A Melman Minute
By: Leonard Melman
July 8, 2008
Our apologies, but this will have to be an
abbreviated "Melman Minute" due to travel requirements.
This morning's market openings are very much a continuation of yesterday's
trends with the precious metals lower on balance, crude oil continuing its
correction downward, securities markets mixed, the U.S. Dollar slightly higher
and base metals mixed.
One of our most important concepts at TMR is that we are much more interested in
what people do and how markets actually perform than what words are spoken by
politicians, government bureaucrats, special-interest promoters, etc. Within
that line of thinking, we would like you to take a good, hard look at the chart
of one of the major financial securities, "Fannie Mae", or the "Federal national
Mortgage Association."
This is an agency of the United States government deeply involved in
guaranteeing home mortgages for the American public. One would normally expect
that investors would purchase such a security with confidence and that it would
be suitable for 'widows and orphans' type accounts. Until two years ago, that
may indeed have been the case. However, in recent months, holders of FNM stock
have been devastated by relentless declines.
After a period of remarkable stability, the stock of
FNM began to collapse in the summer of 2007 and, since then, it has plunged from
US$70 to barely $16 as this is written - a loss of $54 per share from high to
low and, given that there are 982 million shares outstanding, the total loss in
market capitalization, which represents the wealth of shareholders, has been a
staggering fifty-two billion dollars.
What makes this loss even the more remarkable is that it has occurred despite
the grandest efforts by the Federal Reserve Board, the President, the Secretary
of the Treasury and various commercial banks telling the public that it has
the situation in hand and that brighter days lie immediately ahead. Apparently,
the public does not share that confidence.
Perhaps one of the reasons for the lack of public confidence is that the
declines in real estate values appear to be accelerating in the U.S. and
spreading to other countries around the world - making the chances of a rapid
and important recovery in real estate values appear to be less and less with
each passing month, a fear which is being confirmed by the dreadful employment
reports now being issued monthly by the U.S. Department of Labor.
We will take a closer look at this situation tomorrow.
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