Tuesday, September 9, 2008

Fannie and Freddie bail-out: a great opportunity to sell

The US bail-out is a great opportunity to sell

Stock markets' 'relief rally' on the back of the Fannie and Freddie bail-out is premature, says David Stevenson. The rescue won't cut US house prices and it won't help unemployment. And in Europe, companies have their own set of problems to deal with...

Posted by damien @ 11:04 AM (644 views)
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5 thoughts on “Fannie and Freddie bail-out: a great opportunity to sell

  • Yes, I think this morning some people in the City realise that although it is was nice to see a fire engine the only reason it turned up is because their house is on fire.

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  • If you categorise borrowers as household, government and corporations/companies only the last coventionally borrows in order to invest to create future income which can service interest and repay principal (remember that old-fashioned idea?).

    Now we’re seeing the unravelling of the corporate borrowing binge which took place until a year ago on the back of low yields and spreads in bond markets and the consequent loans to sub-prime, credit-challenged companies, which effectively have borrowed to repay old loans (refinance, pay interest in paper rather than cash etc., leading to low default rates, leading to more credit). A lot of the ‘investment’ referred to in the piece is not of the traditional kind I’ve just described. It’s been used instead for quick-buck mergers and acquisitions, leveraged buyouts, high shareholder dividends in private equity companies, the covering of unfunded liabilities and the buyback of shares printed to reward management. In short, a substantial proportion of the ‘invested’ money has been trousered.

    Watch as the sub-prime fiasco is replayed in the corporate sector.

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  • I think its premature to come up with a one day rally argument. Fundamentally the argument is sound but the markets have a habit of biting you in the ar$e when least expected. Thats why the Dollar hasnt given up much of its gains and the stockmarkets are basically treading water (if anyone tells you +4-5% followed by -.5-1% is bearish i think a quizzical look is needed). Sidelined here until we see some move towards taking out the prior 2 Fs low, or until we have a better (higher) technical level to sell. A massive and rangey sideways move shakes out the option traders and gives some money back to the scalpers as the market pauses for breath. In the meantime both long and short trend traders get mullered.

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  • ahhh yes I see what you mean techieman

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  • NAAAAAAAATTT!!!!!

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