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The Hatfields and McCoys


On the path Fannie and Freddie nationalization.


Hatfields? McCoys? No, not Julie--although she was Minxy-I'm talking about Aunt Fannie (FNM) and Uncle Freddie (FRE). For those who haven't been following this Family Feud (read: for those enjoying life!) there is an old school shootout going down.

On the heels of yesterday's earnings, Fannie opened lower and rallied almost 25% before fading to the flat line. Freddie Mac followed with earnings-or lack thereof-this morning, posting a record $2.45 billion loss for the fourth quarter. Together, these two companies account for 45% of the $11.5 trillion home loan market.

I'm sorry Richard Dawson but these swings aren't healthy for anyone, least of all the companies themselves. These are the keepers of the mortgage gate, the velociraptors of money, government sponsored entities that are supposed to morph and manage risk.

If they can't find their own footing, how are we supposed to trust their balance sheets?

I have an axe to grind with Fannie, having pounding the bearish gavel since $70 but failing to capture most of the move. It is, without a doubt, one of the greatest frustrations of my career but alas, placing it on my personal restricted list opened many other doors. Or, at least that's the post-rationalization I'm sticking with.

With that said, I believe the potential that these companies will eventually be nationalized is a much higher probability than most folks currently assign. The "when" and "why" remain to be seen, making the path that we take to get there entirely more important than the destination.

The bottom line is this: If MBIA (MBI) and Ambac (ABK) are deemed too big to fail-which is inferred by the semantic socialization we've seen-Fannie and Freddie will be protected from up on high by the Prince of Darkness.

Food for thought as we figure it all out.

Random Thoughts

  • Since I've adopted Winky Wright as my love child (work with me here), my compu-box rating has drastically improved. Inherent in that approach is understanding that you're gonna get hit. The trick to the trade is knowing when to counter with a flurry versus letting your opponent exhaust itself. It's also important to enjoy the down time between rounds.

  • You would be surprised by how many opportunities exist when you're not married to a mindset. Case in point, note how big beta acts pre-opening in the face of fugly futures. Apple (AAPL), Baidu (BIDU), Research in Motion (RIMM), Google (GOOG). As Slaino used to teach me, if they ain't going down, there's a trade to the upside.

  • I haven't flip-flopped and served like this since college (I was a short order cook lest your mind began to wander). I entered yesterday's session lugging China (via FXI and Baidu (BIDU)), pressed the long side into the lift and unloaded my exposure (before fading and trading some banks for a trade). Jab jab jab...

  • Where did I net out? Very tired with a handful of long-side situations, a snivlet of financial puts and a whole heckua lotta dry powder.

  • I reserve the right to buy back into the China trade. It's just that, as we got up to resistance (after a string of positive weeks), I opted to hit it and quit it.

  • I don't know, I think Macke will fit in just fine.

  • No. Wire. Hangers. EVER!

  • So Brian Leach was named as the chief risk officer at Citigroup (C)? What's next, Mark Messier as CFO and Jaromir Jagr as CMO?

  • Note to Minyan Ken Klaiman: I love ya pal but please - PLEASE - stop sending me ABBA songs in the middle of the trading day. That's how rumors get started.

  • Buying volatility with the VXO in the low twenties has been a good bet. Famous last words, right?

  • I'll again say, when crude slips hard, the thump you'll hear will be equities tripping the deflation switch.

  • Still bidding for Calgon. Take me away…

  • Jeezums, silver is about to be twenty-something? I remember trying to defend my longs in and around $7.

Some Answers I Really Wanna Know…


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