Amazingly, after a 20 premarket pop, both of these are now slightly negative.
Its still early in the trading day, and I expect the news flow will whipsaw each of these.
Still, its rather astonishing. Must be some bad rumors or sumpthin’ . . .
Fannie & Freddie See Red
July 14, 2008 10:07am by Barry Ritholtz
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Barron’s Cover on Housing
“astonishing”
No not really…it was all futures led. Collapsed like a wet taco……
They have run out of ammo. pretty obvious to me.
Ciao
MS
soon the collective will realize the problem is bigger than the biggest institutions/governments. there are too many fires to put out, best to let the fuel burn itself out even if it means extreme pain in the near term.
as for fundamentals, you can throw them all out the window until this thing sorts itself out on its own terms.
Well, what is astonishing to me is not this morning’s move in the GSE’s….but rather the amount of money the FED pledged with the Bear bailout, and now the backing of Fannie and Freddie…no wonder the government has told everyone else they’ll have to make it without big brother…if the credit downturn gets more serious big brother will have no clothes…..and it won’t take a child to see it…this is Monte Carlo…and all the bets have been placed…
Bruce in Tennessee
“temporary authority for the Treasury to purchase equity in the companies ”
kinda sounds like their about to prop up the share price to me… I’m not buying, but I’m also not about to short it either.
Well the stock on my radar is WM.
Down roughly 10% so far today.
I guess it has been realized that the Fed can’t plug all of the leaks.
There’s nothing like hitting your weekly profit goal in the first hour of trading of the week.
I will continue to short every rally to resistance until it doesn’t work anymore.
That might take years.
stop spreading rumors that turn out to be true! someone could confuse that w providing a public service! and the SEC and Bush Admin are clear on one point: no one should rely on public services…
The crew seems to have figured out that the term “bailout” implies that the boat is taking on some serious water.
This Fannie/Freddie nonsense makes me furious. The concept of a semi-private, semi-gov’t entity is absurd – the most glaring example of “privatize the gain, socialize the risk” in our economy. Barry, how does this plan sound to you:
1. Shoot the equity holders. The equity is worthless.
2. Nationalize the entities.
3. Honor all commitments, including to debt holders, such that foreign investors will not lose their appetitie for or trust in U.S.-backed securities.
4. Recognize that there are no in-betweens. Either leave mortgage lending entirely to the private sector, or, operate an entity OWNED BY THE TAXPAYERS that functions in a similar, but more conservative, way to Fannie and Freddie.
blin –
For a second there, I forgot that WM is Washington Mutual and not Waste Management (WMI). Personally, I would like to see if WMI could show up at the Fed with (literally) truckloads of garbage and get treasury bills for them!
HCF
soon the collective will realize the problem is bigger than the biggest institutions/governments. there are too many fires to put out, best to let the fuel burn itself out even if it means extreme pain in the near term.
That’s exactly right. I watched a “Summit” on CNBC this morning…great idea to hash out the issues and maybe avoid policy blunders that will really inflict more pain than necessary. The problem? Of the four main market “experts,” only one (John Bogle) could be counted on IMO to be fair, honest and smart about the problems. Abby Joseph Cohen? Bob Doll? Give me a break.
As such, I am calling for a true Summit of brilliant minds to develop policy to limit the damage and get us back as soon as possible. I need the blog’s help. I’d like to collectively name 5 people to sit on the panel. Maybe Barry could host a live panel on this blog, or I have other ideas I can tap. My first nominees are Bogle, Paul Volcker, Nouriel Roubini and Robert Shiller. The main issues are housing, the credit bubble, Fannie and Freddie bailouts, bank failures, oil, etc. Please comment on those names and nominate others till we think we have the right 5 pople who will participate and really help. I am serious about seeing this through. If I can get enough backing, maybe we could have McCain and Obama send representatives. Our country’s future is hanging in the balance. Please help me.
“Must be some bad rumors or sumpthin’ . . .”
Reading all the news about FRE & FNM I think I heard mention of a Tijuana Zebra. ;)
Not too suprising really. The financial community has got a fair idea of what was going on here. Implicit in all this is that if you’re holding F/F debt either short notes or bonds there’s not much risk but if your holding their stock there are no guarantees. As for the notion that the Fed goes into the market and starts buying their stock this would start a rush for the doors in my judgement because it’s tantamount to saying the govt has to nationalize them. In fact at this moment nationalization is probably the best option because it essentially puts the F/F problem to bed and allows the Fed to focus on other stuff. Also taking the long view I suspect most of the paper they are holding is ok notwithstanding the fact that a not insignificant percentage of mortgages that qualified for purchase may be close to or under water. The fact is if you bought a house with 20% in SOCAL and its lost 20% of value but your family and job and dog are all based there and you have cash flow you don’t just up and leave for a renter.
