Federal Government Guarantees Fannie Mae & Freddie Mac; IndyMac Bank Fails
by Joe Battaglia
Posted: July 14, 2008
Gold up $9 in the
first half-hour of trading and silver is up $.23. Oil is about unchanged at $145.08 a barrel, and the dollar is up
4 basis points at 72.14. The Dow is
managing a 55-point gain, which isn't much given the fact that the Federal
government has stepped in, and guaranteed Fannie Mae and Freddie Mac. They will obtain authority today to purchase
stock in both of these entities. That
will enable the Federal government to recapitalize these troubled
institutions. In addition they are
guaranteeing their loans. As a result
their bond auction for $6 billion went pretty well this morning. According to Treasury Secretary Paulson,
these dramatic steps were taken to bailout these institutions due to the fact
that there was a tremendous amount of interrelationship between them and other
financial institutions. In addition,
they pointed out that government agencies all over the world have invested in
the bonds of these entities. This works
itself out to probably be the best of two bad choices. Had the government not stepped in, it is
likely these agencies would have utterly collapsed and had to be taken over in
some fashion any way. On the other
hand, the U.S. government has now just put itself and the taxpayers on the hook
for trillions of dollars worth of liabilities, which cannot be good for the dollar
over the longer term. This could affect
the credit rating of the U.S. Government.
Looking at the
financial system, over the weekend IndyMac Bank failed and was taken over by
the FDIC. They are saying there may be
one hundred financial institutions that will fail in the next few months and
need to be taken over. The next
question is where will the FDIC get the money needed for these takeovers? Probably from the Federal government.
The financials have
been rallying. However, this is a short
covering rally after the tremendous sell off last week. The fundamental problems for the banking and
financial system have not changed. They
are in dire shape. There will have to be
more bailouts. The question is, what
does this do to the balance sheet of the Federal government and in particular the
Federal Reserve? Since they now have
unlimited authority to lend to both Fannie Mae and Freddie Mac as well as other
non-bank financial institutions, it could jeopardize their own financial
statement. This is a lot of news for
the markets to digest. As a consequence
all of the markets are being thinly traded this morning.
There is a
significant increase in the long position in gold over the past couple of
weeks. Moreover, momentum is building
to the upside. All of this suggests a
test of $1,000 in the near term. With
gold now trading in the key futures contacts above $980, the potential for a
move to significantly higher levels is clearly present. Analysts now say the charts target gold at
$1,030 to $1,040 an ounce. If you have
not yet gotten into the market or if you need to add to your holdings, get
started today. Call Goldline at
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Investors should
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personal and individual investing needs and objectives. Investors looking for low transaction costs
may wish to consider bullion assets such as American Eagles, Krugerrands,
Canadian Maple Leafs, Silver Bags or Silver Bars. However, the Price Guarantee Program is not available with these
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If you would like
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To receive the free information
package including the four articles on the dollar, the economy and gold call
Goldline at 1-800-827-4653. Goldline
also provides several other helpful articles.
There are a number of other independent third party source articles that
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brochure and a Coin Facts Risk Disclosure Booklet, read these carefully before
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Call Goldline now to receive your free information package at
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You should carefully read the client Account Agreement and the Risk Disclosure information.
These explain important things you need to know before you invest in precious metals, such as:
past performance does not guarantee future results. Transaction costs are generally 5% to 10% on
bullion and 30% to 35% on coins. This is also referred to as the spread, or the difference
between the buy price and the sell price. The market must go up enough to overcome this spread
before an actual profit is achieved. All markets go up and down. Coins are a long-term, three- to
five-year, preferably five- to ten-year investment, suitable for 5% to 10% of the average
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