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Weekend Reading: Fannie, Freddie Bailout

Paul Kedrosky

Good Sunday morning, and welcome to another edition of Weekend Reading. It's been a busy morning for a Sunday, with the release of details on the bailout plan for Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), so I will lead this week's reading list with some links to the best information.

First, however, a look back at the week that just finished, and then a look forward to the week ahead, and finally, a summary of articles and papers worth reading.

It was an awful week on the major markets. The Dow and the S&P 500 ended the week down 2.8% and 3.2% respectively, while the Nasdaq posted its second worst week of the year, losing 4.8%.

Why the long faces? Blame a heady mix of awfulness, ranging from weak GDP revisions, a poor jobs report and retreating tech stocks. In general, it was just a bad week to return from summer holidays, so investors took it out on their least favorite stockholdings.

Looking forward, all eyes will be on the Freddie/Fannie bailout plan announced today. What does it mean for Fannie and Freddie, and what does it mean for homeowners, the credit industry, banks, shareholders and on and on. Puzzling through the many implications will not be easy or straightforward, so expect the market to be wildly volatile in the first few days of the week, but overall it will likely see this rescue as a positive.

Turning to economic indicators, next week we will get inflation data, the July trade balance, pending-home sales and the Michigan sentiment index.

Turning to earnings, next week is a quiet one, but we will see results from Campbell Soup (CPB Quote), Pep Boys (PBY Quote), Krispy Kreme (KKD Quote) and Lululemon Athletica (LULU Quote), among others.

And finally, here are some articles and papers worth reading as we await the new week to kick off.

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• Government takes over embattled Fannie/Freddie (Reuters)
• Details on Treasury's Fannie/Freddie preferred stock purchase agreement (U.S. Treasury)
• Details on Treasury's Fannie/Freddie MBS purchase agreement (U.S. Treasury)
• Good collection of related links on the Fannie/Freddie bailout (Financial Times)
• More allegations about nefarious activity in oil markets (Risk)
• Black Swans and Market Timing: How Not To Generate Alpha (Journal of Investing)
• Michael Lewis in New Orleans (Bloomberg)
• Nice new resource for tracking Hurricane Ike, and others (Stormpulse)
• As the commodity bubble bursts, many funds are feeling themselves horribly wrong-sided (WashingtonPost)
• Weak activity to continue throughout 2008 (OECD)
• A history of public aid during financial market crises (The New York Times)
• IDC: Disk Sales Drive Massive Storage Growth (Byte and Switch)
• Yahoo! shares drop to nearly five-year low (SiliconValley.com)
• EIA Report 9/5/08 -- Hurricane Impacts on U.S. Oil & Natural Gas Energy Markets (EIA)
• Google at 10 (Report on Business)
• 'Goldfinger' makes comeback with launch of $5 billion hedge fund (Telegraph)
• Great Roger Lowenstein essay on the market's short memory for risk and bailouts (The New York Times)
• Housing Busts and Household Mobility (NBER)
• The Foreclosure-House Price Nexus: Lessons from the 2007-2008 Housing Turmoil (NBER)
• Bill Gates is having trouble selling Microsoft shares fast enough (New York Post)
• Why American Savers Have Drawn the Short Straw (BusinessWeek)

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting