The U.S. Treasury Department finally stepped up to the plate over the weekend and seized control of Fannie Mae and Freddie Mac. The nation’s largest mortgage lenders have had implicit federal backing as government sponsored enterprises (GSEs). Mounting losses from the sub-prime mess have artificially held up mortgage rates despite multiple Fed rate cuts, making home-ownership more expensive and exacerbating the housing crisis.
Now that federal support is fully explicit, the concerns of major holders of Fannie and Freddie debt, including China and Russia, should be ameliorated, and mortgage rates should come down. Overseas markets in Asia and Europe rallied strongly overnight on the news. U.S. index futures are soaring this morning. “Cheap” financial equities that could make major moves today on massive volume include WM and ABK.
Index futures: S&P: (+) 34.6 Dow: (+) 253 Nas: (+) 36.0
Fair value: S&P: (-) 1.21 Dow: (-) 2.04 Nas: (-) 0.17
Oil: $107.41 (+) $1.18 Dollar/Yen: 108.7 (+) 0.95
Nat Gas: $7.61 (+) $0.16 Dollar/Euro: 0.7029 (+) 0.0026
Gold: $812.80 (+) $10.00
Foreign markets:
Japan: (+) 3.4% England: (+) 3.8%
China: (-) 2.7% France: (+) 4.9%
Hong Kong: (+) 4.3% Germany: (+) 3.4%
Upgrades: UCBH, ALVR, RF, EWBC, TS, MRVL, RIG, AMD
Downgrades: FNM, FRE, ITG, RFMD, NOK, CX
ETFs expected to move:
UYG (+) 2X financials long
URE (+) 2X real estate long
XHB (+) 1X homebuilders long
UNG (+) natural gas: 3-month-long position play. Hurricane Ike headed for the GOM. Nat gas typically seasonally bottoms in September and rises into winter.
OIH (+) oil services: near a decent entry point for a longer term (9-month) buy-and-hold. Further storm-induced supply disruptions and a halt to the rise in the dollar could arrest the fall in crude oil, and by extension the oil services, which have been punished harder. Individual equities that could rise on a bounce in OIH include RIG, ATW, and NBR.
GLD/SLV (+) gold/silver: those without PM exposure in their portfolios should consider watching them at these levels. PCU (fat dividend) and FCX are among the metal commodity-levered equities to seriously look at here.
Selected earnings announcements for today:
After hours:
MIND – Mitchum Industries, supplier of seismic equipment for oil and gas e & p; $13.13
Analysts expect 23 cents EPS on $17.68 million in revenues
Market cap: $129 million. P/E: 11.5
52-week trading range: $12.77 – $21.98
Demand for seismic is through the roof. The many domestic oil and natural gas shale plays need extensive mapping. See DWSN’s earnings announcement of July 31 for proof. The recent pullback in crude led to indiscriminate selling in oil service names. Near a 52-week low, MIND has the potential to surprise to the upside.
EFUT – eFuture Information Technology, Chinese software; $11.12
No analysts. Company guided for $19 – $20 million in revs for full-year 2008
Market cap: $34 million. P/E: N/A
52-week trading range: $9.35 – $34.00
The extremely low float of less than 3 million shares makes EFUT a favorite among traders of Chinese stocks. Expect volatility today ahead of the earnings announcement.
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