FREDDIE, FANNIE RATTLE MARKET
Fearing the two largest U.S. mortgage finance companies need a government bailout, investors pushed stocks lower Friday and sent the Dow below 11,000 for the first time in 2 years. By the end of trading stocks pared some losses as officials began to talk of safety-net moves for the ailing sector.
FANNIE & FREDDIE WHIRLWIND
Late word contradicts a Reuters report from earlier which suggested that Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae (FNM) could take advantage of the emergency discount window. Fast Money’s Dylan Ratigan says that’s not exactly true. They're not commenting on what they’re going to do.
Alarm swelled on Friday that Fannie Maeand Freddie Macmight run short of capital, placing the fragile U.S. economy at even greater risk, but after the closing bell both said they’re well capitalized and worries are unfounded.
I’m unclear says Karen Finerman on Fast Money. Are Freddie and Fannie saying that there’s a plan in place to address the crisis or are they just saying there is no crisis? Either way lack of clarity is not a good thing.
Worries about Fannie and Freddie grew after The New York Times said the administration was considering a plan to put the companies, thought to have implicit government backing, into a conservatorship if their problems worsen, citing people briefed about the plan.
Putting Fannie and Freddie into conservatorship could wipe out shareholders, and obligate taxpayers to cover losses on home loans Fannie and Freddie own or guarantee.
I bought Fannie a few days ago, explains Pete Najarian, but I also bought puts. Personally I like the levels and the volume. We could be near a bottom.
FANNIE AND FREDDIE IN TRADE SCHOOL
If you find the Fannie / Freddie crisis confusing think of it this way. Currently Fannie and Freddie own or guarantee $5 trillion dollars of U.S. mortgages, that’s about half of all mortgages in our nation. If Fannie and Freddie are no longer able to borrow money due to this crisis, they would no longer be able to buy mortgages from lenders.
In turn, this would make it far more difficult and perhaps impossible for people to obtain home loans, which could cause the housing market to grind to a halt.
If you're a glutton for punishment and must trade the financials Pete Najarian recommends a pairs trade. Get long a domestic bank such as Bank of Americaand short a foreign bank such as HSBC (HBC), Unibanco (UBB), UBS (UBS), or ICICI Bank (IBN). Najarian doesn’t think they’ve yet to fall far enough on credit concerns.
> Find out how Guy Adami recommends trading in It’s A Mad, Mad Market.
OIL SURGES TO NEW HIGH
Contributing to investor pessimism was a $5 jump in oil pricesto a new record above $147 a barrel on supply concerns due to lingering worries over Iran's nuclear aspirations and a potential strike by Brazilian oil workers next week.
In fact, oil's rally could run further if the troubles at Fannie and Freddie feed into the commodities boom by reducing the chances of an interest rate hike by the Federal Reserve.
I like Chesapeake Energy, counsels Guy Adami, in the energy sector. But the time to buy it was probably a few days ago.
You should trade the airlines as a proxy for oil, says Pete Najarian. They’re a contra-oil trading strategy. If you think oil is going to pullback then I’d get long the airlines.
If you want to bet that oil will pull back then I’d play the DUG , counters Karen Finerman. Factors that drag down oil such as a weak economy can also drag down the airlines.
And never, ever buy airlines before you go on vacation, exclaims Jeff Macke. It’s too a quick trade. I told you how to trade this space yesterday, he adds. Find out how!
> Read Jeff Macke and the Purple Marker.
MARKET IN CRISIS: WHAT DO I DO WITH MY MONEY?
With so much turmoil in the market we thought you’d like a little extra advice. So for insights we turned to Doug Cliggott, the CIO of Dover Management. He’s the former JPMorgan strategist who called the market massacre in 2000.
According to Cliggot we are probably only halfway through the decline in corporate profits. “We are uncomfortably far away from the bottom in the earnings cycle,” he says on Fast Money.
And the next shoe to drop in financials should be in traditional credit. Cliggot thinks that as the unemployment rate goes up, more and more Americans will default on their auto loans, home equity loans, and credit card payments.
He thinks the way to play stocks right now is long healthcare such as Johnson & Johnsonand Pfizer as well as biotch such as Amgen and Celgene .
He also suggests shorting big tech names because he feels the space is overcrowded.
IPHONE, TECH DISAPPOINT
Shares of Applefell on Friday as bugs hindered the much hyped iPhone launch. Many eager U.S. buyers of Apple's new iPhone left stores Friday frustrated because their new gadgets did not work due to problems activating service
Meanwhile, Goldman Sachs, removed Cisco , the tech bellwether from it’s Conviction Buy List. The firm did, however, maintain its “Buy” rating and said "Cisco remains one of our favorite stocks in CommTech.”
Goldman got out but noone got out with them, remarks Pete Najarian. That suggests this stock might have strength.
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Trader disclosure: On July 11, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Macke Owns (INTC), (USO), (WMT), (MSFT); Najarian Owns (AAPL), (CHK), (TSO), (XLF); Najarian Owns (FNM) And (FNM) Puts; Najarian Owns (LEH) And (LEH) Puts; Najarian Owns (RIMM) Calls, (SLB) Calls, (YHOO) Calls, (CSCO) Calls; Finerman Owns (GS); Finerman's Firm And Finerman Own (PDE); Finerman's Firm Owns (MSFT), (SUN), (TSO), (VLO), (GE), (MO); Finerman's Firm Is Long SPX Index Puts; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm Is Short (BIG), (RTH), (IJR), (MDY), (SPY), (IWM); Finerman's Firm Owns (TGT) Calls: GE Is The Parent Company Of CNBC
Sandler O'Neill Advised clients in deals involving (BAC) and (JPM): Sandler O'Neill Recvd. Inv. Bank. Comp. From (BAC), (C), Past 12 Mos.; Sandler O'Neill Expects To Receive or SeekInv. Bank. Comp. From (BAC), (JPM), (C) In Next 3 Mos.; p(BAC), (C), (JPM), (MER), (MS), (LEH) Are Clients Of Sandler O'Neill ; Sandler O'Neill Was A Manager Or Co-Manager of A Public Offering for (C), (JPM) In Past 12 Mos.; Sandler O'Neill Has Received Non-Inv. Bank. Comp. from (C), (JPM), (MER), (LEH), (BAC); (GS) Is A Non-Inv. Bank. Client Of Sandler O'Neill