Fannie Mae and Freddie Mac from the S&P 500 index after the close of trading on Wednesday because the companies no longer meet the $5 billion market capitalization standard needed to be an S&P 500 stock. Big help to us shareholders selling at the bottom. The two companies replacing Fannie and Freddie are Salesforce.com and Fastenal Co."

Bob Brinker is comparing apples to oranges when he compares Vanguard's GNMA fund, a fund that buys GNMA bonds guaranteed by the US government, to the common stock of Fannie Mae and Freddie Mac.

From "The Rise and Fall of Fannie Mae and Freddie Mac."

• Fannie Mae and Freddie Mac were hedge funds that privatized profits and socialized risk...
  
  
• Fannie Mae and Freddie Mac had the closest thing to a license to print money. They legally borrowed money at below-market interest rates based on the perception that the government guaranteed repayment, and then they used the money to buy mortgages that paid market interest rates.
  
  
• Way back in 1996, the Congressional Budget Office reported that Fannie and Freddie were using government support to increase their profits, rather than reducing mortgage rates to make homes more affordable, the reason for their existence.

At the current time, Bob Brinker has no recommendation for Vanguard's GNMA fund, VFIIX, in his recommended "active/passive" portfolio nor his model portfolio's number one or two, but he does have a position in "balanced model portfolio number three." His Active/Passive and model portfolios #1 and #2 have been fully invested in stocks since March 2003, including the current bear market.

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Long-Term "Retirement Advisor" Model Portfolio Performance
The Retirement Advisor Model Portfolio Name	Dollar Value on 8/31/2008	Percent Increase
Aggressive Growth and Income Model Portfolio 1 Initial Value of $200,000 on 1/1/2007	$208,065	4.0%
Moderate Growth and Income Model Portfolio 2 Initial Value of $200,000 on 1/1/2007	$213,219	6.6%
Conservative Capital Preservation Model Portfolio 3 Initial Value of $200,000 on 1/1/2007	$222,454	11.2%
DJIA $11,544on 1/1/2007	$11,544	(7.7%)

Webbsite for more info and current Performance Data