I remember when I was studying economics in UC Berkeley, professors were telling us, "we are in this real estate crisis for a long term." We are currently in much more serious condition than many people presume, and we won't be able to recover quickly.
Basically, American economy that has been driven 70% by consumer spending were largely depending on availability of credit for the last decade. But it was the very credit that was hurt badly for the user's abuse.
Obama administration provided first-aid kit for housing industry with "socializing" Freddie Mac and Fannie Mae. When these two mortgage giants fell, a Wells Fargo banker I talked with said FNM would be in much more serious condition than its fellow FRE because it was more deeply involved in Washington Mutual fall-out.
(If you want to read more about $FRE, and $FNM, search with a term "FRE" on the top of this blog.)
At that time, I invested in FRE at $1 and experienced very scary days as it went all the way down to $0.35 per share. Then, with announcement of Fed disallowing short-sale in financial stocks, FRE started to boost up all the way to $3/share. It was handsome profit indeed.
The chance arrived once again.
FRE and FNM have been recovering well since the incident.
But with the new housing data announced this week, both firms got TANKED, and the representatives of FRE said it would withdraw from NYSE.
This is over 2Billion dollars worth nation's largest mortgage giants we are talking about.
It was so large, government had to step in providing bunch of money to just keep it alive; each firm lost ~1 B in 2009 in operation.
Overall market has not been affected from this yet, but I see it soon will be.
When the next bank's Quarter data comes out, we will have mixed feelings.
Gold Future is higher than ever after all.
(why buy gold if you are confident in dollars? Gold soars because we can't trust dollars.)
