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