As often as I can, I’m going to try and talk about Just One current event and how I would play that event in the market. I’m going to try and be as concise and possible each time. So if you want the one piece of news you need to know that day, this will be it. More often than not, it will be a financial story, but sometimes I may just talk about something completely random.
Fannie Mae today announced that it will cut it’s dividend by 30% and also sell stock to raise capital. Fannie helps finance almost 20% of all homes in the United States. They also announced a significant loss for the quarter and had a relatively bleak outlook for the housing market going forward, signaling we have not quite hit the bottom.
Why is this the story of the day? I think it has tremendous impact on the rest of the financial sector. First off, companies hate lowering their dividend. Doing so means that Fannie Mae is very serious that it needs to raise capital and maintain liquidity. As bad as the housing sector news has been, I think its going to get worse from here as the rest of the nation catches up with the slumps in Florida, California, Nevada and other hot housing markets. Fannie is down after hours and I think it has more to go. I do not think you buy in. I do not think the financials are done bottoming (but it is coming soon). I stay out for now, and wait for some further drops.
What are your predictions for Countrywide?
Hi Aida,
I would stay away from CFC. You just don’t know what types of loans they have on their books. The time to buy in may be close at hand, but right now I stay away. There are rumblings they might go bankrupt, and that isn’t all that far fetched.
How about Indy Mac? I heard more layoffs are coming.