Negative price action after supposedly “good news.” Never ever good.
I think it’s interesting that “bulls” point out things like, “Hey, given all the bearish news this year, it’s amazing we’re only down 20%….it makes me think the worst is priced in.”
Ha. As a bear, I could easily point out the FED has DONE EVERYTHING they could to keep the ship afloat, including changing the rules of the game midway. And we’re still down 20%! The next bank run may be a run on the Fed as they get swamped with Toxic Paper.
The Fed has SHOT a lot of ammo to help Wall Street and Financials. There’s nothing left to fight the real problem later this year: an Economic Depression.
– AT
HCF,
I think it could work.
Rumor has it that the Fed accepts garbage for treasury bills.
Not surprising. The Paulson announcements pointedly did not address the question of solvency – only of short term liquidity. If I held those investments I’d be asking right now: what is written between the lines here?
“The next bank run may be a run on the Fed ”
Cox, are you listening??
As oversold as we are, as bad as most measures of sentiment are… and, yet, you can’t get a 300 stick Dow bounce out of what’s being hyped (thin gruel, IMO) as a partial nationalization of the mortgage industry?
Steve Barry,
Your panel had better include people who speak Chinese, Russian, and Arabic, and who have a firm grasp of geopolitics.
Jim Rogers is right again today, as he has been all along. Go to Bloomberg for the video.
Andy Taboo’s economic depression will be caused by the total collapse of the dollar, causing commodity, and especially oil, prices to spike. Inflation will be the mechanism through which this contraction is transmitted.
And always remember folks, inflation is everywhere and always a monetary phenomenon. The Fed effectively just added about $5.2 trillion dollars to the money supply through its nearly explicit guarantee of all things GSE.
>> The fact is if you bought a house with 20% in SOCAL and its lost 20% of value but your family and job and dog are all based there and you have cash flow you don’t just up and leave for a renter.
If you’re upside down in your mortgage by 15% -and-counting in a non-recourse state, you just might well trash your credit but walk away without the obligation to spend the next 5 years of after-tax income making up for the loss.
And if unemployment ticks up — which I anticipate — each sharecropper is looking at bigger losses.
I think its because in all the “reassurance”, the reassurance is for the bondhondlers. I’d expect that the premium for Fannie/Freddie debt to drop, but not necessarily the stock price.
Really, the word is “We won’t let the GSE’s fail the debtholders”
How much more do you have to beat the drumm on these two companies. all the negativity seems to play in the hands of the shorts. I haven’t heard anyone come on the program this am to speak positively for the companies or its real mission which is to continue to help average Americans to own a home.
The issue that finally turned the markets this am is probably the realization that there is no available capital to shore up our financial institutions. the sov. wealth funds and China are underwater on previous investments and are evidently saying No Mas. Pretty serious state of affairs I would say and it does not give one much confidence in the market. Now what would happen if some ignoramus decides to bomb Iran?
Hank Paulson isn’t expected to receive Congressional authority to buy Fannie and Freddie shares until Friday at the earliest. Hey, the global economy may be collapsing, but CONgress doesn’t even start meeting until 12:30 p.m. They’re all right, Jack:
http://www.house.gov/house/floor/thisweek.htm
For now, Hank is just a bald-headed guy with a big mouth, and no margin account. So why wouldn’t you keep selling?
As a taxpayer, it’s to my benefit if both companies are penny stocks by the time Hank’s two-fisted buying kicks in next week.
RACE TO THE BOTTOM! YEE-HAWWWWW!
Yep, it looks like it might be WM this week.
Down 30% today.
domo –
If FNM/FRE have the “mission” of helping Americans own a home, then they should be government run under the umbrella of Dept. of Housing or HUD and not public companies. As public companies, their mission is to maximize returns to shareholders, end of story. This is a fundamental conflict that has yet to be fully resolved.
