Fannie Mae and Freddie Mac to be Worth Zero for Shareholders

I wrote on August 18th that these companies would not be worth anything for shareholders. As reported by Marketwatch: "The Treasury Department is expected to announce as early as this weekend a plan to bail out and recapitalize collapsing home mortgage giants Fannie Mae and Freddie Mac in one of the biggest government rescues in U.S. history."

Full Story here: http://www.marketwatch.com/news/story/treasury-set-bail-out-fannie/story.aspx?guid={46D1439E-A2C4-418C-9BE0-09BE0B9EE60D}&dist=msr_4

Fannie Mae and Freddie Mac own/guarantee ~ 50% of the $12 trillion in outstanding US home mortgage debt. This again will put even more pressure on US government debt levels. I wonder, then how it is possible for the US dollar to continue to rally. In essence this entry is a contrarian view to my call for a stronger dollar.

So, both stocks will have a stock value of zero, and preferred dividends will be slashed.

Read full blog analysis from Peter Cohen at http://www.bloggingstocks.com/2008/09/05/will-fannie-and-freddie-shareholders-be-wiped-out-this-weekend/

Have you ever heard of the expression, 'dead cat bounce?'

How to Profit from a Stronger US Dollar

The US Dollar's strength over the past two months has held strong. This is due to the market realizing that the US is not the only country facing slower growth. Worse is that Europe, India, and China are also facing even slower growth than that of the U.S. (from a growth deceleration perspective).


To profit from the inflow of foreign investors into the U.S., investors should be long on the US 20-year treasury bill. Boring yes, but profitable as well.
Chart Source: http://stockcharts.com/charts/gallery.html?$TLT

While the most recent rally might be at risk of pulling back, investors should consider entering TLT on a close above $96.

Note: Credit should be given to Iain Fraser for recommending TLT several months ago on DV tech talk.

Have Oil Prices Finally Popped?

The business section of newspapers will be littered with speculation that the oil bubble has popped, along with the commodities market in general. North of the border, the S&P/TSX Composite index fell 470 points, or 3%. Is that a whopping number?

The commodities market will be in a tug of war between speculation of a widespread slowdown in global growth, and a recovery in the U.S. markets. Since commodity prices will be affected largely by demand from China and India, one cannot exclude the U.S. accounts for a large level of demand from these very countries.

In short, economic figures for China and India are limited, and investors only have their stock market indices as an unreliable guide (both are down substantially for 2008).

Going back to energy prices, let's take a look at OIH:


Negative technical divergence occurred moving into March 2008. Upon sell-off, the stock rebounded from support levels at around $165 (marked L on the chart). The rally to new highs ended with another sell-off on stronger volume, a bearish sign.

Between July and August, support held strong. The stock is currently below the support price and has broken its upward support line. This does not provide conclusive evidence that the oil bubble has popped. Expect volatility as oil struggles to fight to the support line @ $185.

Think of fundamentals as well: world growth might be slowing but not so much that demand is being impacted. Solar energy is today's market darling, but there is not enough of it as an energy source to dent demand for oil. Finally, the auto market is just starting to develop more small, energy-efficient vehicles.

The downside for OIH (and oil) is 8.5% at best.