FRE and Housing

by Larry Levin

Although a recent Price-Shiller housing index showed a slight month-on-month home price gain, that same report showed a year-on-year loss. Housing prices may be falling slowly, but they are falling. Anecdotal evidence of this is found in personal bankruptcy filings. After all, if personal bankruptcies increase - does that equate to strong home buying amongst the populace?

According to a recent article in Bloomberg, personal bankruptcies were down slightly in March but UP 15% from 2009. Moreover, the slight dip may be an aberration: the American Bankruptcy Institute (ABI) is forecasting a large increase in the 2nd quarter. If the politicians are correct and the recession is over - why is this happening? To be sure, the depression in stocks is over (temporarily?) but the economy at large?

I have been saying for months that the weakness in the economy is keeping the banks from telling the truth about their real estate portfolios. Government sanctioned accounting fraud (see the bold statement/counter below) has seen to that. Banking analyst Meredith Whitney agrees that banks keep losing money on these real estate portfolios and that it will get worse amid increasing supply and sluggish demand.

“I’m steadfast in my belief there’s going to be a double-dip in housing,” she said. “You will see clearly that the banks are under-reserved when housing dips again.”

A double-dip of housing prices is sometime in the future, but it's bad right now. It's bad enough that Freddie Mac needs something. Can you guess what it is? Yes, Freddie Mac (FRE) owned by YOU the taxpayer thanks to "too big to fail" (TBTF) is doing its best impression of Greece: FRE needs ANOTHER BAILOUT!

"As we have noted for many months now, housing in America remains fragile with historically high delinquency and foreclosure levels, and high unemployment among the key risks."
Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr.

Press Release: Freddie Mac Reports First Quarter 2010 Financial Results
First quarter 2010 net loss was $6.7 billion. ...

Net worth deficit was $10.5 billion at March 31, 2010. The Federal Housing Finance Agency (FHFA), as Conservator, will submit a request on the company’s behalf to Treasury for a draw of $10.6 billion under the Senior Preferred Stock Purchase Agreement (Purchase Agreement).

Nice.



Previous Day's Trading Room Results:

Trade Date: 5/5/10

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

1) 80% buy @ 11:23am at 1168.50 = -.50 & -1.25 (2 lots)

2) OTF buy @ 11:37am at 1168.00 = -1.25 (1 lot)

2) Algorithm positions (10)

3) “Reading the Tape” positions (17) …combined Secret’s, Algo, & “Reading the Tape” total…+15.00



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!