Fannie & Freddie & Peter Pan Paulson

Nice earnings this quarter; Don’t gloat — you are on the hook for the shrtfall!


What's been said:

Discussions found on the web:
  1. Frank J commented on Aug 8

    So I suppose that the little fairy would be Bernanke?

  2. Rich Shinnick commented on Aug 8

    In all seriousness, somebody tell me who is buying the stock in these companies and for what reason?


  3. anonymous commented on Aug 8

    I am pretty sure in Peter Pan the story Peter leaves Wendy and the boys to their own devices!

  4. smthg4nthg commented on Aug 8

    I’m certainly not, but I could see why someone would. They’re essentially government backed(manipulated) stocks. This is what happens when big companies go bad. The economy can’t afford to have them fail. The solution in my mind isn’t government bailouts of large companies, it’s preventing them from getting so large in the first place.

  5. Steve Barry commented on Aug 8

    Who will bail out the credit card companies? Remember, you can’t foreclose on a tank of gas, or a cruise or a Chinese dinner…those are total losses.

    U.S. Consumer Debt Spikes In June
    Maurna Desmond, 08.07.08, 11:30 PM ET

    Americans are filling their pockets with IOUs instead of shopping receipts.

    The New York Federal Reserve reported a higher than expected surge in consumer debt levels in June, as the cash-strapped borrowed more to get by and more failed to make their monthly payments. Separately, retailers reported lower than expected July sales.

    Outstanding U.S. consumer credit rose at an annual rate of 6.8% to $2.6 trillion in June versus 3.8% in May. Consumer debt jumped $14.3 billion, far above analysts’ estimates of $6.3 billion. The figure covers most short-term credit extended to individuals, excluding loans secured by real estate.

  6. Eric commented on Aug 8

    We don’t have to worry about Fannie or Freddie because a few minutes ago Jim Cramer informed us, “Oil fall cures all.” (exact quote). Of course, on January 29th he wrote, “Fed cuts are a true panacea.” (“panacea” means cure all — I actually had to look it up myself.) Did lower interest rates cure all? Nope. Will lower oil? hmmmm…… Cramer’s beginning to remind me of that rotten kid from The Twilight Zone who wishes people into the corn field, but everyone is too frightened to do anything about it. “It’s good that you deceive your audience, Jim. It’s real good. It’s great! Everybody’s happy that you do that.”

  7. Stuart commented on Aug 8

    CNBC needs to be sued for gross negligence

  8. larster commented on Aug 8

    Anyone remember pinball Paulson’s remarks that we would not have to bail out Fannie or Freddie? Now bill
    Gross says that we will buy the preferred recapitalization and Fannie and
    Freddie are reporting huge losses w/ more to come. the fix is in and we are the chumps. But, the stock market rallies!

  9. Steve Barry commented on Aug 8

    Nasdaq trades at an amazing 38 times trailing earnings so people are taking this to heart. I hope the dollar rally continues. It will lower gas prices and punish nasdaq earnings…maybe nasdaq could trade at 50 times earnings again, like the good old days. Or maybe some day, sanity will return and it trades at 20 times or less.

  10. rickrude commented on Aug 9

    The moral of the story:
    never short US financials, Bernanke will ruin your trade.

  11. Steve Barry commented on Aug 9

    S&P trades at 25 times trailing earnings, Nasdaq at 38. For historical perspective, over the last 82 years, the S&P only reached 25 or above in 1933 for a short time, and the 1990s bubble. The norm is 16. How does S&P trade at 56% above its norm in the crisis we are in? Nasdaq is simply a bubble. You could argue S&P earnings will bounce after the write-offs end (I wouldn’t, but you could). But Nasdaq has not had massive writeoffs. In fact, it trades at record profit margins and has been greatly helped by a weak dollar. The dollar is rallying now and margins must decline by the basic laws of capitalism. This makes the 38 P/E even more bloated.

  12. Ten Ant commented on Aug 9

    Google “IRS 1031 Tenants in Common” capital gains tax avoidance, and reckon that another consequence of R/E unwinding is all the 1031 tax avoidance properties waiting to IED on US, with a ~-20% further fall in values as the auctions yield no more than CG taxes due,
    and since that’s -20% on the peak appraisal, you might actually see negative triple nets.
    “Take my property, … please!” Dangerfield

  13. Jim Haygood commented on Aug 9

    Now that Fannie stopped underwriting Alt-A mortgages, it creates an opportunity for banks and mortgage companies to do so.

    Of course, nobody has the appetite to step in now. But in a year or two (whenever housing completes its U-bottom), they might.

    In a fiat-currency economy, Bubbles are the only game in town. Bring on Bubble III! Pimp my house!

  14. Jim Haygood commented on Aug 9

    “Nasdaq has not had massive writeoffs.” — Steve Barry

    Indeed not. The big techs generally don’t have impaired, illiquid financial assets on their books to write off, as the financial sector has done.

