Just like on September 11, 2001, the beautiful weather in the Northeast is being paired today with a catastrophe. But today's catastrophe will result in people losing money, rather than their lives. Those who will lose money -- and already have lost plenty -- are the people who own shares of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) and the $5.2 trillion worth of mortgage-backed securities which these two guarantee.
But not everyone is losing money. The New York Times reports that one short-seller is profiting hugely from the rapid decline in these two stocks. In particular, Douglas Noland, a portfolio manager at the Prudent Bear Funds, was willing to go on the record. The Times reports that since the late 1990s, Noland's research has concluded that Freddie and Fannie would shudder when the US credit bubble eventually burst.
But there's no joy in Noland's heart even as his investors profit. According to The Times as he watched Fannie and Freddie fall 12.7% and 21%, respectively, on Thursday, Noland said "I am sickened by this. I had the same sick feeling after September 11. These companies are at the heart of the United States financial system of dollar based securities. Millions of people will suffer."
Fannie and Freddie are down 40% in early trading and 88% and 92%, respectively, in the last year. Good for Noland and bad for everyone else. It looks like the financial system is crumbling and nobody's minding the store.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
Biotech ETFs: Best bets on health care reform
Cramer on BloggingStocks: The world's been waiting for the new GM 
Dell fights Taiwanese authorities over pricing mishaps
Reader Comments (Page 1 of 1)
7-11-2008 @ 2:55PM
jeff said...
DO NOT COMPARE 9/11 TO THE DAY ON THE MARKET!!!!!
7-11-2008 @ 3:16PM
Warren said...
9/11 had a significant effect on the stock market. It's a relevant reference.
7-11-2008 @ 3:16PM
Shaun said...
This is a recession, The people who make money when stocks go down are the people who are shorting.
http://www.stocks-simplified.com
7-11-2008 @ 4:15PM
Warren said...
"This is a recession, The people who make money when stocks go down are the people who are shorting."
Do you seriously run an investing blog?
Wrong. The people who make money in a recession are those who buy high quality companies (now ON SALE) and hold them while the market recovers.
Idiots speculate.
7-11-2008 @ 4:32PM
william lindblad said...
Warren, you have a good point. It was the speculating idiots that are a big part of the overall problem. Housing and real estate are term investments and turning this area into a widespread pseudo stock market was a bad idea.
Going back to the blog -
Fannie and Freddie are going to prove hot potatoes. My prediction is that today's move on the part of Bernanke, while well intended, will backfire and he will take all blame. Ben made a defacto committment to back their debt load with taxpayer money. Neither Ben nor Paulson are elected. This goes awry and Congress will put the blame square on both.
Besides, the debt load of these two entites is going to prove so huge that even the government will be unable to help.
7-11-2008 @ 10:47PM
john said...
anyone that shorts stocks because of false rumors should all die a horrible death and if i ever came across such a scumbag i would put a bullet in his head myself. so beware shortsellers dont ever cross my path
7-12-2008 @ 12:24AM
Bobby D said...
The truth of the matter is that the Republicans have been busy the last seven years looting the treasury and propositioning undercover policemen.
7-12-2008 @ 9:12AM
Jimirons said...
Thank you Mr. Bush, Mr. Freidman, Mr. Clinton, Mr. Bernanke, and Mr. Reagan and all of you other supply side free traders who have warred us, deregulated us and outsourced us into near third world condition. Whatever happend to America first, whatever happend to economic patriotism? We have now become a virtual colony of the Chinese because 30 years Reagan-Clintonomics. Corporations, excuse me, multinational corporations have no patriotism. So the next time you have a warm fuzzy feeling for GM or Exxon-Mobil just remember that they will sell every ideal you hold dear for a stronger bottom line in yen, yuan, euros or kroner. Corporations must be brought back under control and we must start encourage and protect "American" businesses. Any corporation that moves it's headquarters or workforce offshore is not showing any allegiance to you, me or our ideals.