I've waited ALL day to post the next three posts...
Guys.. Today's "Daily Reckoning" should be framed. Here's my first exerpt for you (if you haven't read it):
..over to Eric for the latest news:
- Things are becoming particularly interesting at the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. Two weeks ago, the European Central Bank recommended that the national central banks throughout Europe cut their holdings of bonds issued by Fannie and Freddie - aka"agency debt." This recommendation coincided with a noticeable widening of agency credit spreads.
- In layman's terms, investors have been dumping Fannie's and Freddie's bonds even faster than they have been dumping Treasury bonds, thereby causing the yields on agency debt to soar even higher than the yield on Treasury debt. The difference between the two is called the "spread." A widening spread, all else being equal, is often a sign of corporate distress. And certainly, no company likes to see its yield spreads widen, especially not the country's largest mortgage lenders. (Last week, the spread on 10-year Fannie Mae and Freddie Mac debt increased about 22.5 basis points to trade at about 72.5 basis points over Treasuries Friday).
- "Noting that agency spreads have widened notably of late," Noland continues, "we recall how telecom debt spreads began to widen back in mid-1999... Credit availability became more restrictive and speculative losses began to mount. Eventually, a full-scale retreat of speculative finance from the sector ushered in spectacular collapse."
- Your New York editor believes that the widening credit spreads on Fannie and Freddie debt is the single-most important trend in the financial markets today. These widening credit spreads are not necessarily indicative of any serious trauma at the massive mortgage lenders. On the other hand, the widening spreads are not necessarily NOT indicative of serious trauma either.
- If Fannie and Freddie are having a problem, we've all got a problem.
--------------
