Loading...
Symbols:
Authors:

Fannie & Freddie Bailout? - Fast Money Recap (9/5/08)

by: SA Editor Joan Wickham September 05, 2008 | about stocks: AAPL / BMY / FNM / FRE / FTO / GOOG / HD / IMCL / IRF / MO / MS / POT / RIMM / SPY / UST / VSH / XLF / ZQK    

SA Editor
Joan Wickham

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Recap of CNBC's Fast Money, Friday September 5.

Planned Treasury Backstop - Fannie Mae (FNM) and Freddie Mace (FRE), Financial Select SPDR (XLF), SPDR Trust (SPY)

Host Melissa Lee started with a discussion on late-breaking news that the Treasury is planning to backstop Fannie Mae and Freddie Mac. The plan would include changes to senior management. Steve Liesman, senior economics commentator for CNBC, joined to discuss the Treasury plan to inject capital into the two companies. He said the rumors on the Street are that Treasury will offer a convertible preferred or warrant offering. Guy Adami asked Liesman if the stocks are going to zero. Liesman said he was unsure and continued we're back to where we were before on these equities. If the government wipes out the preferred shareholders, it will create other problems in the banking sector, he added. Pete Najarian said the problem is that we don't have enough clarity on what this means for the Freddie and Fannie shareholders. Jeff Macke added that both stocks are screaming sells, along with the Financial Select SPDR and SPDR Trust.

Adami mentioned that if the backstop of Fannie and Freddie can lower mortgage rates, the entire problem could begin to unwind itself. Karen Finerman said the plan is bad for the Treasury and bad for the U.S. dollar.

Tech Wrecks - Nokia (NOK), Google (GOOG), Research In Motion (RIMM), Apple (AAPL)

Lee moved the discussion over to the technology sector. Finerman said she likes Nokia, but she didn't like that earnings warning today. Macke pointed out that Google got crushed all week, and the stock isn't working. Research In Motion (RIMM) was The Chart of the Day. The stock has been hammered and has dropped 20% in just the last 10 days. Adami said the chart is broken and apparently the market mind-set has changed toward this stock. Macke mentioned that Apple has a management problem and said he wouldn't buy the stock ahead of the product release next week. He said that if Steve Jobs doesn't show up on Sept. 9, the stock is going measurably down. “The market rumors are that Apple will release something surrounding the iPod,” added Najarian. He said he wouldn't buy the stock based off that chatter.

Crude Moves - Frontier Oil (FTO)

Next, Lee turned the conversation toward crude oil. Adami said that if the dollar starts moving lower off the Freddie and Fannie news, expect crude oil to start trading higher. Najarian explained that the fall in oil is finally pushing the refiner stocks up. He loves the action and if oil keeps going down through $100 the refiners will continue to benefit. One refiner stock he likes is Frontier Oil.

Acquisition - Altria Group (MO), UST (UST)

Altria Group announced it has agreed to buy the smokeless tobacco company UST for $10 billion. Finerman said she likes the deal for Altria and said she is long the stock. Najarian highlighted that the call options in UST were “unbelievable” ahead of this deal. He explained that the options action went nuts when UST pulled out of a conference a day earlier.

Trader Radar - Quicksilver (ZQK)

Shares of Quicksilver were among the most actively traded stocks on the NYSE Friday.

New Apples – Apple (AAPL)

Ben Reitzes, Lehman Brothers' Apple analyst, joined the traders to discuss Apple's new products. He said he expects new iPods and a big price job to the iPod Touch. Reitzes mentioned that Apple will probably release a new Mac computer next month. “Music is super important, so I think the company will revamp iTunes,” he added. Reitzes said that if the company produces revenue upside, the stock will work into year-end.

