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Market Morning: Fannie Mae Cheers, Ford Junked, Deficit Tops $1T, Ma Retires, Parliament Prorogued

ME Staff

Fannie Mae Shares Explode Higher Amid Possible Privatization by Trump Administration

It’s been 146 months since Fannie Mae (OTCMKTS:FNMA) began its epic collapse, as everybody in the market suddenly realized that one entity buying most of the mortgages in the country regardless of borrower creditworthiness wasn’t exactly the greatest idea after all. As a result of the company’s fall from grandeur, the federal government basically took charge of the company almost entirely, forbidding it from actually keeping any of its earnings since 2012. Now, 12 years and change later, that could finally change as a plan has been hatched to take the mortgage giant out of government conservatorship so it, and subsequently its shareholders, can start keeping at least some of its earnings.

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Some of the details like ending the sweep of the company’s profits need to be approved by various bureaucracies including the FHFA, but if the Trump Administration has the will, all will probably go through. Congress will have an opportunity to make its own plans, but might not figure out how to organize itself in order to present something, as is usually the case. FHFA officials have said that they are perfectly comfortable with the idea of moving without Congressional consent. On Friday, the company won a case that sought to prevent the sweeping of profits to the Treasury. The stock popped yesterday over 42% to settle at $3.87 as a result. That’s still a bit below all time highs of $87. Lesson being, don’t try to corner the mortgage market by buying everything regardless of quality.

Ford Downgraded to Junk

Moody’s (NYSE:MCO) has downgraded Ford’s (NYSE:F) debt rating to Ba1, technically called junk. The reasons cited are operating and market challenges facing the company, and weak earnings and cash generation in the lead-up to a costly restructuring plan. The restructuring plan will cost somewhere around $11 billion just in charges, plus $7 billion in cash. “Ford is undertaking this restructuring from a weak position as measures of cash flow and profit margins are below our expectations, and below the performance of investment-grade rated auto peers,” Moody’s said. Considering that Ford is heavily dependent on ultra low interest rates for poor credit car finance in order to keep sales flowing, Moody’s may have a point here.

Congressional Debt Office Says Deficit Over $1 Trillion

The Congressional Debt Office, technically still called the Congressional Budget Office, is now saying that the current year’s fiscal deficit has already exceeded the $1 trillion level. For the first 11 months of fiscal year 2019, the deficit has already reached $1.07 trillion, up nearly $170 billion from last year. At the forefront of the problem once again is Social Security and Medicare claims, which have been bankrupting the country for decades. Plus, despite record low interest rates, interest on the debt rose 14%, which really tells you where the US will be once interest rates finally start to rise. Defense spending rose 8%.The good news is, the final deficit for FY2019 will probably be more like $960 million, because more taxes will be coming in for September, than the government is likely to spend. So we’re still below the trillion mark, maybe, unless there’s some surprise spending on something. The Treasury market doesn’t seem to care much, but like Fannie and Freddie, which all the sudden started caring about the subprime bubble, eventually it will start to care.

Jack Ma Retires, Wants to Teach

Jack Ma, the founder and CEO of Alibaba (NYSE:BABA), is stepping down as executive chairman of the company today. In celebration of his retirement, he’s having a party at an Olympic-sized stadium. He will be turning his fortune to philanthropy now, inspired by the examples of Bill and Melinda Gates. Ma’s personal fortune measures about $40 billion, which makes his membership in China’s communist party a bit confusing. He will still own about 6% of the company, and retain voting rights to the company’s board of directors. Ma wants to spend time teaching, his old profession before founding Alibaba and becoming a multibillionaire. “Teachers always want their students to exceed them, so the responsible thing … for me and the company to do is to let younger, more talented people take over in leadership roles,” Ma said last September.

British Parliament Prorogued, MPs Erupt As Ceremony Gets Awkward

As the whole world is suddenly introduced to an obscure British political term called proroguing, little did anyone know there was such pomp and ceremony involved, though in retrospect it’s not that surprising. A woman dressed up in a bizarre costume by modern standards at least, holding some type of giant stick, a huge blingy gold chain and a sword with enormous frill around her sleeves requested the presence of “this honourable house” in order to suspend it until October 14.

Angry MPs, not minding the woman and her humongous gold chain, proceeded to try and prevent the Speaker of the House John Bercow from leaving. In any case, Parliament is now suspended. Once it reconvenes, Johnson will have about 5 days to get out of the country so he doesn’t get arrested for refusing to request a Brexit extension from the European Union, which he has vowed never to do, preferring to be “dead in a ditch”. Perhaps he’ll go on a 13-day tour of Europe, or just hide somewhere until the October 31st deadline passes. “I will go to that crucial summit on October the 17th and no matter how many devices this parliament invents to tie my hands, I will strive to get an agreement in the national interest … This government will not delay Brexit any further,” Johnson said. Stay tuned.

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