Mixed Economic ReportsThe ADP private payroll employment for May showed U.S. private sector employment rose by 135,000 in May, which was quite an improvement from a downwardly revised 113,000 increase for April. Still, the May number was significantly below the average estimate of 165,000 among analysts polled by Thomson Reuters. ADP said "a gain of 5,000 jobs in the construction industry during May was offset by a decline of 6,000 lost jobs in the manufacturing industry," which fits in with a weak set of recent manufacturing reports. The Census Bureau on Wednesday reported that factory orders rose by 1% during April, after a 4.7% decline during March. Economists had expected factory orders to increase by 1.5% in April. On a more positive note, the composite index from the ISM non-manufacturing survey showed an increase to 53.7 in May from 53.1 in April. A figure above 50 indicates expansion. The May number came in ahead of an expected reading of 53.5 among economists.
Fannie and FreddieCommon shares of Fannie Mae ( FNMA) and Freddie Mac ( FMCC) pulled back significantly for a second straight session. Fannie's shares were down 19% to close at $1.81, while Freddie's shares were also down 20% to close at $1.75. Fannie and Freddie are known as the government-sponsored enterprises, or GSEs, and hold roughly $5.2 trillion in mortgage loans and mortgage-backed securities. The GSEs were taken under government conservatorship at the height of the financial crisis in 2008, but remain crucial to the U.S housing market, purchasing roughly 90% of newly originated mortgage loans in the United States. The U.S. Treasury holds $117.1 billion in Fannie Mae senior preferred shares and $72.3 billion in Freddie Mac senior preferred shares, for bailout assistance provided to the companies. With both GSEs now profitable, they have paid or announced dividends to the government totaling $131.6 billion. But no matter how profitable the GSEs get, they aren't allowed to repurchase any of the government-held preferred shares. Long-term investors holding GSE common shares and junior preferred shares expect a political settlement that will allow Fannie and Freddie eventually to repay the government and go on operating, or a dissolution of the GSEs that includes an eventual payout to investors. Bloomberg on Tuesday reported that Senators Bob Corker (R., Tenn.) and Mark Warner (D., Va.) are drafting a bill to dissolve Fannie and Freddie over a period of five years, while having the U.S. Treasury take over the GSE's mortgage loan guarantees. The GSEs would, in part, be replaced by a new government agency.
A Petition On Behalf of GSE ShareholdersA petition to "restore fairness to Fannie Mae and Freddie Mac common shareholders" was created at the White House's website on Saturday, requesting the government "provide fairness and protection to GSE shareholders." According to the petition, "just as the Federal government made available funds and guarantees to assist the recovery of
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