The New York Times reports that global stock markets are tumbling. Nobody really knows why but the latest theory is that investors are concerned about the capital problems at Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) about which I posted yesterday.

Here's a survey of some of the global market damage:

• Nikkei 225 stock average fell 2.5%
• The Hang Seng index in Hong Kong down 3.3%
• S&P/ASX 200 index in Sydney declined 1.4%
• In London morning trading, the FTSE 100 index was down 2.7%
• DJ Euro Stoxx 50 index, of euro zone blue chips, fell 2.3%
• DAX in Frankfurt fell 2.4%
• CAC 40 in Paris sank 2.4%

Fannie Mae (NYSE: FNM) is recently trading at $16.59 in pre-open trading, above its close of $15.74.

OFHEO's Director James Lockhart says FNM and Freddie Mac (NYSE: FRE) are both adequately capitalized. FNM is expected to report Q2 EPS in mid-August.

FNM July option implied volatility is at 162, August is at 145; above its 26-week average of 76 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

TheStreet.com's Jim Cramer says the GSEs as we know them have to die before we can move forward.

At last, we have now found our own Resolution Trust Corporation for this era of overbuilding. In fact, we have two of them: Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take). That's right, we know they are both out of capital, and unlike the ne'er-do-well banks -- almost all of which seem now slated to disappear in one giant bear-market orgy -- there are no saviors.

The dissolution of these two companies is the height of irony. President Bush made it his sub rosa mission to end the hegemony of these two Democrats-in-waiting companies. I don't even think he understood what the guarantee was or what they were supposed to do. That would take a lot of time to figure out. He probably just said, "We have banks, good banks, like Washington Mutual (NYSE: WM) (Cramer's Take) and Countrywide; why do we need Fannie Mae, which just makes money for the Democrats?"

So, over a multiyear scheme, he hamstrung the agencies and let the private banks take over lending and securitizing pretty much anything, because homeownership was another one of his themes, of course, aided by the Fed's insistence that exotic mortgages, especially weird adjustable types, made the most sense.

MAJOR PAPERS:

• A loss of confidence in the government sponsored mortgage firms Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, and Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, resulted in both companies shares plunging about 15% to 14 year lows. Because the two are the largest providers of funding for mortgages in the U.S., their troubles are significant as both may have to issue billions of dollars in stock to save themselves, diluting current shareholders, according to the Wall Street Journal.
• For 75 years the NFL's Pittsburgh Steelers have been owned by the Rooney family, but that may now change as the Wall Street Journal reported that the family is seeking to sell the football team which is valued at about $1.2B. One potential buyer is Stanley Druckenmiller, a billionaire, and chairman of Duquesne Capital Management in Pittsburgh.
• British Prime Minister Gordon Brown yesterday raised the issue of visa problems facing BP Plc (NYSE: BP) employees in Russia with Russian President Dmitry Medvedev, but Medvedev did not make any concessions on the issue, according to the Financial Times. Some people have suggested that BP's billionaire partners in its Russian joint venture, TNK-BP, have orchestrated the visa problems in order to gain control of the venture.

Bloomberg News reports that Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are down significantly and their credit default swaps are up. What gives? Rumors abound that these two government-sponsored mortgage bundlers will need to raise $75 billion as they take write-downs.

Thanks to a new accounting rule -- FAS 140 that seeks to stop companies keeping assets in off-balance sheet entities -- Fannie and Freddie may need to bring mortgages back onto their books, requiring them to put up capital. Fannie has raised $6 billion in capital to offset writedowns and Freddie raised $13.5 billion since December and said last week that it plans to raise $5.5 billion more.

But these stocks have not done so well this year. Today's declines extend Fannie's 2007 drop to 62% and Freddie's to 66%. I am not surprised that those fears are out there. I posted that these two could be the subject of a $1 trillion government bailout. So a $75 billion capital infusion sounds like chump change compared to the bailout. I am a bit surprised that this comes as a surprise to investors. But I would not be trying to catch these falling knives either.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned

TheStreet.com's Jim Cramer says the market's a mess, but the S&P oscillator and buyout offers could give an opportunity for trades.

Here we are again. Another unfathomable moment to buy stocks.

You have the financials just falling apart at the seams.

Oil and the grains are out of control.

The Fed chairman and the Treasury secretary have declared the worst is over even as we await the demise of a half-dozen banks, and we question the solvency of Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take). The only stocks working are Mosaic (NYSE: MOS) (Cramer's Take), Agrium (NYSE: AGU) (Cramer's Take), Potash (NYSE: POT) (Cramer's Take) and a handful of natural gas companies.

It's crazy out there.

And yet my best indicator, the Standard & Poor's oscillator, which you can order from their Web site, is saying you cannot be short here and should be doing some buying. The oscillator, when it has been at minus 5, has called a bottom almost every time in the last decade, plus or minus a day or two, and a percent or even two, and I have long since learned not to see through it.

TheStreet.com's Jim Cramer says the value guys threw this party, so respect the hosts.

