I’ll write something more about Fannie and Freddie at a later time.  Things have worked out there largely as I expected.

What I did not expect is that the market would be up a lot on a day like today.  I did expect that Treasuries would be down.  After all, there are more claims on the Treasury now than before.

Why should the market be up?

• The possibility of lower mortgage rates, which will help those that can put money down on a new home, and those that can refinance within conforming limits.
• Risk is shifted off the balance sheets of lending institutions that held the senior debt of the GSEs.
• A big uncertainty is resolved.  (And the next uncertainty has not arrived… yet.)

Now, as for me, I am probably having my best relative outperformance day ever, and it is due to one stock in my portfolio: Gehl.  As the AP says, “Construction and farm equipment maker Gehl Corp. said Monday it is being purchased by its largest shareholder Manitou BF SA for $450 million, or $30 per share.”  120% premium to the Friday close.  I can live with that.

I don’t play for takeovers, particularly not in this environment where financing is scarce.  But in value investing, if you have reasonable financed assets trading at a discount to their value, takeovers will sometimes come, though rarely at premiums like this deal.  Wow.

There’s one more thing I would like to point out here.  I sometimes get a little criticism for not having an automatic sell rule.  My first purchase of GEHL was around $20.  I averaged down twice.  Each time I reviewed the position, and concluded financing was adequate, though short-term earnings did not look promising.  I concluded that over a 2-3 year timeframe, I would probably be rewarded, or not lose much.  If I had used a mechanical sell rule, I would not have gotten the good side of Gehl.  (And, for those that keep score, this gain almost pays for the loss in Deerfield.)

That’s how it goes.  I could not predict this incident, and I have enough bad things that happen that I also can’t predict.  But in a well-diversified portfolio of cheap, well-financed stocks, there can be room for good surprises.  I just happened to get a big one today.  (And, it puts me in the plus column for YTD performance.  What a tough year for the market.)

Full disclosure: Flat GEHL — my limit orders got lifted as I wrote this…