Freddie Mac: 2004 Profit Down, 2005 Down More
Reuters is covering the news that Freddie Mac, the second largest home mortgage firm in the US, has reported a much lower net income for 2004. "Freddie Mac..(which) is pushing to emerge from a scandal-marked era, on Thursday posted a more than 40 percent drop in 2004 net income as the value of contracts used to hedge against interest rate changes fell."
Yet again, accounting for derivatives is to blame. Sure. But MarketWatch slipped in another bit of bad news. "For 2005, Freddie said it expects to report net interest income "materially lower" than in 2004."
6 Comments:
Why are there no consequences in this country ?
Fannie Mae can't get its accounting straightened out. It is clear that they have had some fraudulent business practices, yet their stock is still purchased in large volume.
Furthermore, how can they be backing all the ARM and zero principle loans and not be discounted or punished by Wall Street ?
I just don't understand the whole US business climate anymore. Consumers are only wealthy on paper. They have a ton of debt. Interest rates are at historical lows and all the special financing available makes the concept of interest almost a non issue. Everyone is borrowing, borrowing, borrowing and it doesn't seem to matter. Nobody saves anymore.
Meanwhile we are reliant on Asia to keep buying our deficit dollars and they seem to like doing that, even if they only get a 3% return. Isn't there some default risk ? Can we keep running deficits forever ? Will Asia keep buying our bonds forever ? What is it going to take for them to have enough ?
Last month I thought we came to the realization that we are about 1 trillion dollars short on our social security plan. I also thought that GM looked like it was going to default on its pension obligations. Have we just swept this under the carpet ? Last week the US 30 year bond yield was at 4.91% Now it is at 4.75%
None of our "bad" economic decisions seem to have any consequence. Everyone here agrees we have a bubble and that it will burst. What nobody seems to be able to say is what will burst it or when it will burst.
I fear that this housing bubble is going to go on for a long time, as long as Asia keeps buying our bonds and as long as we keep sweeping things under the carpet. As long as the "facts" can be kept from Joe Average and as long as he thinks housing will continue to go up, the housing bubble will persist.
It isn't like Fannie Mae is going to significantly tighten the lending requirements anytime soon ! If the Fed is backing Freddie's & Fannies bad loans, why would it do anything other than lend as much money to anyone that it can ?
Either I'm out to lunch on this or the whole situation is supremely stupid.
Why doesn't Wall Street have a "bubble watch" going ? The DOW seems hypersensitive to inflation and oil prices, yet nobody is watching the housing bubble.
2/3rds of the spending in the economy comes from the consumer. If and when the housing bubble collapses consumer spending is going to plunge. Why isn't Wall Street watching this ? Why aren't they concerned ?
There was a report today that consumer spending is healthy. Why wouldn't it be healthy ? Interest rates are low and everyone and their dog can buy a house with an ARM or interest only mortgage. House values are seen to be rising by 20 to 40% a year. Isn't the wealth effect in full force right now ?
Is Wall Street going to be blindsided by the housing bubble crash ?
(yet their stock is still purchased in large volume.)
That is because the US govt. (taxpayers) will bail the bondholders out if neccessary.
(how can they be backing all the ARM and zero principle loans and not be discounted or punished by Wall Street ?)
The stock is way down. The stockholders will get hit, the bondholders; not as bad.
(Will Asia keep buying our bonds forever ?)
see this post:
http://moneyandmetals.blogspot.com/2005/03/shanghai-stocks-at-6-year-low.html
(I fear that this housing bubble is going to go on for a long time)
It can't be ruled out.
(It isn't like Fannie Mae is going to significantly tighten the lending requirements anytime soon !)
Fannie and Freddie are pulling back, thats why profits are down.
(nobody is watching the housing bubble.)
The bloggers are!
(If and when the housing bubble collapses consumer spending is going to plunge. Why isn't Wall Street watching this ? Why aren't they concerned ?)
The consumer is my biggest worry. Our economy is way too reliant on casual spending. Wall Street will be crushed in that event.
Thanks for the comments..Ben
In reply to Anonymous #2, check out Doug Noland's Credit Bubble Bulletin:
http://prudentbear.com/creditbubblebulletin.asp
He's been putting that out weekly for a few years now, I think.
It'd also be nice to have a site that tracks how much fiat currency the central banks are creating, how they're doing it (open market ops, etc), and where it's going (hard to track, I know).
(It'd also be nice to have a site that tracks how much fiat currency the central banks are creating, how they're doing it (open market ops, etc), and where it's going (hard to track, I know)
Sounds like a good blog project. If someone does it, please let us have the link.
Mr. Noland has an excellent site.Thanks for dropping by..Ben
Look at the stock of BBY and WMT. I think wall street is waking up to the imminent decline in consumer spending and prices have been and will be marked down accordingly.
Post a Comment
<< Home