Fearing The Worst For Fannie
Speculation is swirling on Wall Street that the credit crisis might soon reach the boiling point after published reports revealed that Freddie Mac executives met with Treasury department officials on Wednesday morning. Fears are mounting that the mortgage financiers will soon need government support and any bailout would hang stockholders out to dry.
(It’s worth noting sources described the meeting as part of a regular series of meetings that have been occurring since last month when the Bush administration announced a plan to aid the two companies.)
Nonetheless, investors are getting extremely jittery and slashed shares of Freddie Mac and Fannie Mae by more than a quarter of their value on Wednesday.
Since Monday, stock in the two companies — which together hold or guarantee half the U.S. mortgage debt — has plunged more than 45 percent and is now trading at lows not seen in nearly two decades.
Meanwhile, Fannie Mae's chief executive sought to reassure investors that no bailout was imminent. The company's financial position "remains very strong," he said.
However, if you follow the options action, the outlook is anything but optimistic.
“I think for the most part that Freddie and Fannie are toast,” says Jon Najarian on Fast Money. “There’s nothing in the options trading that suggests investors believe in the survival of either of these companies. Both stocks look to me like they’re going to trade around $2. Options investors are buying puts all the way down.”
But Najarian doesn’t think there’s a trade to be had. “I think it’s a fool’s folly to buy puts at this point,” he tells the traders.
Got something to to say? Send us an e-mail at email@example.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send your e-mail to firstname.lastname@example.org.
Trader disclosure: On Aug 19, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (CY), (MSFT), (WMT); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (AAPL) And Is Short (AAPL) Calls; Pete Najarian Owns (CSCO) Call Spread; Pete Najarian Owns (LEH) Put Spread; Pete Najarian Owns (MS) And Is Short (MS) Calls; Pete Najarian Owns (NVDA) Calls And (NVDA) Call Spread; Terranova Owns (AAPL), (BNI), (CME), (EOG), (FCX), (GS), (GOOG), (INTC), (KOL), (NOV), (POT), (RIMM), (SA), (XLF), (SU), (X), (VLO), (YHOO); Terranova Owns (AIG) Puts; Terranova Is Short Crude Oil Time Spread (Short Dec. 2009, Long Dec. 2012); Terranova Is Long Crude Oil Futures (Dec. 2012)
Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd.; Phoenix Investment Partners Owns More Than 1% Of (ABD), (ARE), (BRE), (CNTY), (CLB), (OFC), (DLR), (ESS), (EXR), (FL), (IAT), (IGE), (LNET), (MAC), (OIIM), (PSPT), (DBC), (DBV), (SLB), (SKT), (BLV)
Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO; Phoenix Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
Jon Najarian Owns (CSIQ) Calls; Jon Najarian Is Short (NCC)