Timing
August 24th, 2008 9:53 pm | by John Jansen |The markets seem to be on an inexorable mission to push FNMA and Freddie Mac to the brink and to test the mettle of the Treasury and Hank Paulson. The markets will be very thin this week as many participants will be off until after the Labor Day holiday and will not return to the bond market wars until the first trading day of September,on Tuesday September 2.
Against that background I think that it will become increasingly easy to muscle FNMA and Freddie Mac.The stock will continue to approach zero and bond spreads and various credit derivative indicators should continue to widen ,exacerbating the financial stress of these troubled firm.
The exigencies of circumstances will force Mr Paulson to act. The holiday weekend will be an ideal cover for him to exercise his power and recapitalize FNMA and Freddie Mac. If he chose to act at this time next weekend (Sunday evening at about 1000PM New York time) it would allow foreign markets a chance to trade on the information and it would allow the potentates and grand poohbahs of the Fed and the Treasury to spend the Labor Day holiday bending the ears of senior managers at the large banks and hedge funds and money managers.
That would allow for some discussion of whatever the Treasury has proposed and hopefully would allow something of a graceful opening of trading when the markets begin trading after the long holiday weekend.
What do you think?
6 Responses to “Timing”
By Lineu Vargas on Aug 24, 2008 | Reply
My bet is on nothing concrete happening+jawboning. The way I see it, the common stock has a trump card nobody seems to appreciate these days: they control the company, not Mr. Paulson. The Treasury (according to the wording of the housing bill) can only buy FNM and FRE securities IF and only if those companies boards/management agree. It follows that any plan necessitates the common stock representatives agreement. Why on earth would these people agree with anything that makes the value of their holding essentially zero? On the other hand, how could Paulson politically propose something that leaves enough on the table for the common stock?
By Bond newbie on Aug 24, 2008 | Reply
Disagree; Bush & Paulson will leave this for the next President and Treasury Secy. Look at options activity in FNM: huge volume in out-of-money puts with Jan. expiry. It’s in neither party’s interests for the election to include a referendum on FNM and FRE.
By ron on Aug 25, 2008 | Reply
see Barron’s Current Yield article from this weekend on the GSE’s
By GreenAB on Aug 25, 2008 | Reply
when congress handed paulson a blank check i thought, that he would still do nothing leaving this prbolem to the new president.
but with spreads widening, decreasing appetite of foreign central banks to buy GSE paper and 225b to roll over he HAS to act.
my bet is that he´ll do it this week, when the medias spotlight is on the democratic convention.
By self on Aug 25, 2008 | Reply
I appreciate your no-nonsense summaries and your willingness to speculate on what motivates the moves of the beasts. An extremely valuable resource, I hope you continue to receive the attention deserved.
Self
By fatbear on Aug 25, 2008 | Reply
I have long thought this coming weekend – a few musings about its appeal to Bushco:
It cuts into Obama’s post-convention bounce.
But it could overshadow McBush’s b’day and VP pick. (otoh, overshadowing his 72nd dotage could be good for him.)
Ir prevents GSEs from imploding during campaign, which anyway you cut it is worse for McBush.
It delays the foreign debt bomb until – probably – after the election, and maybe until after Cheney leaves office.
It may – just may – help the “the worst is over” crowd carry the conversation until after the election.
It gives Cheney another reason to bomb Iran.
Etc.