Fannie Mae and Freddie Mac tumbled in New York trading to the lowest valuations since at least 1990 as speculation increased that the U.S. Treasury will bail out the mortgage-finance companies, wiping out shareholders.
Fannie, based in Washington, slumped as much as 20 percent and McLean, Virginia-based Freddie dropped as much as 32 percent, extending its losses to 90 percent for the year.
``Using taxpayer money to bail them out looks like it's becoming reality now,'' said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio. ``That's going to leave the shareholders holding worthless paper.''
What I find really interesting about this story is the blogs got it right from the very start while the main business press, well, didn't. I've gone over this before, but it's worth a second look. Fannie has about $40 million in equity. But they also have "long-term investments" totaling $650 million (and that's down from $787 million the previous quarter). Raise your hand if you think that portfolio is valued properly. Freddie has about $12 million in equity and a long-term portfolio at $760 million. Raise your...never mind. Freddie is one breath away from negative book value -- and Fannie isn't that far behind.
Let's go to the charts:
Notice the following:
-- Prices are below all the SMAs
-- All the SMAs are headed lower
-- The shorter SMAs are below the longer SMAs
-- Prices are below the 200 day SMA
Notice the following:
-- Prices are below all the SMAs
-- All the SMAs are headed lower
-- The shorter SMAs are below the longer SMAs
-- Prices are below the 200 day SMA
These charts say on thing: bankruptcy.