Sometimes you just feel beaten into being positive. You just say, "OK, enough, I will accept the positives as they are being put out, not as I believe they are."

That's how I felt yesterday about Freddie Mac (NYSE: FRE) (Cramer's Take). The company put out financials yesterday that looked better than expected, and for once I didn't question whether they were.

I didn't because the earnings from so many of the feckless players -- the Fannies (NYSE: FNM) (Cramer's Take), the Washington Mutuals (NYSE: WM) (Cramer's Take) the MBIAs (NYSE: MBI) (Cramer's Take) and the Ambacs (NYSE: ABK) (Cramer's Take) -- are all being greeted with a bizarre positive response, so bizarre that I bought into the "better than expected" rhetoric because I don't want to fight the value guys who are in control right now.

Elsewhere on the site, Doug Kass has been putting up some very strong arguments that numbers from the likes of Freddie are less than meets the eye.

TheStreet.com's Jim Cramer says the guys at the top don't know what they're doing, and it shows.

AIG's (NYSE: AIG) (Cramer's Take) making everyone's life difficult today. That's in part because AIG had been the biggest proponent of "super senior," meaning they repeatedly said that their collateralized debt obligation (CDO) exposure was of the kind that was intelligent, measured and thoughtful. They talked endlessly about how their due diligence made the difference and that unlike all of the other buyers, they kicked the tires three times and never bought the plain ol' CDOs. Then they brought in professors from Wharton to be sure that even if all heck broke loose and they were being too aggressive, they would be hedged.

They also were the first to give you the percentages of how much could go bad and that even in the worst-case scenario, they were overcapitalized. And, most important, they were insurers, no need to mark to market, they can play it all out.

Plus, they touted their own struggles. They made the point that because of the turmoil at the top, they hadn't bought any bad stuff and stopped buying residential real estate products after 2005. What they did buy -- they assured us in that big teach-in dog-and-pony show in December -- was the extra-special nature of their particular buys and that, unlike everyone else, risk officers scrutinized every single piece of paper that went into their super senior insurance, meaning only the top-top part of a CDO-squared, the part where everything had to default ahead of it; they made a point of how impossible that would be.

Fannie Mae (NYSE: FNM) is recently trading at $25.80 in pre-open trading, below its close of $28.29.

FNM reported Q1 EPS ($2.57) versus consensus estimates of (81c). FNM announced plans to raise $6 billion through common and preferred offerings. OFHEO will reduce FNM's capital requirement to 15% from 20%. FNM will reduce its 3Q dividend to 25c.

FNM May option implied volatility of 92 is above its 26-week average of 67 according to Track Data, suggesting larger price movement.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

The New York Times reports that Federal National Mortgage (NYSE: FNM) and Federal Home Loan Mortgage (NYSE: FRE) have a tiny sliver of capital to support a mountain of mortgages. To put it in perspective, their level of borrowing is almost twice that of the enormously over-leveraged investment banking and hedge fund industries. With the collapse of the housing market, Freddie and Fannie are in trouble. And when you get to the scale of these two, so is America.

As I posted last month, it could cost $1 trillion to bail out Fannie and Freddie. These hybrid organizations are a key cog in the mortgage industrial complex (MIC) that has gotten the world into its current capital crisis. Fannie and Freddie buy "conforming" mortgages from their originators and then package and sell the mortgages as securities. But these two have a mere $83 billion in capital to support $5 trillion worth of debt and other commitments.

This 60-to-1 ratio is almost twice the 32-to-1 ratio of the highly leverage investment banks and hedge funds. And like any company with hard-to-value assets, Fannie and Freddie have unrealized losses. In their case, those total $20 billion -- they've already taken $9 billion worth so far this year. By 2007 they had guaranteed or invested in $717 billion of subprime and Alt-A loans, up from almost none in 2000. And many of those are not worth that much.

CNNMoney reports that McGraw-Hill Co.'s (NYSE: MHP) Standard & Poor's (S&P) forecasts the possibility of a $1 trillion bailout of Federal National Mortgage (NYSE: FNM) and Federal Home Loan Mortgage (NYSE: FRE) -- government sponsored purchasers of pools of loans which package them into securities. Specifically, S&P forecasts that a bailout of these two -- known as Fannie Mae and Freddie Mac -- would cost -- in a worst case scenario -- between $420 billion and $1.1 trillion of taxpayer's money. This would represent several times the $250 billion Savings & Loan bailout by the first President Bush.

It's a bit ironic for S&P to be issuing this report. After all, it was among the ratings agencies that contributed to the problem in the first place. As I posted last August, the ratings agencies competed for enormous fees from investment banks to put their AAA ratings on issues of mortgage-backed securities (MBS). Those AAA ratings caused naive MBS buyers to skip the kind of detailed analysis of their purchases that might have stopped the flow of dumb money into the MBS bubble that is now putting Fannie and Freddie at risk.

