The two companies have a combined book equity of about $54 billion. They have other line items that contribute to the measurement of regulatory capital, but book equity is that number. Against that, they have something like $1.7 trillion of mortgages (or mortgage bonds) they own, and another $3.6 trillion they guarantee.The Wall Street Journal had an article the other day saying that if these two companies were capitalized like money-center banks, they would need up to another $200 billion in capital. They are both woefully undercapitalized, and I wonder why the stocks are rallying.
A few fun facts passed along by MFS Investment Management. In 2006, one in nine trading days saw the market experience gains or losses of 1%. 2007 had such moves one out of every four trading days, and this year the market has moved up or down 1% every 2.5 days! I guess the lesson here is to not get too depressed by huge down days like last Monday, but don't get too excited on the up days.
Also, there have been four bear markets (defined as a 20% decline or more from the high) since 1978. The four have seen declines of 26%, 33%, 20% and 49%. This is using the S&P 500 index. At the July low, the S&P was down 23.8% from its high, and at the current level is off 18% from the high.
P.S. Will you be there when Cramer makes his next move?
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Market Commentary A GSE Bailout Could Have Odd Side Effects 8/27/2008 10:37 AM EDT According to Sanford, a Fannie and Freddie bailout could help banks' balance sheets.
Market Commentary A Closer Look at Wages 8/27/2008 7:45 AM EDT Falling 'real' wages are a concern, but an inflation spiral doesn't seem likely.
Market Commentary Good News in Housing, the Dollar 8/26/2008 12:15 PM EDT Home prices are leveling off, and the greenback is strengthening against world commodities.
Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.
Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.
Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.
Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.
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