Due to the subprime mortgage problem, Freddie Mac and Fannie Mae are technically insolvent, or close to insolvent. If they "mark to market" their mortgage portfolios, they have huge undisclosed losses. There is a rumor that the Federal government may intervene, in a deal that would be awful for FRE and FNM shareholders. People are panicking and selling. The price of FRE and FNM is crashing.
My guess is that insiders are buying. I predict that when the details of the bailout are announced, it will be something that turns out to actually be beneficial for current shareholders. The bailout may take the form of a loan guarantee, like the Federal Reserve's bailout of JP Morgan Chase and Bear Stearns.
Ultimately, the fate of Freddie Mac and Fannie Mae is going to be decided by a handful of politicians. I predict that they're causing a panic-selling followed by a recovery. However, I don't have inside information and I don't know what they're doing. The average person usually panic-sells at the bottom and then buys at inflated prices.
The only thing you can be sure of is that politically connected insiders will profit. State manipulation of the market always profits insiders at the expense of everyone else.
Friday, July 11, 2008
Stock Market Update - FRE and FNM
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2 comments:
Certainly, you're right in saying that whatever happens, it is always engineered in order to create a profit opportunity for connected at everyone else's expense.
Also, check out the gold lease rates. I bet that you or I can not lease any gold from a treasury at these rates (0%). But someone certainly does. Otherwise there would be no point in publishing the rate.
Everything was going great for me. I was up 8% in intra-day on SKF.
And then Bernanke opened his mouth ...
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