Freddie, Fannie And Oil "Pushing" Market Around

Despite good news from our parent General Electric, we are again being pushed around by oil at a record price, and by Fannieand Freddie.

Both are down big (about 50 percent) this morning, largely on a New York Times story that the federal government was considering placing one or both of them in a conservatorship. What would that mean? It would mean the companies would be under the legal control of the federal government. Traders, or course, began believing a month ago that the equity in the company was nonexistent, and that's why the shares have been sold off every day since then. What about an explicit guarantee of the $5 trillion in mortgage debt? That, apparently, is a step no one is willing to take, at least not yet.

On this Fannie and Freddie decline, home builders are all trading down--Centex,Lennar,KB Homeall down 6-10 percent.


1) Our parent General Electric in line with expectations, ($0.54), with 4 of 6 divisions exceeding expectations. Q3 guidance of $0.50-$0.54 at the low end of $0.54 analyst consensus. They reaffirm full year earnings of $2.20-$2.30 ($2.22 analyst estimate). GE also announced an agreement to sell GE Money Japan for $5.4 b, which analysts agree is a very good price.

So why is the stock trading down? Goldman Sachs, responding to the earnings, is typical of the chatter: "we believe it is still too early to get more positive on the stock until investor expectations for 2009 are reset to expect another year of 0%-5% earnings growth, and importantly GE begins to demonstrate a path to return to 10% earnings growth in 2010."

2) Another merger deal in the chemicals industry: Ashland buying Hercules for $2.6 b, $18.60 in cash and 0.093 of a share of Ashland for each Hercules. That values the deal at about $23 for Hercules, it went out yesterday at $16.60. Both are specialty chemicals manufacturers.

3) InBev raised the price for Anehuser-Busch to $70 a share, from $65. Up 8 percent to $65 and change.

4) Aviation parts maker Rockwell Collins reported earnings above expectations, and raises full year guidance to $4.05-$4.10 is above analyst expectations of $4.04.

5) Wynn Resortssurprised with a stronger than expected earnings report, though earnings fell in Las Vegas, profit in Macau almost doubled. Up 8 percent pre-open. Las Vegas Sands also up.

Questions? Comments?