Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

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covers over 5,000 stocks every day.

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May 11, 2010 – Fannie & Freddie Losses Rise Under Market Radar

Taxpayers are on the hook for all losses of Fannie Mae and Freddie Mac through 2012, which
was Treasury Secretary Geithner’s Christmas Eve gift. Risk Aversion Remains Intact Despite
Euro TARP.
Fannie Mae and Freddie Mac continues to drain taxpayer money as the Treasury provides unlimited
lines of credit through 2012. Last week Freddie asked for $10.6 billion and on Monday Fannie asked for
$8.4 billion. This brings the total bailout of the GSEs to $144.9 billion.
I have been predicting that Conservatorship of Fannie and Freddie will be the largest cost to tax
payers of all of the financial bailout programs, and that will prove to be the case as the GSEs will have
unlimited access to the Senior Preferred Program though 2012.
Through the third quarter of 2009, Fannie Mae had tapped its $200 billion line of credit for $60 billion,
leaving them with $140 billion. Their final line at the end of 2012 will be $140 plus the losses for the
thirteen quarters ending with Q4 2012.
Freddie Mac tapped its $200 billion line of credit for $51 billion leaving them with $149 billion plus all
losses through Q4 2012.
This makes the total line for the two GSEs at $289 billion at the end of Q3 2009. Since then the two
have tapped the US taxpayer for another $33.9 for Q4 2009 and Q1 2010 ($23.3 billion for Fannie and
$19.6 billion for Freddie). Their lines of credit are thus $163.3 billion for Fannie and $159.6 for Freddie
with eleven quarters of losses still to be added in.
Under Conservatorship both Fannie and Freddie were to begin to unwind their mortgage portfolios by
10% per year in 2010 to achieve a $250 billion maximum by 2021. That’s still the case but the
beginning threshold was raised to $900 billion each, which was the maximum that was not achieved by
either at the end of 2009. Since both are at around $750 billion, portfolios can actually rise to $810
billion in 2010. This cushion will make it easier for the GSEs to stop buying mortgage backed securities
in 2011, and lessons the immediate need to be active sellers.
Risk Aversion Remains Intact Despite Euro TARP.
The yield on the 10-Year remains richer than my semiannual pivot at 3.675 after testing 3.226 at its
height last Thursday. My quarterly pivot provides a magnet at 3.467. Supply is tested today with the
auction of $38 billion in new 3-Year notes.
 Courtesy of Thomson / Reuters

Comex Gold held my semiannual pivot at $1186.5, which is a key to the scenario calling gold “the
currency of last resort.” My weekly pivot is $1206.7 with monthly resistances at $1217.3 and $1270.1.
The euro rebound faded and early big gains could not alleviate an oversold condition.

Courtesy of Thomson / Reuters

Nymex Crude Oil had a small bounce as my annual pivot at $77.05 provided a magnet. The lack of a
bigger rally in crude oil questions the global growth story.

Courtesy of Thomson / Reuters

The Major Equity Averages had one of their stronger rebounds in history, but the Dow, S&P 500 and
the NASDAQ stayed shy of their 50-day simple moving averages at 10,845, 1171.50 and 2412
respectively. In Dow terms there are 1423 points between the Feb 5th low at 9,835 and the April 26th
high at 11,258 in about ten weeks. We fell from the high back close to that low in just eight days.

Courtesy of Thomson / Reuters

That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as
well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the
ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample
issues of my research.

“I Hold No Positions in the Stocks I Cover.”