    In fact, excluding the historic train wreck of the financial sector, the S&P 500 ex-financials didn’t even suffer a 20% bear market. Here are the nine Selecr SPDRs, ranked in terms of decline from last October’s peak (percentages are approximate, picked off the graphs):

    XLP … -0%
    XLV … -8%
    XLE … -9%
    XLU … -10%
    XLB … -11%
    XLI … -15%
    XLK … -17%
    XLY … -20%
    XLF … -39%

    XLF (Financials) got whacked almost twice as bad as any other sector, to the point that techs (XLK) and financials (XLF) each now constitute about an equal 16% of the S&P index.

    I’m not arguing for the overvaluation of Nasdaq techs, which has persisted for years. However, looking at the 80 tech companies in XLK (which includes some of the big Nasdaq techs such as MSFT, AAPL, CSCO, etc.), S&P claims a P/E of only 16.9. XLK’s compounded return since inception in late 1998 has been one of the lowest of the SPDRs, minus 2.30%, probably because of the bubbled state of techs in late 1998.

    Is XLK UNDERVALUED now? I don’t know; just asking. Depends more on earnings prospects that write-offs, I reckon.

  15. JustinTheSkeptic commented on Aug 9

    For those who think that the Non-OECD contries are going to support the global economy threw consumption…

    Quote from:

    … Inequalities in consumption are stark. Globally, the 20% of the world’s people in the highest-income countries account for 86% of total private consumption expenditures — the poorest 20% a minuscule 1.3%. More specifically, the richest fifth:

  16. theeconomicfractalist commented on Aug 9

    Dollar Denominated Asset Reequilibrium And the Real Economy

    Profound rotational valuation changes in the US dollar index, commodities, equities, and quality debt instruments will occur over the next 19 or so months. Gold is likely to be revalued at less than 250 US dollars. All revaluations will occur in a precise quantum fractal manner. US dollars are being destroyed through consumer, corporate, and financial default at an unknown but increasing rate with rotational devaluation of equities, and now commodities, serving as a precise quantum fractal mirror of the underlying deterministic macroeconomic process which had boundaries defined by supply and demand, debt load and the ability to service that debt load based on jobs. The macroeconomic system taken by its individual and interconnected parts is complex- but the summation of system’s activity and its ongoing condition in terms of money growth or decline is elegantly simple and is defined in likewise elegantly simple quantum valuation fractal patterns – further defined in the context of valuation saturation curves limiting growth and conversely decay and by areas of nonlinear valuation growth and decay leading to those saturation limits. US real estate and valuable US assets are denominated in a vanishing number of surviving dollars. The dollars previous collapse and current growth against other currencies are following simple readily identifiable Lammert quantum fractal patterns. Private sector and non federal jobs are being lost. Unlike federal government related jobs, the private sector economy is dependent on a bottom line profit margin from ongoing and seasonal buying which in turn is dependent on the collective ongoing wealth of consumers and a loaded pipeline of higher cost durable goods. Even after the equilibratiion of residual dollars relative to other currencies and financial assets, the real private economy will take some time to reestablish former US GDP nominal growth which has largely been based on consumer debt expansion – especially in the last decade. In this setting where there may not be time to allow a slow reestablishment of a functioning credit system, nationalization of much of the US private economy is possible.

  17. Steve Barry commented on Aug 9


    I saw on the news how a migrant worker in China had to leave his family to work 200 miles away building the Olympic stadium for about $3500 a year. China cannot pickup the global growth baton from the US consumer. Enjoy the Olympics…brought to you by money the indebted US consumer sent to China and near slave labor.

  18. Bob Abouey commented on Aug 9

    Steve, I wouldn’t make that simple assumption. Currency has been helping the US based multinationals, but has generally been offset by rising prices. One company I work with had production costs per unit double versus last year. But, since they are a scalable high margin business, overally growth in revenue meant that margins still increased. Foreign currency gains helped, but by the bottomline were more than offset by increased costs due to high energy and commodity prices and the weak dollar.

    Revenue, of course, will get hit, but my guess is the Nasdaq 100 type companys get a free pass on any revenue shortfalls due to a strong dollar IF that also leads to reduced costs.

    Still, I readily admit I don’t have any hard analysis of the above, just anecdotal evidence from a couple of companies I work with, so you could well be right.



  19. VennData commented on Aug 9

    The SWF – non-democratic resource-rich government(s) – reserve buildups contain wealth that would go to the investor / savers in a democratic market economy (Norway is an obvious exception, Singapore is sort of, too.)

    Those puny global consumption aggregates in the developing world could grow further in coming decades if the SWF asset growth reverses.

    Instead of slicing equity markets by sector an ETF that provides exposure to firms providing goods and services where growth outperforms at median incomes just above current Chinese, Indian, Brazilian etc… median incomes might outperform.

    Interesting to conjecture the same conceptual framework to create an ETF that does the reverse for the US consumer (e.g. sells Nordstroms, buys Wal-Mart… sells Ruth’s Chris buys McDonalds… sells GM buys Schwinn etc.)

    The global labor arbitrage has only begun, a paired trade of sorts is in there somewhere.

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