No Soothing Fannie, Freddie

Quick entry....

Listening to the President take questions after his brief speech on the economy and Fannie Mae (FNM) and Freddie Mac (FRE).

Many of the reporter questions surrounded Fannie, Freddie and the housing market.   The President reiterated that he and his administration are committed to keeping these companies "shareholder owned."

Two quick observations:

1. The market is not listening.   Despite a relatively successful auction of 3 and 6 month debt yesterday, the stock in these companies continues to get hammered.   This tells me about the attempts by the Administration to soothe investors that the market either A) doesn't care, B) doesn't believe or (ikely) C) both.    While we have to differentiate between the debt and the equity in these companies (the debt is holding up relatively well), the equity side is telling a tough story.  In my 12 years in business journalism I have never seen any stock 20-30% per day multiple days in a row and then recover anytime soon.    In fact, I'm trying to think of any stock, ever, that has lost 80+% of its value in a matter of months and then came back.   While none o those other companies were GSEs with express support from the President and Treasury, remember that Treasury Secretary Paulson has expressed no real support for the shareholders.  http://online.wsj.com/article/SB121577699220645703.html?mod=hpp_us_whats_news

2. Freddie Mac (FRE) fell below $5/share.    Under $5/share short sellers cannot borrow a stock using margin (borrowed money) as collateral.   It makes it more difficult to short.   This could help provide a short-term floor for the shares.   Indeed the stock fell below $5 and then came back a bit.    Something else to watch.

Much more to come no doubt ... stay tuned.   This is turning out to be the biggest story of 2008.