More on Treasury Bailout - Morgan Stanley (MS), Fannie Mae (FNM) and Freddie Mac (FRE)

CNBC's Steve Liesman rejoined the traders to talk about some more breaking news with Fannie Mae and Freddie Mac. Liesman said that the Treasury is confirming that it's making progress with its discussions with Morgan Stanley, which is consulting on the situation. He mentioned that the government wants to get rid of the current management at both firms, and that would be a negative for the stocks. Stocks of Freddie and Fannie were dropping sharply in after-hours trading.

Final Trade – Your First Move for Monday September 8.

Jeff Macke said to take off the Potash (POT) trade.

Guy Adami picked Home Depot (HD) because a Treasury bailout of Fannie and Freddie could be bullish for home builders.

Finerman reiterates International Rectifier (IRF) based on speculation of a higher bid by Vishay (VSH).

Peter Najarian thinks ImClone (IMCL) is a “Buy” on speculation that Bristol Myers (BMY) will increase its bid for the biotech.

Seeking Alpha is not affiliated with CNBC, or Fast Money

Related Articles

This article has 25 comments:

  •  
    Sep 06 12:14 AM
    The biggest mistake of Corporate America will be to wipe out common shareholder value. Investors and not financial institution are the real markets.

    Once people who are the ultimate investors lose confidence in the capitalist system we can kiss good buy to solving the financial crisis, mortgage crisis, and the US dollars.

    It is amazing how this basic understanding eludes even Alan Greenspan and the presidential candidates. They have this false illusion that the FED plan may benefit shareholders. In fact, shareholders are the ones that could potential protect the taxpayers from monumental losses.

    All I can say is good luck to corporate America if there is even the slightest whiff that the plan would entail shareholders losing close to everything.
    Reply
  •  
    Sep 06 07:00 AM
    Government giving capital to Freddie and Fannie caused a rally in both those stocks just two months a go. Now were told that since they are now going to help them, its bad for the stock? What?! If its good for the stock 2 months ago, why is it bad now? Based on this bs, Id buy both of them after this sell off. Sounds like a case of classic Main stream media bs to me. SO which is it? How can the government add capital to FRE and FNM, and at the same time whipe out stock holders? You would have to either dilute shares, or do something that would be bad for the company. How is government backstopping their loans bad for their stock price? If you knew your company could take chances, and take losses, and the government would just give you money, wouldnt your stock go up in value, not down? If a bankrupcy happened, that is what causes a stock price to go to 0. They are not declaring bankruptcy, nor is the government taking over the company, just replacing the CEO's. This move in a company losing money is always market positive. The stock price of FRE went from 5.10 to 5.75 upon initial announcement(correct response to this news). Only after did it drop to 3.80, before going back to 4.04. The latter was the manipulation, using rumor and speculation that the stockholders will be ruined(CNBC said that, so you know its bs), and that is irresponsible journalism, and that caused the price to drop. No facts caused it to drop. Someone should sue CNBC for that. Honest judge would rule that to speculate like that correlated with an illogical drop in stock price would prove manipulation.
    Reply
  •  
    Sep 06 08:10 AM
    relmor,

    they're not giving money to them now.they're taking them over.big difference.
    now the common share holders will pay for it.see the difference?
    Reply
  •  
    Sep 06 08:42 AM
    Sarbanes-Oxley is largely responsible for these massive writedowns, due to personal liability of Officers/Directors. The uncertainty behind financial numbers makes for effective FUD planted by Hedge Funds into the willing media. Naked Shorting [illegal] yet done with SEC compliance, becomes real handy driving down share prices as far as "they" want. Congress is now passing laws to dramatically increase % of company that can be owned without disclosures @5 & 10% levels. Soon new ownership will become obvious of Americas financial institutions and , as the previous poster stated, small investors will be wiped out yet again. This will make Enron/Worldcom look like chump change, comparatively. Maybe all this is simply coincidence of our inept and/or corrupt government institutions?
    IMHO -- FWIW
    Reply
  •  
    Sep 06 10:21 AM
    All indications are that current FNM and FRE shareholders will be wiped out. How can preferred be saved without a future dividend? Overall stock market will be up 100-200 points on the open. Huge selloff by mid-week. Good luck.
    Reply
  •  
    Sep 06 10:27 AM
    Maybe I've not had enough coffee this morning. What does this mean: Jeff Macke said to take off the Potash (POT) trade.
    Reply
  •  
    Sep 06 10:41 AM
    Jeff Macke is a nitwit pretending to be a trader. He said buy POT twice, yet he never did so. Now he says sell it after a one-day pop off the bottom? He is just floundering. I would love to see him with a real trading account, he would not only lose most of his capital but he would lose his job as a pretend expert as well. Put Macke in the Cramer bucket and just ignore him.
    Reply
  •  
    Sep 06 11:21 AM
    p.s. US Treasury bond yields will rise significantly as a result of FNM/FRE bailout. This is exactly what Bill Gross is hoping for (assuming he is still shorting treasurys).
    Reply
  •  
    Sep 06 01:13 PM
    I see our government bailout of Fannie, Freddie, Bear or anything else moves us closer and closer to socialism. Elect Obama and a democratic majority in congress and watch the socialism expand to levels that would make LBJ's "Great Society" welfare state seem like a drop in the bucket. Understand that government bailouts and welfare state policies give more and more power to the federal government. Therefore, taking away individual choice,freedom and liberty. For every government handout at taxpayer expense expect the State to decide your fate. We will see on November 4 if citizens want big daddy government --yes, those goof balls in congress -- to tell you what to do and when to do it.
    Reply
  •  
    Sep 06 02:02 PM
    Has anyone gotten out the straitjacket--or better yet, the hanging rope--for Bill Miller? How many billions of shareholder $$$ down the tubes if FNM and FRE common and preferred shares go to zero??? Wouldn't THAT be ironic, namely that Miller's big gamble to zero marked the bottom of the financial bear market--talk about self-fulfilling prophesies!
    Reply
  •  
    Sep 06 03:13 PM
    "Understand that government bailouts and welfare state policies give more and more power to the federal government."

    They could always claim that it stamps out terrorism. Everyone, especially Republicans, knows it's okay to expand the federal government's powers as long as it stamps out terrorism or otherwise expands our military and/or police-state powers.
    Reply
  •  
    Sep 06 04:45 PM
    Concerning [POT] what is the observation? And what is the recommendation?
    If I own POT should I sell it? If I plan to buy POT should I wait or execute?

    POOR professional presentation.
    Reply
  •  
    Sep 06 11:07 PM
    Kurt walter your friends and heroes the Republikaans under Bush and Paulsen have been the ones to manipulate and intervene in the financial markets and now they are bailing out the idiots that got us in this mess, and you have the NERVE to whine about Obama and the Democrats turning this into a socialist state??????

    Have you had your head buried in the sand or somewhere else the last 2 years as this Republican- generated nightmare has unfolded?
    Reply
  •  
    Sep 08 08:58 AM
    Conservatives want to deregulate business at all costs to the people. Business takes the money, the public are left bailing out the institutions while the power elite skate away with the money.

    This all started with Regan smiling ear to ear and his ultra smooth double speak about getting government 'off our backs'. To interpret the GOP just assume they are only talking to the power elite, then statements such as Pailn/McCain's recent cries of 'I won't raise your taxes, but Obama will' all makes sense.

    If you want a democracy, give the power back to the people, and give them representation in government rather than having the government there to serve the power elite.
    Reply
  •  
    Sep 09 10:14 AM
    Now it's Tuesday. POT and MOS are down substantially from Monday's open. POT is now trading around $145 -- a major support point for it. This stock could break through this support. However, there is a storm in the gulf currently. Plus the petroleum stock news due out tomorrow will likely show draw downs as a lot of the gulf has been shut in. This includes some major refineries. It seems likely this will buoy oil and gas prices at least temporarily. This would tend to buoy commodity prices in general. Plus there is a looming OPEC decision. They can only really cut production or leasve it the same. Neither of these choices should cause oil to go down. Obviously a cut would buoy prices even more. Further the market seems momentarily a little steadier after the US government took over FRE and FNM.

