Freddie aka Fraudie Mac / Market Sentiment
Eine der wichtigsten Regeln für Anleger und Trader ist jeweils zu beachten wie der Markt auf bestimmte Nachrichten reagiert. Und wenn man nach den folgenden Neuigkeiten die Aktie fast 10 % nach oben katapultiert ist das für mich ein klares Zeichen das wir uns einem Level nähern der doch langsam wieder bedenklich wird.....Der sich rapide beruhigende VIX unterstreicht diesen Trend. Doug Kass hat diese Statistik die wunderbar zum Gesamtbild passt. "Investors Intelligence bulls are back up to 46, as bears drop to 29.9 -- at respective highs and lows since January" . Diese Schlagzeile via FT Alphaville fasst es ziemlich gut zusammen Not as bad as feared’ is the new code for ‘buy, buy, buy’ Hier gibt es mehr More Reasuring Facts On Phony Mae aka Fannie Mae
Parsing Freddie's Profit Report WSJ
Freddie Mac's earnings report more clearly than ever defined the battle lines between the company's shareholders and the government, which sees it as one of its main tools to bolster the housing market.
The report the mortgage giant issued Wednesday shows that the company's cushion for losses fell sharply in the quarter, giving it one of the weakest balance sheets in the financial sector and leaving it more vulnerable to future hits from the housing crunch.
This weakening in Freddie Mac's financial footing will unnerve politicians keen to see Freddie buy and guarantee even more mortgages to alleviate the credit crunch.
And investors sniffing around Freddie's shares may also want to pay heed to the enervated balance sheet. That is because the company likely will have to sell a large amount of new stock, diluting existing shareholders, to strengthen its balance sheet.
Freddie said Wednesday that it planned to sell $5.5 billion of common and preferred stock. "I think they'll continue to raise capital," said Paul Miller, an analyst at FBR Capital Markets.
The company's weakened state was lost on investors who rejoiced that the loss was smaller than expected and drove its shares up 9%. But the smaller-than-expected loss was primarily the result of accounting changes made in the quarter that allowed the company to book certain gains in earnings and exclude certain losses.
Freddie reclassified $90 billion in securities, boosting profit by about $1 billion compared with the fourth quarter.
Hat tip Calculated Risk
Analyst: There is a headline out there that you have level 3 assets of $157 billion. I was just wondering is that true and is that related at all to the markups of the 1.2 billion gain?
Freddie Mac: No, it is not Paul. We made a determination in the first quarter that given how widely the pricing we were getting on the abs portfolio [varied] that it no longer made sense to leave that into level two. So we essentially moved the entire abs portfolio into level three. We were still using the mean pricing that we were getting from the dealers. So we’re not using a model price. That is all that is. It has nothing to do with the trading portfolio
Another change -- related to its mortgage guarantees -- reduced a potential hit to profit by about $1 billion compared with the fourth quarter. A maneuver that delays taking credit losses also allowed the company to avoid losses in the quarter.
Excluding these and some other accounting changes, Freddie's modest $151 million loss would have been a more worrisome $2 billion.
More insights via Calculated Risk On Freddie Mac Accounting Change
One way to cut through the earnings noise is to go to the balance sheet and zero in on its leverage -- the amount of shareholders' equity Freddie has supporting its $803 billion of assets, which are the loans it has retained.
In the first quarter, Freddie's assets exceeded its $16 billion of shareholders' equity -- its leverage ratio -- by 50.2 times. Fannie's first-quarter leverage ratio was 21.7 times, while the first-quarter average for the 20 largest U.S. lenders was just under 12 times, according to data from SNL Financial.
A Freddie spokesman declined to comment on its leverage specifically. And to be fair to Freddie, some of the market losses that are driving down Freddie's equity may one day be recovered. For instance, equity plunged to $16 billion from $26.7 billion in the fourth quarter, in part because of unrealized losses on securities backed by subprime mortgages.
But if Freddie were a regular bank, its regulator wouldn't let leverage get anywhere close to 50 times. At a nosebleed level like that, the regulator would push Freddie to keep raising capital, even if some of its losses in equity might be fleeting.