How did S&P arrive at this scary conclusion? Both companies are forecast to report more losses this year due to declining home prices and rising mortgage defaults. And according to Yale professor, Robert Schiller, "The real fundamental problem is real estate prices have been falling and they might fall substantially more. The Office of Federal Housing Enterprise Oversight (OFHEO) and Fannie and Freddie never considered the possibility of a massive real estate correction."

MAJOR PAPERS:

• A newly published report by Standard & Poor's said that the performance of organizations such as Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, and Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, could directly affect the U.S. economy and the country's credit rating, especially if they have to be rescued by the government, according to the Wall Street Journal's "Credit Markets" column.
• Seagate Technology LLC (NYSE: STX), a hard drive maker, filed a patent infringement suit in San Francisco against STEC Inc (NASDAQ: STEC) over four patents related to technology used to store data on computer chips, the Wall Street Journal reported.
• The Financial Times reported that Citigroup Incorporated (NYSE: C) is allowing private equity groups such as Apollo, The Blackstone Group LP (NYSE: BX) and TPG that are bidding for up to $12B of its leveraged loans to 'cherry-pick' from a wide range of assets with different credit ratings and prices.

WEB SITES:

• According to analysts, Reuters reported that technology industry leaders that include International Business Machines Corporation (NYSE: IBM), Oracle Corporation (NASDAQ: ORCL), Cisco Systems Inc (NASDAQ: CSCO) and Hewlett-Packard Company (NYSE: HPQ) are among the companies with large cash reserves that could be used to fund acquisitions.

MOST NOTEWORTHY: Abbott Lab, Fannie Mae, Freddie Mac and Micromet were today's noteworthy upgrades:

• Wachovia upgraded Abbott Lab (NYSE: ABT) to Outperform from Market Perform as they believe their earlier concerns have been addressed. Past concerns included the potential for a negative outcome from the FDA panel on Xience and slowing prescription growth of lead drug Humira.
  
• Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were raised to Outperform from Market Perform at Keefe Bruyette citing recent government actions to stabilize the mortgage markets.
  
• Micromet (NASDAQ: MITI) was upgraded at RBC Capital to Outperform from Sector Perform as they expect positive data for its lead candidate, MT103, by year-end.

OTHER UPGRADES:

• ThinkEquity raised Atheros Comm (NASDAQ: ATHR) to Buy from Accumulate.
  
• Goldman upgraded US Steel (NYSE: X) to Buy from Neutral.
  
• General Electric (NYSE: GE) was upgraded at Merrill to Buy from Neutral.

If you thought holding a rally after a huge day was too much, you weren't too far off the mark. Many people ask over and over if this is a real bear market or not. By a classic definition that may still be up in the air, but this is what every bear market feels like. It also goes to show that you almost want to sell every time you feel good about things and then buy when you feel like everything couldn't get any worse. Hearing traders and market technicians say, "Sell the rallies" is becoming quite commonplace. Visa Inc. (NYSE: V) was the largest US IPO ever with its shares soaring after their unprecedented debut yesterday at $44 per share. Investors see promise in electronic payments as shares rose 33% on its IPO debut. Here's the drop for the major averages:

• DJIA 12,099.66 (-293.00; -2.36%)
• S&P 500 1,298.42 (-32.32; -2.43%)
• NASDAQ 2,209.96 (-58.30; -2.57%)
• 10YR-TBond 3.362% (-0.089)

There were many names on the 52-week lows, but many formerly hot names you wouldn't have guessed. If you look at the major collapse that was seen in the commodity stocks (and commodity prices) that have been major leaders, you'd think they were almost exposed to CDO's too. Oil fell $6.02 to $102.48 per barrel, and that took down Exxon Mobil Corp. (NYSE: XOM) by more than 4% to $84.43; Gold fell down over $59.00 to $944.70 per ounce late in the day and that took Barrick Gold (NYSE: ABX) down 8.7% to $45.25. The Mosaic Co. (NYSE: MOS) was also a huge loser as traders took off more of their agriculture trades with a drop of 11% to $97.25

MAJOR PAPERS:

• To help stabilize the housing market, the Wall Street Journal reported that the Bush Administration is planning to help create fresh funding for mortgages. The plan, which still requires final approval, is said to ease an excess-capital requirement for government sponsored organizations Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, and the Federal Housing Administration.
• The Wall Street Journal also reported that a merger between Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) may be derailed after Delta pilots notified executives they remain unable to reach an agreement with Northwest pilots on how to integrate pilot ranks should the two combine.
• The Financial Times reported that BAE Systems Plc (OTC: BAESY) won a $715M order to supply nearly 1,500 mine-resistant vehicles from the U.S. government.

OTHER PAPERS:

• The Chinese government has locked out Australian mining giants BHP Billiton Limited (NYSE: BHP) and Rio Tinto Plc (NYSE: RTP) from selling iron ore into its daily spot market, the Sydney Morning Herald reported. Mining sources said that the decision may have already cost Australia up to $300M in export profits.