Taipan Investor Financial

Taipan Covers the Investment World in Stocks, Options, Forex, Commodities

Today is Thursday, November 20th, 2008

About the Author

Taipan is a retired commodity broker, forex trader and portfolio manager who enjoys following the forex, stock, and commodities markets and drawing upon his 40 years or so of trading experience to post articles to a series of blogs. While Taipan is not always right with his forecasts he usually offers some interesting insights into markets. Actually if he weren't so modest he would tell you that in the big strategic picture he is almost always right. Taipan is very distrustful of statements made by stock brokers, stock analysis, so called forex experts, and in general talking heads. The investor who thinks that the playing field is level and that he can depend upon MSNBC and CNN for inside trading information has got to be at least a little nuts. If you want to trade well you had better develop your own style and your own sources of reliable information. This blog will attempt to provide market trading information that will be helpful. However, always keep in mind that any decisions made to trade using this information are your sole responsibility. Taipan has been around long enough to know that the markets can make a fool out of anyone so never blindly follow what someone else suggests. To trade well you have to think well and the thoughts need to be your own.

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Forex Market Implications of Fannie Mae and Freddie Mac

July 12th, 2008 • Related • Filed Under

Growing fears on the part of stock investors and forex traders that mortgage backers Fannie Mae and Freddie Mac may collapse and have to be taken over by the US government contributed to a wild trading day in the US stock market and the forex market on Friday.

Fannie Mae and Freddie Mac shares have been hammered this year as the mortgage and US housing market crisis have become worse and worst witrh no end in sight. Together Fannie Mae and Freddie Mac insure almost fully 50% of the mortgages on American homes which runs into the many trillions of dollars. The two implicitly US government backed companies have had their shares prices hammered over the past year as losses on their loan portfolios mount. Their shares have now lost over 75% of their value and may not have bottomed out even at truly distressed prices.

Should the government lead by the Federal Reserve Bank be forced to intervene, either by taking over the companies or by providing massive amounts of additional funding the implications for the US dollar are profound. A taste of what to expect was served up Friday as the Euro rose to above 1.5925 to the dollar.

The amount of money that it would take for the US government to “bail out” Fannie Mae and Freddie Mac would be enormous. The financial impact of losing the mortgage loan guarantees issued by the two financial institutions are so profound that the AAA credit rating of the US government itself could be called into question. At this point no one even knows where the money to save Freddie Mac and Fannie Mae would be coming from. With the US governement already beyond broke it looks like the only source would be from the high speed printing presses. They must already be smoking hot.

Should the government just print the money the additional massive dollar creation in an inflationary environment would likely create panic selling of US dollars against every other currency in the forex market. If you are a forex trader you had best follow the news on Freddie Mac and Fannie Mae. Events could quickly spin out of control over the next few weeks or even days.

Does anyone see that flock of black swans circling above?

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