Rhody Trader

There is, of course, a bunch of chatter and reaction this morning to the government takeover of Fannie Mae (FNM) and Freddie Mac (FRE). The markets are certainly reacting aggressively in a bullish fashion. This, of course, was always what looked like happening. The Feds were never going to put taxpayer money at risk without total control.

The question, though, is what this changes?

For me, not much – at least right now. The housing market is still in an oversupply situation. That needs to be worked off. The credit spreads are still elevated. The fundamental question of trust hasn’t been cleared up yet. Until that is, we still have a credit crunch.

Bottom line, I think what we’re seeing this morning is little more than short-covering in a market that was already recovering from being oversold on Friday. I definitely don’t see a new major rally unfolding from here.

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