Fannie & Freddie & Peter Pan Paulson

So I suppose that the little fairy would be Bernanke?

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

Anybody?

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.

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.”

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!

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

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

“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.

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.

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.

Best,

Bob