Shareholders could sputter about the continued dilution, but the government won't be very sympathetic.
Labels: bailout, complacency, creative accounting, investor sentiment, level 3 accounting / mark-to-mark-believe gains, leverage, Phony Mae and Fraudie Mac
posted by jmf at 8:47 PM
2 comments
links to this post
This week the latest Federal Reserve Senior Loan Officer survey highlighted tougher lending conditions from banks to lower-rated corporate borrowers. In spite of the recent rally in credit markets, the number of junk-rated companies trading at highly elevated levels remains well above normal.
To put this graph into perspective you have to click 
Wall Street pays for its opacity
> More details on State Street from 
It hurts all the more to fall from a great height. Until a couple of months ago the investment banks were flying. Profit records were smashed quarter after quarter. Bonus pools looked more like lakes. Valuations climbed to three times book value, implying sustainable returns on equity of over 30%, when even 25% is rare in the industry.
As long as the money rolled in, no one seemed to mind that much of the business was cloaked in mystery.
Thanks to 
Second, good first-half results will help to bail Wall Street firms out, as half of their accrued bonus pools can be taken back to cover second-half losses. A generous pay structure can come in handy if markets falter at the right time of the year.
The boasting and bluster that marked the just-ended era of easy money varied depending on the speaker and his stake in the boom. But the underlying message was consistent: This time it's different. When it came to the hazards associated with borrowing, the old rules no longer applied.
Hedge funds were all too happy to enable the leverage arms race. They, too, borrowed to the max so they could gorge on the debt that financed the housing and buyout booms. "The consumer has to be an idiot to take on those loans," John Devaney, chief executive of United Capital Asset Management, said in May, referring to dicey adjustable-rate mortgages. But since there were plenty of "idiots" out there, and legions of lenders eager to serve them, Devaney and other hedge fund managers eagerly devoured the securities confected by investment banks from batches of dubious home loans. This securitization, the argument went, would spread the risk far beyond banks and mortgage companies. In March, Devaney bragged that mortgage-backed securities were one of his "best-performing investments.
Making sense of this mess is daunting. One good place to start: the ways various financial players indulged in layer upon layer of leverage, much of it far from transparent. Mortgage lenders threw out common sense underwriting standards. Wall Street sliced and diced the loans, creating the illusion that risk somehow disappeared in the process. Hedge funds then multiplied the leverage by borrowing copiously to buy securities based on the rearranged mortgages. In their version of the game, private equity firms used loads of debt to launch unprecedented buyouts.
So far, no big deals have collapsed. The hope is that the credit environment will improve in the fall, and stalled deals will move through the LBO pipeline. But there may be more pain ahead.
'Don't Fight the Fed.' Diese Redewendung wird uns die nächsten Monate unweigerlich jeden Tag von Seiten CNBC, Cramer, Wall Street usw. begegnen. Und da sich die Marcodaten Tag für Tag verschlechtern bleiben aus Bullensicht natürlich auch nicht mehr allzu viele Argumente übrig. Man sollte dabei jedoch bedenken das dieses neue "Mantra" von denselben Leuten kommt die erst keine Immobilienblase erkannt haben, dann das Immobilienproblems als isoliert bewertet haben, die einen 
I have argued that, in the current credit cycle, nontraditional lenders have proliferated by circumventing Regulation T and banking reserve requirements, serving to soften or even dull the Fed's role in monetary policy. In turn, this systemic change has led to unusual borrowing in the form of interest-only and teaser adjustable-rate mortgage loans and levered quant hedge funds.
> I think the chart for corporate loans in 2006-2007 is looking similar
Political Consequences
> The latest strenght of the Greenback is worth mentioning and if the $ will sustain these trend it will be unusual. I doubt that that this will last. Brad Setzer is also wondering 
In July Japanese retail investors' short positions on the yen (a bet that it would fall) exceeded the amount taken by traders on the Chicago Mercantile Exchange, a foreign-exchange trading hub. “The gnomes of Zurich were accused in their day of destabilising markets. The housewives of Tokyo are apparently acting to stabilise them,” boasted Kiyohiko Nishimura, a Bank of Japan board member, in July.