Personally, my feeling is that the government should neither encourage or discourage home ownership. It should be treated as all capital investments are, with no favorable tax deduction for interest, etc. The system we have gives perverse advantages to housing purchases vs. other more useful capital expenditures (investments in technology). Other than providing shelter (which renting does too) and giving you a tax deduction (which is always less than what you pay in interest), the only true value of buying a home is:
1) Psychological stability / happiness / assorted other ‘squishy, fuzzy’ reasons which are rational (but not necessarily profit maximizing), and
2) Having an asset to leverage the hell out of.
The latter is mainly a consequence of the system we have.
I don’t own a home, nor will I until the housing bubble completely implodes, since most young people have no chance of owning a home for a reasonable price otherwise… Propping up the markets for housing is just another way for the older generations to covertly steal from the future (Social Security, Medicare, Inflation, environmental pollution, etc.).
Ok, end of rant for now…
HCF
Paul Krugman and The Economist both used the phrase “private profits, socialized losses” in their FNM/FRE articles today. That phrase seems to have some power to it.
Another one that I haven’t seen anybody use yet is the idea of the “off-balance-sheet venture”. That’s essentially what FNE and FRE are after Paulson’s maneuvers yesterday. After all, the government gets the political benefit of sponsoring two housing-market-saving and populist ventures, and fully backs up the losses… but at the same time the ventures are tossed off the national balance sheet so that the $5T in obligations don’t get added on top of the national debt.
All those off-balance-sheet ventures worked out terribly for Wall Street. Why then is the government upping the ante and employing this awful accounting strategy at a magnitude that dwarfs everything else.
Rumors Schumers? You’re crazy. Nobody trades on rumors.
The government will never let them go under, so the share prices should not collapse completely.
Anyone got any juicy rumors on National City? Trading halted.
I see Kneale is going to educate us on why everything is fine using charts of “relevant” capital.
Paul Krugman and The Economist both used the phrase “private profits, socialized losses” in their FNM/FRE articles today. That phrase seems to have some power to it.
Perhaps because it’s also a double-quadruple alliteration. p=p; pr=pr; l=l and the slant quadruple alliteration of the “s” sound in ‘socialized’ and losses’ which itself glissandos from the last ‘s’ in ‘profits.’
Beowulf and the Saxons would be proud.
Wunsacom:
Unless you’d noticed your scenario was totally unlike mine.
Me: The fact is if you bought a house with 20% in SOCAL and its lost 20% of value but your family and job and dog are all based there and you have cash flow you don’t just up and leave for a renter.
You:If you’re upside down in your mortgage by 15% -and-counting in a non-recourse state, you just might well trash your credit but walk away without the obligation to spend the next 5 years of after-tax income making up for the loss.
Obviously in your scenario there’s no incentive to stay. My point was even the worst paper F/F are holding is most likely to fit my scenario. Otherwise it wouldn’t have qualified for purchase. I’ve been in this scenario, but as long as the cashflow was there it wasn’t a problem in any real sense. You underestimate the power of inertia and all sorts of good personal/social reasons for sticking around.
Thank you, Doug Watts. Finally, a post with some insight into this whole thing!
“Steve Barry
As such, I am calling for a true Summit of brilliant minds to develop policy to limit the damage and get us back as soon as possible. I need the blog’s help. I’d like to collectively name 5 people to sit on the panel. Maybe Barry could host a live panel on this blog, or I have other ideas I can tap. My first nominees are Bogle, Paul Volcker, Nouriel Roubini and Robert Shiller.”
Hell of a good idea! Barry (the blog Chieftain one :-D ) it sure could be done from a tech standpoint right? Plus, I think these guests would most certainly appreciate a REAL forum where there is no talking heads gasbag shills like CNBS.
To paraphrase Darth Vader: (metal voice please)
“They don’t know the power of the blog side”
I am sure this forum could become a mega hit. I mean, we desperately need a counterweight to the constant disinformation saturating the MSM and so-called “financial media”
Estragon
“Your panel had better include people who speak Chinese, Russian, and Arabic, and who have a firm grasp of geopolitics.”
I was thinking the same thing…until I realized that the universal passport here is green. What we would need (on top of an expert in geopolitics) is someone who closely follow the international money flows. I know that Brad Setser does that, but I’m sure there are others. Suggestions anyone?
Must be Texans in the market today looking at the ability of the FED to make things right…you know what they say..
Big hat, no cattle…..
