Fannie & Freddie Bailout – U.S. Is “More COMMUNIST than China” : Jim Rogers on CNBC

September 9, 2008 · Filed Under Investment, Long term

Fannie Mae(the common name for the Federal National Mortgage Association) was born in 1938 under the leadership of Franklin D. Roosevelt to ensure a supply of mortgage funds under all economic conditions and to help lower costs to buy a home. It became a shareholder-owned company in 1968. In 1970, Freddie Mac(the acronym for the Federal Home Loan Mortgage Corp.) was created to provide competition and essentially ensure that Fannie wouldn’t have a monopoly on government-backed mortgages. Freddie basically does the same thing: “Reduce the costs of housing finance and expand housing opportunities for all families, including low-income and minority families,” according to its website. They are both government sponsored and shareholder owned. They do not have direct contact with consumers; instead, they work with lenders. The job of Fannie and Freddie is to buy mortgages from banks, savings and loans, credit unions, and other lenders to ensure that mortgage funds are consistently available. Together, they hold or guarantee about 50% of U.S.’s outstanding home loans. Steep home-price declines and a rise in mortgage delinquencies and foreclosures have badly hobbled Fannie and Freddie. The 2 firms have registered roughly $14 billion in losses over the past year. “If they had failed, the damage to the mortgage and housing markets could have had a catastrophic effect on the economy and could have hurt Americans’ ability to secure home loans, auto loans, and other consumer credit,” Treasury Secretary Henry Paulson said. The stocks of both Fannie and Freddie have plunged over the past year -each from the mid-$50s to the mid-single digits.

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“The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is “more COMMUNIST than China is right now. You can see that this is welfare of the rich, it is socialism for the rich, it’s just bailing out financial institutions,” Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday.

Stock markets jumped after the U.S. government’s decision to launch what could be its biggest federal bailout ever, in a bid to support the housing market and ward off more global financial market turbulence.

But Rogers said in the long term the move spelled trouble. “This is madness, this is insanity, they have more than doubled the American national debt in 1 weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this. You certainly gonna see a huge jump in any financial institutions which owned a lot of Fannie or Freddie because they don’t have to worry about going bankrupt all of a sudden,” Rogers said. “Bank stocks around the world are going through the roof, that’s because they’ve all been bailed out. You don’t see the homeowners in Kansas going through the roof because they’re not being bailed out,” he added.

However, despite the rally in Asian and European markets, the decision to take over Fannie and Freddie is likely to cause more volatility and needs careful consideration by investors, according to Rogers. “It’s rarely good to jump in a moving bus and right now you got a lot of buses moving. I might short some more investment banks in the US, depending on how they rally over the next week, but other than that, I’ll just sit and watch,” Rogers said. He, who is short on U.S. bonds, said these are likely to fall while commodities may rally. “The 2 government-sponsored enterprises don’t have good loans on their books because everybody else took the good stuff and dumped the bad stuff onto Fannie and Freddie.”

From 2010, Fannie and Freddie will have to shrink their portfolios by 10% a year until they reach US$250 billion to reduce the risk to the taxpayer, according to the Treasury plan. “But this may put additional pressure on the housing market. That’s going to also ensure that house prices continue to go down. It’s going to be harder and harder to get a mortgage.”

“Investors should not pin their hopes on this year’s presidential election for a solution to the problems, as none of the candidates is likely to find one,” Rogers said. “This is a big huge MESS and neither one of them has a clue what to do next year. It’s going to be a MESS!”

Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.

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Tags: commodity, Fannie Mae, financial institutions, Freddie Mac, investors, Jim Rogers, mortgages, US Treasury

STI has BROKEN 2665 support level! Expect another 200 points TUMBLE to 2456!

September 7, 2008 · Filed Under Investment, Short term - Medium term

Dow Jones closed at 11220, down 2.8% or 323 points for the week. It simply did not have enough strength to break the strong resistance of 11638. Furthermore, it broke the 11340 support level with BIG volume. This is a very negative sign which shows “distribution” or unloading by the big boys or big funds! We may see further weakness and the next support level for DOW Jones will be 10680.

NASDAQ plummeted 4.7% or 111 points to close at 2255 for the first week of September. It has broken both the support level of 2345 and long-term support line with BIG volume, this spells trouble!! It may tumble further and be supported at the 2155 level.

S&P 500 slipped 3.2% or 40 points to close at 1242 for the week. It broke it’s stubborn support of 1256 with increased volume. It is now testing the 1219 support level. It’s next support will be another 51 points down at 1168 level if it continue to fall.

