Freddie Mac and Fannie Mae fell to the lowest in 13 years in New York Stock Exchange composite trading as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules.
Freddie Mac fell 18 percent and Fannie Mae dropped 16 percent after Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force them to raise a combined $75 billion. Speculation that the companies may take further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York.
``There's a lot of apprehension about writedowns,'' Tierney said. ``If they have writedowns, they have to raise capital. How much do they raise and how easily can they do that? Those are the questions that everybody is asking.''
The size of those requirements indicates the analysts are deeply concerned about the companies' equity going forward. In addition, capital requirements that large imply a taxpayer bailout may not be that far behind.
Let's go to the charts.
The SPYs gapped higher at the open. Gaps up are considered strong moves because they indicate there is a fundamental mismatch between supply and demand in the market. However, note the index couldn't maintain the upward momentum. Instead, the index rallied to just below the 200 minute SMA and then slowly headed lower. The index continued to move lower, moving through the 10, 20 and 50 day SMAs until prices were just below all three. Then right after 11 CST the index dropped hard, with a downward move of nearly 1%. Then the index consolidated before moving lower. Then then market consolidated for the better part of two hours. Right around 2 PM CST the market rallied hard. My guess is this was the result of program trading. The market moved sharply higher rapidly covering 1.61%. Finally, the market fell hard, eventually ending down 1% on the day.
On the IWMs, notice the index moved lower a bit faster. From an inter-market analysis perspective this would have given some serious clues as to the SPYs possible direction.