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Monday, June 9, 2008

Using Fannie Mae and Freddie Mac as Disaster Insurance (Update1)

In Using Fannie Mae and Freddie Mac as Disaster Insurance I argued that the worst of the financial fallout is yet to come.

I outlined how a simple option strategy using LEAPs (Long Term Equity Anticipation Units) on Fannie Mae (FNM) and Freddie Mac (FRE) could be used as portfolio disaster insurance.

Today both FNM and FRE finally broke DOWN and OUT… smashing all support.

In The Bank and Mortgage Index: Nothing But Trouble I argued that both indices were hovering at critical support. I also pointed out that FNM and FRE each have a 10% weight in the Mortgage Finance Index (MFX).

Today MFX finally broke DOWN and OUT… smashing all support.

The Bank Index (BKX) broke down last week. Put it all together and you have a general confirmation of the much larger break DOWN and OUT of the S&P500 (SPX) from a Rising Bear Wedge.

While equities may find the strength to bounce every now and then, the trend is and remains down.

Related Posts:
This Bear Market Rally is Over: EURIBOR Rises Again
Bear Wedge Breaks, Goldman, Lehman, Merril, Morgan: Cut to SELL


Anonymous said...

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Anonymous said...

Interesting observation. Many do not know how Freddie and Fannie work, or why. The Wall Stree Journal Online had a very interesting explanation, I posted about it here

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