STI GAPPED DOWN 51 points or 1.97%. to close at 2574 last Friday! It has broken both the 2700 and 2665 support levels with big volume, a very negative sign!! STI ended the week down 6% and is currently at a 2-year low since 4th October, 2006. It is likely to tumble further till the next support level of 2456. If this 2456 level were to be penetrated too, then we can expect another 200 points collapse to 2277!

Negative market sentiment has been driven by weak U.S. market as well as growing concerns that global growth is seriously slowing down. Market sell-down was fueled by the report that the U.S. unemployment rate jumped from 5.7% to 6.1% – its highest since September 2003. This raised concerns about the pace of consumer spending in the months ahead. Continued concerns about the potential for further write-downs at financial firms and speculation that more hedge funds could be in trouble and on the verge of liquidating assets also cast a pall on the market. Many investors are either taking cover to pare their losses or simply watching from the sideline. U.S. data due to be out this week includes consumer credit, pending home sales, retail sales for August and trade balance for July.

I want to reiterate that holding stocks now is VERY DANGEROUS! For those of you who proclaimed yourselves to be “long-term investor”, this time round u are NOT going to be one, instead u are going to be a VERY “long-term investor” because we are now going through a GLOBAL FINANCIAL CRISIS! It is going to deliver even more devastating blow than the Asia financial crisis in 1997, 1998. Congratulations to those of US who are still hanging on to our short positions!! I simply cannot understand how one CANNOT make money by doing short-selling in the current bear market!

Happy SHORTING! Cheers

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Tags: bear market, distribution, Dow Jones, long term investor, money, NASDAQ, resistance, S&P 500, short-selling, support, volume

We’ll be WORSE OFF whoever’s new U.S. President : Jim Rogers on CNBC

September 5, 2008 · Filed Under Investment, Long term

About Jim Rogers

Jim Rogers is the CEO of Rogers Holdings. He is also an author, world traveller and successful international investor. He has been frequently featured in Time, The Washington Post, The New York Times, The Wall Street Journal, The Financial Times and most publications dealing with the economy or finance. After attending Yale and Oxford University, Rogers co-founded the Quantum Fund, a global investment partnership together with billionaire investor, George Soros. During the next 10 years, the portfolio gained 4200%, while the S&P 500 rose less than 47%. Rogers then decided to retire at age 37 but he did not remain idle. In 1990-1992, Rogers fulfilled his lifelong dream: motorcycling 100,000 miles across 6 continents, a feat that landed him in the Guinness Book of World Records. He chronicled that journey in his bestseller book:“Investment Biker”. In 1999-2001, Jim embarked on a Millennium Adventure, which he travelled for 1101 days on his round-the-world, Guinness World Record journey together with his wife. That journey of passing through 116 countries, through half of the world’s 30 civil wars and over 152,000 miles became the subject of Rogers’s second book: “Adventure Capitalist”. His also penned other bestsellers such as ”Hot Commodities” in 2004 and the recently released “A Bull in China”.

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“Neither one of these guys understands what’s going on, they don’t understand currency markets, economies, they don’t understand the world,” Rogers said. “Both of them are going to cause us more problems than they’re going to solve.”

Democratic nominee Sen. Barack Obama pledged to reverse the economic failures and blamed the Republicans for the poor shape of the U.S. economy in his speech, formally accepting to run for president for his party. But Rogers said this was unlikely. “He’s talking about spending a lot of money … I don’t consider that very good, going deeper into debt. The U.S. is already the largest debtor nation in the history of the world. I’m not sure that that’s going to solve anything.”

“Deep changes are needed in the U.S. system and big Wall Street banks should not be rescued by the authorities when they run into trouble, to avoid moral hazard. They’re bailing out Wall Street, because all their friends are on Wall Street,” Rogers said. “When Ben Bernanke gets a phone call from the head of Lehman Brothers, he takes the call. But if some poor school teacher in Oklahoma calls him, he doesn’t take the call. He’s dealing with his friends on Wall Street trying to save them when in fact he should let them fail. That would be the better solution, at least for 300 million Americans.”

“The economic stimulus package launched this year to try and fend off recession in the U.S. is unlikely to have positive consequences in the long term, despite a higher-than-forecast advance of gross domestic product in the 2nd quarter”, Rogers said. “Supporting troubled investment banks instead of letting them go bust prevents a cleansing of the economy while putting additional burdens on taxpayers, but neither of the 2 candidates is likely to stop this. If you happen to be friends with whoever wins, sure, you’re going to have a better time in the next 4 years. But the rest of us, the 300 million Americans, are going to be worse off in 4 years. In fact the world will be worse off.”

Part 1