This morning, Freddie Mac announced their earnings – or more correctly, their losses – for the second quarter of this year. It was bad – the losses were about triple what market analysts were expecting.
What’s interesting is the resulting action – or lack thereof – in the stock market. While Freddie Mac’s shares have fallen hard again (down another 15% or so as of this writing), the interesting thing is the muted impact this is having on the stock market as a whole.
Right now, the Dow Jones Industrial Average is down about 50 points, which is less than one half of one percent. This is curious and encouraging, because in recent weeks, bad news about Fannie or Freddie have caused far more severe sell-offs.
There are many things this can mean, but I suspect one of the meanings is that the stock market as a whole has already factored in the mess created by the Fannie/Freddie fiasco. And because of this, additional negative announcements from those companies are likely to be met with a yawn.
Note that my comments are based partly on analysis, and partly on gut feeling. I may be entirely wrong, and we’ll soon find out because Fannie Mae announces their earnings this coming Friday, and if that announcement causes a huge sell-off, I will have been proven wrong.
But if Fannie Mae makes a negative announcement and the stock market does not react negatively, that is a clear sign that “smart money” believes that the worst of the bad news about the credit crisis has been factored in – and that may even signal a buying opportunity for mortgage lenders, home improvement companies and maybe even home builders.
Additionally, mortgage applications were up last week as interest rates fell. That’s a small indicator, but still a positive one.
Furthermore, have you taken a look at the real estate futures market? Right now, it’s possible to go long or short on any of the markets covered by the Case-Schiller Index using a futures contract rather than actually buying real estate. I’ve been watching this market for a couple of years waiting for it to be sufficiently mature, and it’s becoming really interesting. More on this soon.
As always, your comments, criticisms and thoughts are welcomed here on FreeRealEstateTraining.com!