    All of this means that this is likely a short term buying opportunity for POT and MOS. Of course, if POT breaks substantially below $145, all bets are off. A stop around $140 might be wise.
    Reply
  •  
    Sep 09 10:31 AM
    Addendum to POT/MOS comment: POT and MOS tend to trade in concert with the oil and grain commodity prices. However, they are now good value plays. At some point there is likely to be a disconnect if oil continues to fall. The world has a huge appetite for food. That is not likely to change if oil prices go down. Also grain prices do not have to be extremely high for farmers to still want to buy fertilizer. The demand for POT and MOS products still looks very strong for a long time into the future.
    Reply
  •  
    Sep 09 10:59 AM
    I should add that the PEs for POT and MOS after Q3's earnings are reported will be 15.3 and 11.8 at current stock prices. Both of these companies have been beating earnings estimates recently, so the actual figures might be slightly better. The Q4 PE's for each are 11.2 and 8.5 respectively. Obviously POT has the higher predicted growth rate for 2009 at about 70%.
    Reply
  •  
    Sep 09 11:41 AM
    The mere fact that the gulf is largely shutting in for Hurricane Ike will effect oil production, refining, and delivery of oil via shipping to the US. These all should help buoy oil prices, which in turn should help Ag stock prices.
    Reply
  •  
    Sep 09 12:02 PM
    Further some oil companies are delaying their output recovery from Gustav due to Ike. Shell just made such an announcement. This mean there could be a cummulative 3-4 week downturn/loss of production due to Gustav/Ike. This is considerable. It should buoy oil at least temporarily. This should also help Ag stocks.
    Reply
  •  
    Sep 09 12:13 PM
    The first minor resistance level for MOS is around 90, so there is good easy upside potential in the next couple of days.
    Reply
  •  
    Sep 09 12:27 PM
    One should keep in mind that MOS hit a high of about $163 in mid-June 2008 before oil really started to fall. It has a lot of room to the upside. The oil and commodity (as well as economic) declines are simply not enough to substantially effect MOS profits this year (or likely next).
    Reply
  •  
    Sep 09 12:37 PM
    Also the Euro is up significantly against the US Dollar today. Generally the Ag stocks have tended to go up in this scenario as commodities can be used as a hedge against US Dollar devaluation. This tends to push commodities up. Hence it tends to push Ag stocks up. This is another factor which makes the short term Ag stock long trade look good.
    Reply
  •  
    Sep 09 01:32 PM
    KDB is apparently no longer in the market for Lehman (or part of it). This puts Lehman in danger. This in turn is very bad news for the equites markets. To some extent this is bad news for MOS and POT. However, they should benefit to some extent from the weakness in the US Dollar that this particular situation brings about.
    Reply
  •  
    Sep 09 02:44 PM
    The latest news says that 77% of oil and 65% of gas are still offline in the Gulf. This seems likely to remain this way until after Ike blows through.
    Reply
  •  
    Sep 09 03:41 PM
    The current prediction is that Ike will likely pass to the south of the major oil infrastucture in the Gulf. However, there is still the possibility that it will veer to the north (and hit the major infrastructure). We will have to wait to see how much strenght it gains over water. Regardless the oil infrastructure is still shut in until after Ike passes. Oil is still currently falling. But grains seem to be generally staying steady. If oil rallies at all tomorrow on the Petroleum stocks report, the Ag stock are poised to go up. Perhaps they will go up anyway. They do seem like bargains at current prices.
    Reply
More Comments on FNM ยป
More by SA Editor Joan Wickham

Investment Resources
Money Management 

Research 

Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Long Ideas 

Trading Ideas 

Today's Market 

Bonds