In my article titled "Delisting of GSEs Looms Large" published on February 21, 2009, I discussed the fact that as Fannie Mae (FNM) and Freddie Mac (FRE) remained under $1, the prospects were that we'd either see the companies delisted from the NYSE or that the price would skyrocket. Not long after writing the article, the stock of FNM and FRE fell as low as $0.35 on March 9th. In that February article, I said the following:
One reader of this blog, Ron, poignantly remarked, "...it seems to me the exchanges are constantly bending their own rules about delisting, extending grace periods, etc. Especially in this case the govt will probably be leaning on the exchanges not to delist." My response was, "...there is little need to do this (bend the rules.) If you're the government, and you don't know anything about fiscal responsibility, you'll more than likely feel compelled to waste the money and artificially inflate the stock price." Furthermore, I specifically stated that this was going to be "one of the biggest speculations in history."
Well, as promised, the U.S. government proved to be as gullibull as has been the case since the beginning of time. In an article titled "Fannie, Freddie Avoid Delisting as Price Triple" published by Bloomberg.com, you get the sense that there is a collective exhaling about the notification that the companies would not be delisted. Strangely, FBR Capital Market's Paul Miller seemed indignant at the thought that the Fannie and Freddie stock price went up. Miller, a banking analyst, said that the rise was "unjustified" and that there was "no fundamental value remaining" in the two GSEs.
I say to Mr. Miller (with tongue firmly in cheek), the threat of being delisted was a completely justifiable reason for Fannie and Freddie stock to go up in value. The government had already gamed the markets by reverse splitting AIG, so it would be challenging to commit the same fraud twice on the investing public in such a short time.
Also Mr. Miller, if Fannie and Freddie are delisted, the market for all bad mortgages cannot be absorbed by the taxpaying public through the GSE conduit. That means these two companies are incredibly valuable. Mr. Miller, maybe Fannie and Freddie are not valuable to you but they are definitely valuable to the banks that are receiving bailouts in the front door and dumping their trash on the taxpayer through the back door. Silly Mr. Miller, still talking about notions like fundamental values and such.
We have witnessed the all too familiar quality known as predictably irrational behavior of the government and the financial markets. In many respects, Ron was right, the rules were bent to favor those in powerful positions. When the NYSE says "The World Put Its Stock in Us," they should have also added that it is the best exchange that money can buy. After all, the NYSE should be held criminally for allowing such blatant fraud to reign on their exchange. Instead, they looked the other way in the face of clear manipulation and malfeasance.
It is just our luck that history repeats so well and so often in financial markets. This is the reason why the addressing of this matter of the delisting of the GSEs was so predictable. The maneuvers that I've described have happened so many times in the remote and distant past with far more inferior technology that it's laughable. The more things change the more they remain the same...and that ain't no cliche in the financial markets. Touc.
related articles:
"Look for a boosting of the share price to ridiculous levels (anything above $1) or go literally to zero in the next delisting notification process."Soon after falling t0 $0.35, Fannie Mae and Freddie Mac briefly, on a closing and intraday basis, went above $1 on March 19th and then promptly fell from there. According to the New York Stock Exchange, spend six months under $1 and you get delisted. As strange as it may seem, September is exactly six months away from the month of March.
One reader of this blog, Ron, poignantly remarked, "...it seems to me the exchanges are constantly bending their own rules about delisting, extending grace periods, etc. Especially in this case the govt will probably be leaning on the exchanges not to delist." My response was, "...there is little need to do this (bend the rules.) If you're the government, and you don't know anything about fiscal responsibility, you'll more than likely feel compelled to waste the money and artificially inflate the stock price." Furthermore, I specifically stated that this was going to be "one of the biggest speculations in history."
Well, as promised, the U.S. government proved to be as gullibull as has been the case since the beginning of time. In an article titled "Fannie, Freddie Avoid Delisting as Price Triple" published by Bloomberg.com, you get the sense that there is a collective exhaling about the notification that the companies would not be delisted. Strangely, FBR Capital Market's Paul Miller seemed indignant at the thought that the Fannie and Freddie stock price went up. Miller, a banking analyst, said that the rise was "unjustified" and that there was "no fundamental value remaining" in the two GSEs.
I say to Mr. Miller (with tongue firmly in cheek), the threat of being delisted was a completely justifiable reason for Fannie and Freddie stock to go up in value. The government had already gamed the markets by reverse splitting AIG, so it would be challenging to commit the same fraud twice on the investing public in such a short time.
Also Mr. Miller, if Fannie and Freddie are delisted, the market for all bad mortgages cannot be absorbed by the taxpaying public through the GSE conduit. That means these two companies are incredibly valuable. Mr. Miller, maybe Fannie and Freddie are not valuable to you but they are definitely valuable to the banks that are receiving bailouts in the front door and dumping their trash on the taxpayer through the back door. Silly Mr. Miller, still talking about notions like fundamental values and such.
We have witnessed the all too familiar quality known as predictably irrational behavior of the government and the financial markets. In many respects, Ron was right, the rules were bent to favor those in powerful positions. When the NYSE says "The World Put Its Stock in Us," they should have also added that it is the best exchange that money can buy. After all, the NYSE should be held criminally for allowing such blatant fraud to reign on their exchange. Instead, they looked the other way in the face of clear manipulation and malfeasance.
It is just our luck that history repeats so well and so often in financial markets. This is the reason why the addressing of this matter of the delisting of the GSEs was so predictable. The maneuvers that I've described have happened so many times in the remote and distant past with far more inferior technology that it's laughable. The more things change the more they remain the same...and that ain't no cliche in the financial markets. Touc.
related articles:
- Delisting of GSEs Looms Large
- The Common Refrain, To Our Detriment
- A Scheme By Any Other Name
- Crossing the River Styx
- Our Protectors, Encouraging Malfeasance
Please revisit Dividend Inc. for editing and revisions to this post.
