Government Seizes All Companies In S&P 500
Not exactly but sort of. I've had a few days to absorb the remarks surrounding the Freddie & Fannie seizure so let's beat the drum one more time before dropping this topic. It's hard to believe many of the pundits view this government seizure as bullish. Necessary? I think so. Bullish? Not in my wildest imagination. Laughably, I actually saw remarks yesterday that this was the stock market bottom. That's only about the tenth time we've heard that one. This is a little like the hoopla we experienced when the Fed first cut rates and most on Wall Street cheered that we would all be saved from any kind of slow down.
When was the last time the government nationalized an asset equal to 40% of the nation's GDP? Can you say never? How would you feel if the government deemed it necessary to seize all of the companies in the S&P 500 due to economic distress? Because that's just about what they did in comparative asset value. A more appropriate perspective is this seizure simply confirms via another data point that Frankenstein finance is imploding.
If you had bought Freddie or Fannie in the last month or so as many professionals did - after these stocks had already dropped 90% - losses were still up to 90% as of yesterday's stock prices. Annualized that is near 1,000 percent losses. There are lessons to be learned about investing in an insolvent business. Buying an investment simply because it has already dropped 90% doesn't mean you still can't lose 90%. A lesson it seems many in the OPM (other people's money) business can't seem to ever learn. What insanity would have driven anyone to buy Freddie or Fannie in the last three years? Seriously. To even consider it is insane. The housing mess hasn't exactly been a secret. Anyone who invested in these companies should learn a thing or two from Forrest Gump.
So far this cycle, using a strategy of investing in businesses with solvency issues has only netted one outcome regardless of it being a bank, a mortgage company, GM, a homebuilder or either of the GSEs. That outcome is your own insolvency.
When was the last time the government nationalized an asset equal to 40% of the nation's GDP? Can you say never? How would you feel if the government deemed it necessary to seize all of the companies in the S&P 500 due to economic distress? Because that's just about what they did in comparative asset value. A more appropriate perspective is this seizure simply confirms via another data point that Frankenstein finance is imploding.
If you had bought Freddie or Fannie in the last month or so as many professionals did - after these stocks had already dropped 90% - losses were still up to 90% as of yesterday's stock prices. Annualized that is near 1,000 percent losses. There are lessons to be learned about investing in an insolvent business. Buying an investment simply because it has already dropped 90% doesn't mean you still can't lose 90%. A lesson it seems many in the OPM (other people's money) business can't seem to ever learn. What insanity would have driven anyone to buy Freddie or Fannie in the last three years? Seriously. To even consider it is insane. The housing mess hasn't exactly been a secret. Anyone who invested in these companies should learn a thing or two from Forrest Gump.
So far this cycle, using a strategy of investing in businesses with solvency issues has only netted one outcome regardless of it being a bank, a mortgage company, GM, a homebuilder or either of the GSEs. That outcome is your own insolvency.
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