Wednesday, August 20, 2008

Express elevator to Hell...going down!

Remember that line from Aliens? The Marines are in their dropship and they're starting the descent to the planet surface. Well, if you still own Fannie Mae or Freddie Mac stock, you may well dropping down to something very hard, just like a planet's surface--zero.

In a CNBC article where Jim Cramer calls for a suspension of trading in Fannie and Freddie because "... it was being manipulated by people with insider information", (and he's wrong; most investors are smart enough to see the crash coming) there is this little nugget from hedge fund manager Doug Klass:

Closely watched hedge-fund manager Doug Kass, who has placed big bets that Fannie Mae shares will fall, said on Wednesday that the seriously depressed stock of the two companies will drop to zero, dismissing Mudd's comments about its capital adequacy.

"What Mudd didn't say is that the company is too leveraged to a depreciating asset—housing—and losses are off the charts and [there are] no signs of stability," Kass said in an interview.

Kass said he believes there will be "some de facto government rescue" of the companies, probably in the form of a series of extremely dilutive financings.

If he's right, this is going to leave one major impact crater in the US (and probably global) economy.

"All hands--brace for impact!"

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