Did Fannie Mae Management Shakeup Cause A Spike In The Stock Market?

I was day-trading a quiet NASDAQ (^IXIC) market today when suddenly the market spiked sharply higher a little after noon. What happened? I looked around at various sites for clues and the only comment was from Briefing.com: “…there doesn’t appear to be any catalyst for the gains.” Hmmm. Then at 2:00 PM another comment was: “…market breadth is positive although conviction behind the market is unclear.” Double, hmmm.

There really wasn’t any “public” news. But, evidently some rumors were swirling about trading desks that something was up with Fannie Mae (FNM). A rescue perhaps? Nope, as it turns out just a summer house cleaning of some useless and incompetent executives. But see more below in the closing comments.

We are also getting to the end of the month when, you guessed it, some of Da Boyz don their coveralls, get to work painting to make things look a little better for their beleaguered clients.

Volume remains light while breadth was good overall. Below is a different Yahoo Finance view.

So, let’s check in on the problem children where Da Boyz were most active in playing around today.

A major reason bonds are rallying is a combination of there being little else of quality for fixed income investors to buy and an ongoing dollar rally.

An interesting and unique take on the dollar rally is in this article.

It’s offensive that taxpayers are being asked to bailout Fannie Mae (FNM) and Freddie Mac (FRE) period. But, it’s understandable that something like this needs to be done. But the shareholders should be wiped-out and certainly departing incompetent executives shouldn’t be given any lucrative severance packages. Nevertheless, according to a late-breaking WSJ story there is a lot of pressure on the Fed not to “tell shareholders to jump in a lake”.

So what will happen? It’s a political year and protecting regional banks who bought preferred stock for that little extra yield is a pressure point no doubt. Having these holders accept a much lower dividend is probably the best solution since the credit ratings may be restored providing a lift to prices even though yields are reduced. As it stands now marking these securities to market is probably a bigger problem as they are now structured.

That will do it for Wednesday and most likely this week.

Have a pleasant day.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: IWM, UWM, QQQQ, QLD, XLY, XLP, UGE, IEF, TLT, UUP, GLD, DZZ, DBC, DEE, USO, UNG, EFA, EFU, EEM, EEV and FXI.

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Comment by HamptonsGuy

2008-08-28 04:25:56

Guess you are as bored as me Dave, seeing the market moving so lifelessly and haphazardly.

Let’s all go to the hamptons and forget about wall st.

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