As expected, Freddie Mac (NYSE: FRE) announced a $6 billion preferred stock sale on Tuesday and told its investors that their dividends will be cut in half to just 25 cents so that it can hold on to enough cash to satisfy federal regulators. The dividend cut is Freddie's first cut since the government-chartered enterprise became a public company in 1989.

Freddie hopes that the preferred stock sale will be enough of a cash infusion to offset losses from the subprime mortgage mess, or it could be forced to curtail future lending and sell off some of its portfolio of mortgages. If that happens the mortgage cash crunch already seen in the housing industry could get much worse. Private investors already have fled the market. If Freddie can't play, then that puts the burden on Fannie Mae (NYSE: FNM), which also reported loses in the past quarter.

What will it mean to the market if Freddie has to cut back on lending? Less money will be available than there is now to buy mortgages on the secondary market. If banks that initially make the mortgage can't sell it on the secondary market, then they will have to hold the mortgages in their own portfolios. By selling mortgages to the secondary market, which includes Freddie Mac, Fannie Mae, and whatever private investors or international banks are left to play in this volatile market, banks that initially loaned the money can then loan more money.

Continue reading Will Freddie's $6 billion stock sale be enough?

Will Freddie's $6 billion stock sale be enough? originally appeared on BloggingStocks on Wed, 28 Nov 2007 13:35:00 EST. Please see our terms for use of feeds.

So far this year, the word "subprime" has taken on mostly poisonous connotations. It has wreaked havoc on some of the biggest financial institutions, such as Citigroup Inc. (NYSE: C), Merrill Lynch & Co., Inc. (NYSE: MER), and Washington Mutual, Inc. (NYSE: WM).

But somehow investors are finding ways to make moola on the stuff. For example, the hedge fund Paulson & Co has scored $3 billion by investing in credit default swaps (this is according to a piece on FinancialNews.com). Other hedge funds have also made some big hits on the trade, such as Harbinger Capital Partners, Balestra Capital, Scion Funds and Peloton Partners.

It also looks like the mighty Goldman Sachs Group, Inc. (NYSE: GS) has also gone short on subprime (this is according to a piece on Reuters.com). In fact, the firm's CEO, Lloyd Blankfein, says that there is more room to make money on the short side.

But if you listen to the Q3 earnings call for The Blackstone Group, L.P. (NYSE: BX), we hear another message; that is, there is an opportunity to make money on the long side.

Huh?

Well, this is the kind of stuff that makes markets -- and for the lucky few, some big killings.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Subprime: Deal of the century? originally appeared on BloggingStocks on Tue, 13 Nov 2007 18:56:00 EST. Please see our terms for use of feeds.

In yet another sign of the growing pressure on consumers, retail sales rose 0.3% in August, less than the 0.5% economists have expected. Excluding autos, sales fell 0.4%. This data will likely pressure stocks and underscore the call from Wall Street for the Federal Reserve to cut interest rates at the September 18 meeting of the Federal Open Market Committee. (Update: Consumer confidence remained low in September, further bolstering the case for a rate cut).

There are plenty of economic signs for investors to ponder. The Wall Street Journal is reporting that the amount of borrowing by banks under the Fed's primary credit program surged to $7 billion, the highest level since just after 9-11. Prices for imported goods unexpectedly fell in August because of declines in oil and natural gas prices, providing a temporary check on inflation, according to Bloomberg News.

Continue reading Stocks slide on worse-than-expected retail sales

Stocks slide on worse-than-expected retail sales originally appeared on BloggingStocks on Fri, 14 Sep 2007 09:45:00 EST. Please see our terms for use of feeds.