Banking, finance, and taxes
Greenspan's Recession Odds: Tales From Crypt Keeper (FNM, FRE)
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Today before the close of the market, former Fed-Head Alan Greenspan participated in an interview on CNBC with Maria Bartoromo. The good news is that he’s no longer hard to understand at all. The bad news is that he’s no longer hard to understand at all. You might be able to blame part of the late day selling on him, at least in Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE).
Why is he to blame? First and foremost, he isn’t. It’s the reactionthat traders took because they still want to listen to him is toblame. As a reminder, he can only be a pundit now and holds noinfluence over current policy other being able to be a pundit afteryears of being THE MAN. They key takeaway that Greenspan added were thepartial "nationalizing" calls for Fannie and Freddie and his chancesfor a recession.
As far as the recession, he said we are still at a 50/50 risk of arecession despite the recent data and are actually at a greater chanceof recession that not having a recession. On the flip side he alsonoted that the inventory work-down we saw in today’s GDP is actually agood thing rather than bad. The old man also said that it issurprising how well the economy has held up considering all of the woesthat have been seen, and even more so on the international front. Healso said he’s not optimistic on US-autos, like that isn’t known. Healso thinks housing prices have to come down more. While he notedslowing, he has said that he been surprised at the strength; but in thenormal fashion of keeping you guessing he also said he’d be moresurprised if we didn’t see a recession than if we did.
But on Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), these stockswere hit during the end of day session with Fannie down almost 6% andFreddie down 6.4% on the day. He referred to the two GSE’s as accident waiting to happen. Here is were it gets interestingthough. Greenspan called the current situation as one that is notcapitalism. He would like to see both Fannie and Freddie nationalizedand perhaps see a break-up into as many as five ten different companiesand sell them back to the market.
As far as the need for another government stimulus package, he said he’d really rather not comment on that. If Mr. Greenspan wants to hold court, it might be nice if he’d do it when the markets are closed.
Jon C. Ogg
July 31, 2008
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