Bruce in Tennessee
Big hat, no cattle…..
ie…All Hat and No Cattle…
Actually thats what Texans say to make fun/define of outsiders or “drugstore cowboys”
given the population of Texas now,
the proper phrase(s) may be
Mas sombrero y no vacas…..
Mas sombrero y no bovinos…..
Mas sombrero y no toros…..
I recently closed on the sale of single family residential investment property in Atlanta as part of assemblage for a high rise apartment building . The contract was initiated in 2007 and the price escalated with time extensions for rezoning . I now think better pay the capital gain taxes vs the 1031 tax deferred exchange as it looks like the real estate will continue to decline . I will have less cash but the property will cost less when the time comes to reinvest .
This was a very poor day for bulls.
There is just now way around it. The Fed and Treasury put the full faith of the U.S.S.A. behind F and F and then all they do is DESTROY the regional banks.
What’s the headline?
“Stocks Fall as the Government Does Everything It Can to prevent a complete Meltdown”
Getting a little scary out here. We’ve got a big counter trend rally shaping up, but I can’t cover shorts until I see some more regional banks take the long dirt nap…see more CNN film crews and banks’ branches talking to depositers.
– AT
Anyone have any predictions on the next emergency rate cut?
Today’s move was a bust; regional banks are in trouble; near hysteria over short-selling. (BTW, hysteria is derived from the Greek word for uterus. Won’t go any further into it.)Likely to have some big downward moves if financial earnings are as bad as expected. What else is left?
John:
You’re assuming that Fannie and Freddie hold loans that are 20% down.
They’re not.
Most of their book is now 5% or so, some less. They really let the dogs slip out in the last couple years.
You’re also assuming that the price declines are near the end. They’re not. It’s 25% more down from here, and that’s assuming we don’t have a depression.
Their 5 Trillion book is probably worth 3 Trillion, at best. Probably more like 2 Trillion.
I, for one, don’t want to pay for that. Do you?
“Anyone have any predictions on the next emergency rate cut?”
Huh? That would degrade the dollar even faster. I would be astonished were this to happen. We’re going to have to eat the inflation.
John, yes, sorry, I misread your example!
Hey Guys, I am 75 years and been around the track afew times in my life. The problem with you fellows(incl. my 6 kids and 2 of my grandkids) is you have short term views of life. Your home is truly your castle and should have the joy and happiness you experience factored in during the years you reside there. Over time, it will prove to be a good investment equal to or slightly greater than a 30 year bond. If it were not for fan/fre, I probaly would have had to wait a many more years to own my own home.
Domo: “I haven’t heard anyone come on the program this am to speak positively for the companies or its real mission which is to continue to help average Americans to own a home.”
This is complete bullshit. What you really mean is that their mission is to help average Americans BORROW MONEY to own a home. Don’t you see that this is the big problem today? Wall Street and these agencies made it possible for Americans to leverage themselves to the point of ruin.
You want to help average Americans own a home? Let the prices fall back into their range.
These have been crazy and very volatile stocks to watch each day. It seems like if you think rationally and avoide fear there are lots of potential trading profits.
Look. If I had my way, I would want all levels of government to remove their prescence in many areas, including Fnm/Fre. However, since the New Deal has thrust marxist ideology into our system at all levels for the past 76 years, you are gamed into the system, whether you like it or not. So, take advantage of what they give you. If you only knew how the private sector banking system worked in the old days, you would not have the need for Fnm/Fre or many of the regulations of the governing the financial system. Government inteference was required to prevent predatory practices, then as now. Talk to your grandfathers. They will tell you how much help you got from the private sector, unless you had connections or qualified co-signers to borrow, even when you were honest, hard working and debt free. Domo
Hey Matt: The last thing I would want to do is “BS” you do. I am a real conservative who also believes in social and economic justice. Its the religious thing that elevates me to my conflicted views. I have watched the steady deteriation of values in this country and the world. The “Baby Boomers (35 to 61) are the worst generation this nation has ever produced. I was a school teacher in the late 50s, 60s, and 70s. From the beginning of my career to retirement in ’79 to go into business for myself, I witnessed inreasing lying, cheating, and unusual deviant behavior, the likes of which I had never experienced growing up from childhood to my 50’s. I used to do deals for 5 and 6 figures on a handshake. Today, I find it very difficult to live, and conduct business in the current political, social, and economic environment. My 48 year old son and I are going at it all the time. We generally agree on most things but disagree on the definition of truth and justice and other moral questions. DOMO