WSJ added details to the story. I think is highly likely this is not a rumor. it doesn't smell like one, too many details. this is hugely telling 'The plan also includes a management shakeup at both companies, according to one person familiar with the plans. Daniel H. Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts.' Who the hell would invent this for a rumor? 'The meetings Friday were in part aimed at getting Messrs. Mudd and Syron to agree to the plan, though their approval was not necessary, these people said. Mr. Mudd arrived for the meeting at 2:50 p.m., flanked by the company's general counsel, Beth Wilkinson, and Rodgin Cohen of Sullivan & Cromwell, one of the country's top banking lawyers. A few minutes later, Mr. Bernanke followed with security escorts.' I say these stocks are almost worthless by monday
Agreed about the dollar, I'm still concerned about China though. Im looking at Steel, may try some Monday. Come on China lets go!
I agree, there are too many details in the story (http://online.wsj.com/article/SB122064650145404781.html?mod=yahoo_hs&ru=yahoo) for this to be a false rumour. The only question that remains for me is the timing of the announcement. Given recent history with other bailout announcements (BSC March; FRE FNM in July), I am thinking Sunday at about 6pm ET.
Looks like the WSJ is not the only one breaking the story. The Washington Post also has some additional specific details. According to the article, the common shares would be diluted, but not wiped out: "Under the plan, which could prompt one of the most sweeping government interventions in the workings of financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies' common stock would be diluted but not wiped out; while the holdings of other securities, including company debt and preferred shares might be protected by the government. "Instead of giving each company a big capital infusion up front, the government could make quarterly injections as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue. "The timing of government action remained unclear last night, and the final details were still under discussion. But as the pace of discussions accelerated, Treasury officials contacted senior congressional leaders yesterday, telling them they might be briefed on the plan this weekend and asking for telephone numbers where they could be reached. ... "The plan was described by three sources, which include an official, a former official who was told of the plans and a mortgage industry executive with direct information. They spoke on condition of anonymity because its specifics had yet to be announced. " http://www.washingtonpost.com/wp-dyn/content/article/2008/09/05/AR2008090503351.html http://www.bloomberg.com/apps/news?pid=20601087&sid=auqr.Uc1lMnY&refer=home
NY Times article also mentions that the plan would "place the companies into a conservatorship", however there isn't as much detail in this article than the Washington Post or WSJ articles, which mention specific times that the two CEOs arrived for the meeting with Paulson. http://www.nytimes.com/2008/09/06/business/06fannie.html?_r=2&hp&oref=slogin&oref=slogin
why did the stock index futures rally along with euro oil and gold on this news ... should there not be some divergence here between equities and commodities and or the USD ?
Some thoughts: FRE / FNM common equity: very bad - cancellation or dilution FRE / FNM senior debt: very good - government guarantee Equities (other than FRE / FNM): good - removes uncertainty; helps to keep interest rates lower than what they would be without the GSEs US Treasuries: Bad - increases liabilities of US Government Currencies other than the US Dollar, including gold: Outperform versus US Dollar, due to expansion of US Balance Sheet Oil: Outperform versus US Dollar, for same reasons as gold
I noticed today in the AM.. big bids were being made for gold stocks well above yesterdays close when the market was apparently suppose to have gone down alot. I knew something was in the air! I agree.. watch for gold $900+
Although I am long gold, I find it hard to believe that the metal will be above 900 "US Dollars" on Monday. Yes the bailout is USD negative, but there is a lot of overhead supply from the declines in July and August. The bid for gold on Friday morning may have been a result of the (lack of) jobs report - another data point that suggests that the Fed Funds rate will not be above 2% for a long time.