The Clock Is Ticking

by Larry Levin

More bad news hit the tape today regarding Fannie Mae (FNM) and Freddie Mac (FRE). Bloomberg News reported today that the government's decision to bail out the firms will likely depend on whether or not the firms can pay off bonds coming due this month, and this month is almost over. The idea that the GSEs wouldn't be able to turn over its debt turned its share prices lower. FNM was crushed another -25.8% lower and FRE closed down -22.1%. Freddie Mac's share price, for example, is off 95.4% from its high so it's safe to say the clock is ticking on its survival.

Freddie Mac's shares touched a session low of $2.95 today. The last time they dipped below $3 a share was in November 1990. Both FNM and FRE shares have been eviscerated more than 80% in just the past three months! I wonder how long it will take until the Mutual Fund and Pension Fund bag-holders will notice that the trend in these stocks is DOWN.

Unfortunately that won't be until after they have reached zero. Sadly, common shareholders will then look for others to blame, such as short sellers, for their own incompetence. How ANYONE could hold a stock (FNM) from $89.37 to $0.00 is beyond me? Will anyone blame Congress for their non-stop insistence that FNM and FRE give away loans to deadbeats? No, I highly doubt that. There is plenty of blame to go around and I won't list all of the candidates today; however, I wonder if the Wall Street spin-machine will ever be held responsible? Naaaaah! We will go on believing that housing prices will be at last year's highs very soon, stocks are not actually down over the last 10-years, there is no inflation, dollar cost averaging is not really ADDING TO A LOSER, and Wall Street's blind adherence to Buy & Hope is actually a winning strategy. But go ahead and ask an analyst, he or she will say the exact opposite of the above points, just like the never ending commercials that brain washes you into agreeing.

Yeah, right - just ask one who owned Enron, WorldCom, and now FRE & FNM.

Today's sell-off of FNM & FRE reached a fevered pitch when news circulated that the CEO of FNM, Daniel Mudd, and the Treasury were meeting to have a discussion, and I don't think it was about the weather. They haven't offered anything and we haven't asked for anything, Mudd said, referring to the federal government in a public radio interview this morning. I don't anticipate that they will do that.

Hmmm, that sounds quite similar to when the CEO of Bear Stearns said on CNBC that his company was doing well and had all the liquidity it needed. A few days later Bear Stearns was bankrupt. It also sounds like when Treasury Secretary Hank Paulson said the GSEs would go on without government support - only to hold an emergency press conference a few days later to announce that your tax dollars would rescue these massive Wall Street firms.

The government takeover of FNM and FRE are probably the most predicted financial train wreck of all time. The socialization of their losses will probably be announced on a Friday evening, preferably one where there is a Monday holiday, which would make August 29th the most likely date that the announcement will be made as the following Monday is Labor Day.

Would I be implying that our government would attempt to release important news like this on a Holiday weekend, the last weekend of the summer vacation season when many people are travelling or having a good time with friends - in an attempt to blunt the impact of such an announcement and bury it in the news that many people might not be reading or listening to? YES!

The hand writing is on the wall, and the clock is ticking.

Real Time Trading Signals*for

Trade Date: 8/18/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 9:15am at 1265.50 = -1.50*2

2) FT sell @ 9:55am at 1274.50 = -.50*2

3) OTF buy @ 10:35am at 1273.25 = -1.75*2

4) OTF sell @ 12:00pm at 1268.75 = +.50 & b/e

5) Algorithm trades (5)...combined total...-5.50


ZB (30 Year Bond) Trades*
(before fees and commissions):

1) Buy @ 8:28am at 117.285 = +3.0, +8.5, +8.5

2) Sell @ 10:09am at 117.315 = +2.0 & -1.5

3) Buy @ 12:05pm at 118.005 = b/e*2

4) Buy @ 1:32pm at 118.040 = -1.5 (1 lot)...combined total...+19.0 (+$593.75)


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