The Collapse of Freddie Mac – FRE

Jul 11, 2008: 9:58 AM CST

The “talk of the town” this morning is the massive overnight plunge and devastating losses in 2008 for government chartered mortagage companies Freddie Mac (FRE) and Fannie Mae (FNA).  Also, Federal National Mortgage (FNM) has shown a very similar pattern.

Let’s look at Freddie Mac (FRE) Monthly:

What’s curious about this chart is the absolute destruction to the stock price in 2008, falling 85% over the past six months.  We are seeing price levels not seen since around 1992.

Then view Freddie Mac (FRE) Weekly:

The weekly chart shows that the take-down in price began roughly as the stock market peaked in October, when the ‘credit crisis’ information was becoming public and dissiminated to investors.  Price fell from above $60 per share down to $5 today.

Investors worry if a government intervention is needed for these companies – and if so, what would that mean.  Should these companies collapse, it would certainly send further shocks to an already weak financial sector (and system) and could signal further losses to holders of mortgage-backed securities.

Keep your eye on the news for any word of a ‘bailout’ or immediate recovery plan from the Fed, which could be a boost to the broader market, and it could happen suddenly.

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