All day, Google message boarders feverishly defended their claims that their FRE or FNM stock value will pop or that others’ stock will be worthless because of the Freddie/Fannie takeover. Despite what happens with these two companies, US futures were already up 240 points by 8:00PM (Bloomberg.com), even with the price of oil up $2, so it was pretty obvious that the overall market was happy about the takeover. Before its open, Japan’s Nikkei futures pointed down 80 points, but opened up 147 and shot straight to the stratosphere. Is it possible that government bailouts of two American companies will heal all the world’s markets? Time will tell on that one, but one thing’s for sure: tomorrow morning will be interesting.
An excerpt from an article in the New York Times entitled “A Sigh of Relief, but Hard Questions Remain on U.S. Economy” by Vikas Bajaj and Keith Bradsher explains why we need to keep China happy. In addition to us needing their money for Iraq, China owns a large stake in our economy:
“Asian central banks, particularly the People’s Bank of China, have emerged over the last several years as important buyers of bonds from the two American government-sponsored enterprises [Fannie and Freddie]. Standard & Poor’s estimates that the People’s Bank of China held $340 billion of these agency securities at the end of June, but has been unable to estimate Asian holdings over all because the data is too unclear.
While central banks around the world have historically accounted for a quarter of purchases of Freddie Mac debt, their share rose to 37 percent for debt issued since 2006, according to an analysis of the latest available data by CreditSights that was released on Wednesday. The bulk of those purchases appear to have been by Asian central banks, which have been buying dollar-denominated securities at a record pace to slow their currencies’ rise against the dollar and thus preserve the competitiveness of their exports.
Still, Asian central banks are likely to remain major buyers of mortgage securities. That is because they must reinvest dollars earned from exports to the United States, said Daniel Alpert, a managing director at Westwood Capital, an investment bank in New York. The Treasury backing of the debt will serve to make the bonds more attractive, he said.
“The money that they have been giving us as basically a gift will come back to them,” Mr. Alpert said, referring to the Asian investments in the securities. “They should be quite pleased.””
The New York Stock Exchange halted premarket trading of both Freddie Mac and Fannie Mae for tomorrow morning. It’s going to be one wild ride once 9:30AM hits!
