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Thursday Outlook: Commodities, Emerging Markets

by: David Fry August 28, 2008 | about stocks: DBA / DBB / DBC / EEM / EFA / EWA / EWC / EWZ / FXI / GLD / IFN / ILF / MOO / RSX / SLX / UNG / USO / XLE    
David Fry

David Fry

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It’s offensive that taxpayers are being asked to bailout FNM and Freddie (FRE) period. It’s understandable that something like this needs to be done. But the shareholders should be wiped-out and certainly departing incompetent executives shouldn’t be given any lucrative severance packages.

Nevertheless, according to a late-breaking WSJ story, there is a lot of pressure on the Fed not to “tell shareholders to jump in a lake.” So what will happen? It’s a political year and protecting regional banks who bought preferred stock for that little extra yield is a pressure point no doubt. Having these holders accept a much lower dividend is probably the best solution since the credit ratings may be restored, providing a lift to prices even though yields are reduced. As it stands now, marking these securities to market is probably a bigger problem as they are now structured.

That will do it for today and most likely this week. I’ll be posting some pictures about where we’re going tomorrow. You’ll probably find it interesting.

Have a pleasant day.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in IWM, UWM, QQQQ, QLD, XLY, XLP, UGE, IEF, TLT, UUP, GLD, DZZ, DBC, DEE, USO, UNG, EFA, EFU, EEM, EEV and FXI.

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This article has 8 comments:

  •  
    Aug 28 05:28 AM
    The Yahoo chart is easy to read for us old folks!Enjoy your holiday and thanks for your great articles...
    Reply
  •  
    Aug 28 08:22 AM
    Your comments on the IYT chart are spot on. I'm not a short seller but agree that many of the people who complain that short sellers cheer "bad news" will probably cheer the news that UAL intends to lay off 1500 Flight Attendants. That's a 'positive' cost saving business story, right? Certainly helps to put things in perspective. As Barry Ritholtz (another blogger) often says, "there are two sides to every trade".
    Reply
  •  
    Aug 28 09:51 AM
    Nice Charts, good comments. MACD in oversold territory on all, does this signify short term bounce?
    Reply
  •  
    Aug 28 09:53 AM
    It is about time we shed the light on the FRE and the FNM. First of all it is important to comprehend that both agencies have reserves way above the minimum.Their "default" rate on the mortgages is less than 1%-much more impressive than most of the banking insitutions.The bailout issue is predicated on Armageddon like financial calamity ,merits of which appear to be disseminated by the record "shorts" in the financial sector.The facts are that the issues which should have been addressed at least year ago ,are being addressed by the FED,the Treasury ,the Congress and the Administration quite competently now,while the mega shorts are tryng to negate the success of the measures applied to rectify the "financial " issues.As the U.S economy gains momentum in the period ahead ,all of the negative financial fiction will dissappear.
    Now let us address the key issue of the taxpayers responsibility vs the FRE and the FNM fictitious need of the rescue package.
    The FRE and the FNM were created by the act of Congress to provide competive financing (mortgages) to the average American taxpayer.
    Thse two agencies have provided the affordable rates to an average American and are responsible for about 80% of the mortgage related activity today.
    When the agencies have needed the capital ,they have decided to issue common stock.Not too many investors would consider that a speculative investment-not exactly to Enron.
    Now that the distortions of the economic and financial facts (influenced by the record short positionsin the shares of both agencies) are creating calls for the restructure of the agencies,common share holders (your average taxpayers)are being asked for a supreme sacrifice after investing in what many considered conservative institutions implicitly guarnteed by the U.S. Once again ,this is a wishful event thought up by the mega shorts.
    Second of all the housing sector is in the process of a major consolidation leading shortly to a major rebound .and providing stability in the financial sector.This housing segment of the market has the most relative value and "investment" funds are being set up (disseminated in the media) to take advantage of this opportunity.
    Paranoia and the mass hysteria aside,both agencie swill survive in the current form without any necessity for the rescue.
    They will provide the average tax payer with the competitive mortgage rates and will provide market stability/liquidity whenever skewered and biased interests will try to implode the market.
    The housing market is heading for a major rebound as is the stock market .FRE and the FNM will do just fine.
    Reply
  •  
    Aug 28 09:55 AM
    thats what america has become.not making things so that there is a useful end product but trading paper to make a living.how long can a country survive doing this silly stuff?i think its beginning to show as hundreds of paper shufflers are let go.as far as day traders are concerned their ranks may shrink as no one can tell what will happen or the value of the trades.
    Reply
  •  
    Aug 28 11:45 PM
    Mr. Gabe Borenstein, I agree completely with your outlooks. Might I add that If one considers the fact that GOV and GSE shareholders are partners in the GSEs with the GSE's primary mission of providing market liquidity under GOV guidlines to be a form of equity that the GOV and hence the taxpayers benefit from while the GSE shareholders equity in comparison equates to a monopoly and profits realized when providing liquidity under GOV guidleines is profitable. It is quite simple to realize that with GOV and GSE being partners and 'owners' of the equity that it is about as impossible for the GOV to bailout the GOV and wipeout the equity as it is iompossible for the shareholders to lose monies by maintaining the equities they already have... This fear campaign has been nothing more that an attempted mugging of the GSEs by the greedy shorting crews who habe thier eye on the prize of BOTH form of the equities...
    Reply
  •  
    Aug 29 04:26 AM
    Great technical analysis. Spot on.
    Reply
  •  
    Aug 29 08:27 AM
    This is the best and my most favorite periodic articles in Seeking Alpha. Keep up the great work! Short one liners accompanying the charts are to the point!
    Reply
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