Sell on Fannie, Freddie Rally, Credit Suisse Says

[makapaaa]

Sell on Fannie, Freddie Rally, Credit Suisse Says (Update2)

By Kyung Bok Cho

Sept. 9 (Bloomberg) -- Investors should sell stocks following a rally sparked by the U.S. government's seizure of Fannie Mae and Freddie Mac, as economies in the U.S. and Europe remain weak, Credit Suisse Group said.
Global stock markets surged yesterday after the takeovers, with the Standard & Poor's 500 Index gaining 2.1 percent. Still, the rebound is unlikely to last because the U.S. housing decline will continue, while Europe and the U.K. are ``close to recession,'' Credit Suisse's London-based analysts including Andrew Garthwaite said in a report dated yesterday.
``U.S. house prices probably need to fall another 10 percent to 15 percent; it will take about 2 1/2 years to absorb the excess housing inventory,'' the report said. ``More importantly, the problems over the summer were not U.S.- related.''
Fannie and Freddie, which make up almost half the U.S. home-loan market, were seized after the biggest surge in mortgage defaults in at least three decades. Investors had been concerned that failures by the companies would lead to further losses at financial institutions around the world.
The MSCI Asia Pacific Index, which rose yesterday by the most since Jan. 25, lost 2.3 percent to 118.65 as of 2:42 p.m. in Tokyo today.
Credit Suisse maintained its year-end S&P 500 estimate of 1,300. Investors shouldn't buy before stocks become 10 percent cheaper than that, the report said. The measure yesterday settled at 1,267.79, while S&P 500 futures expiring in December rose 2.1 percent to 1,268.40.
Inflation `Not a Problem'
The median price of an existing home in the U.S. fell 7.1 percent in July, compared with a 6.1 percent drop in June, the National Association of Realtors said last month. There were a record 4.67 million unsold houses and condos on the market, according to the group.
There is ``very little evidence'' that the European and U.K. central banks will focus on boosting growth, rather than taming inflation, Credit Suisse said in today's report. The economies of Europe and the U.K. are 15 percent larger than that of the U.S., the analysts said.
Europe's economy contracted 0.2 percent in the second quarter, while gross domestic product growth in the U.K. was unchanged, ending the nation's longest stretch of economic growth in more than a century.
U.K. Inflation
Bank of England policy makers kept the main interest rate unchanged last week, as inflation risks prevented them from cutting borrowing costs to bolster growth.
``We continue to believe that inflation is not a problem,'' Credit Suisse said in today's report, citing a decline in U.S. and U.K. wage growth and slowing gains in commodity prices. Emerging markets will show ``relative resilience,'' the brokerage said.
Credit Suisse recommends ``defensive'' stocks such as telecommunications companies and food producers, including Diageo Plc, the world's largest liquor maker, and Nestle SA, the world's largest food company, according to the report.
To contact the reporter for this story: Kyung Bok Cho in Seoul at [email protected]
Last Updated: September 9, 2008 02:40 EDT

 

[madmansg]

sell they say sell , it means buy.

 

[bart12]

Now it is the best time to buy stock

http://online.wsj.com/article/SB122089522758310665.html?mod=2_1581_topbox

What the Fannie and Freddie Bailout Means for Investors
Will the housing market turn around? Will stocks continue to slump? Will tax rates rise? Here's what you need to know.
September 8, 2008 8:04 p.m.
Uncle Sam's bailout of Fannie Mae and Freddie Mac should be good news for stocks and the housing market. It has to be bad news for Treasury bonds. And it surely raises the chances that your taxes are going to rise down the road.

If you haven't invested anything in the stock market in recent months, this is a good time to get back into the habit. Keep socking away money into a spread of funds, little and often.

But don't bet the farm at once.

And leave it to the TV talking heads to plunge into "financials" and "homebuilders." Investors who actually want to make money should stick to their plan.

The best times to buy the homebuilders were earlier this year, when they were hitting rock bottom and nobody wanted them.

Only now, when the shares are up to a third more expensive, are they starting to attract attention again. Sigh.

As for the financials, I still wouldn't touch them with a ten foot pole. Their shares are also about 40% more expensive than they were at their July lows. But, unlike the homebuilders, they hadn't clearly hit "capitulation" levels first. Risks remain.

It has become apparent this year that at many major banks even the CEOs and directors don't know what they are holding on their loan books. If they don't know, how will you?

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, has just warned that the outlook for smaller banks remains grim. Troubled loans are still rising and 117 banks are now on her "problem list," the highest level since 2003.

On the housing market: Remember that the federal bail out of distressed homeowners is due to kick in next month. That's when many of those in trouble should get access to new thirty-year mortgages underwritten by Uncle Sam. If today's news starts to bring mortgage rates back down, that should be a boost. Most of the housing bust is in half a dozen states. The market there needs to clear away the forced sellers. Once that happens, we should see some stability to return.

On the other hand, the bailout of Fannie and Freddie is being made with taxpayers' dollars, and there will be a cost. How much? No one knows. But William Poole, former president of the Federal Reserve Bank of St Louis, notes that these two entities have about $6 trillion in liabilities.

To put that in context, up until Friday the entire national debt of the United States was $9.75 trillion, and the debt held by the public and overseas was $5.7 trillion.

Mr. Poole says that even if Fannie and Freddie's loan books only suffer 5% losses, this bailout will end up costing the taxpayer about $300 billion. "I would not be surprised if their total losses aggregate about 5 percent of their obligations," Mr. Poole told Bloomberg Radio. "Five percent does not seem to me to be an outrageous guess."

That $300 billion cost has to come from taxes, or from borrowing – which will need to be paid for in due course by further taxes. To put this in context, that would probably double next year's likely federal deficit.

The federal budget is already hugely out of line with expenses. Regardless of who wins the presidential election, investors should probably start thinking about how to position their finances best to brace themselves for higher taxes down the road.

As for borrowing: Treasury bonds, the IOUs issued by the federal government, are already trading at very expensive levels. The yield on the thirty-year bond is just 4.3%. You would probably expect that to rise as a result of any economic rebound, any easing in panic, or any big increase in federal borrowing. The bailout of Fannie and Freddie may well involve all three.

 

[dysentry]

Election day is Nov 4th, run for the hills after that.

 

[BlueCat]

of cos now,they want you to sell the two stocks,so that they can buy and profits after US government announcement the takeover of them.

 

[Nomad]

they cun save and rescue all of them.
they want to save these 2,cos they are the biggest mortgage loaners.