Skip to main content

Fannie and Freddie - Finally Uncle Sam has woken up!

Finally Uncle Sam has woken up and taking over Fannie and Freddie by end of Sunday - it took PIMCO's Bill Grass to give the final push saying that we won't be buying any more stuff from these GSEs till US is in with us. Chinese and Russians not buying also helped tilt the odds - unfortunate for some shareholders (including myself) that they would lose lot of money on Monday - these stocks have already lost over 90% in last one year so there is nothing much to lose from here.

What good thing would come out of this bailout ? Here are my thoughts:

  • The uncertainty about these GSEs would be gone - at least for now and they would be able to raise money from all over the world (including Russians and Chinese)
  • Mortgage rates would come down little bit - they have been going up even though Uncle Ben was reducing Fed rate all the way down to 2%. So that should help struggling homeowners with refinances
  • Financials would get another boost especially mortgage insurance companies. I think this would be positive for RDN, PMI, MBI and so on
  • In general this is good step and would provide some confidence to investors about US
  • Should one invest ? I would recommend yes (I hope you bought Lehman when it was selling less than $15 on Friday). Invest with caution. Considering that shareholders got almost wiped out in Bear Sterns and now Fannie/Freddie, I would recommend investing via sector mutual funds
Now coming to oil - here is what I learned in my macro-economics class. Commodities like oil should trade just above marginal cost of production. From my reading, marginal cost of production for oil is about $70-80 which is where it was trading before its recent run-up all the way to $147. So now that speculators (aka hedge funds) finally unwinding their positions, economy slowing down and folks staying away from their SUV/trucks, I won't be surprised if oil comes down below $100 and that's another good sign for US economy. So if you are optimistic like me, I would say US markets have definitely reached a double bottom on Thursday/Friday with Down touching 11000 again and would start making its upward move next week.

Have a good weekend - its quite sunny weekend in Bay Area !

/Shyam

Comments

Anonymous said…
good call on LEH at $15 !
8:21 PM
Shyam said…
I got it wrong and I accept it. I really thought it would survive but looks like it is going to go down this weekend (if not tomorrow). If all my calls came out correct, I would be rich, right:-)

Check out my post on nationalizing wall-street !
8:52 PM
Post a Comment

Popular posts from this blog

Clicks to Tokens: Will 2026 Echo 1998's Boom or 2000's Bust?

My "blogging" was in hibernation last 8 months due to my self-imposed restraint given the environment as well as built-in inertia to get started despite so many interesting events and markets reaching all time highs after taking a big dump around "Liberation Day" in Apr...Around that time I had the blog ready that it would be repeat of Mar/Apr 2020 panic and recovery during onset of Covid Pandemic. The hunch happened to be correct and I was glad that I could keep and take some positions which I am still holding especially around AI theme. But that was then...as 2025 is about to wrap up in 10+ weeks, let's look at what's in store for rest of 2025 and 2026. And what's better time than to start writing again just before one of the most important week on the calendar with multiple key events coming up next week... Fed meeting to decide the course of interest rates - it's almost guaranteed that Fed will cut rates by 25 basis points (2nd time in 2025) and...
Post a Comment
Read more

2026: The Year of Convergence – Melt-up, Moonshots, or Mid-cycle Correction?

Happy New Year! After another period of self-imposed hibernation from the blog—partly due to the festivals, travel, intertia and partly to watch the dust settle on a chaotic 2025—I decided to use the quiet of this New Year’s morning to finally reboot.  Looking back at my October post,  “Clicks to Tokens,”  the hunch about the AI theme held firm. We spent much of 2025 debating whether we were in 1998 or 2000. As we enter 2026, the answer seems to be "neither and both." We have the roaring optimism of the 1920s fueled by "Silicon Spirits," but with the high-speed volatility of the 2020s. So, as the calendar flips, what is in store for 2026? Markets may experience melt-up (S&P touching 8000),  with some moonshots (like SpaceX and OpenAI) IPOs or even see mid-cycle correction bringing down S&P to 6000. That's a wide range and will be decided by Four R's... Here are my thoughts on the " Four R’s ":  Rates, Robots, Rotations, and Real Assets. 1. ...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more