"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
A friend of mine still... After all the years brokerage firm scandals, conflicts of interest, and bad advice..works for a Wall Street brokerage firm. A few months ago this Wall Street powerhouse placed Fannie Mae and Freddie Mac preferreds on their recommended list. Well, do I need to tell you "the rest of the story ?"
Yesterday, Treasury Secretary Paulsen announced that Fannie Mae and Freddie Mac would stop interest payments all all existing common and preferred shares after a government takeover. A new preferred stock was issued to the US Government (and maybe some foreign friends?) with a 10% yield. Mom & Pop cannot buy these new preferreds, and the old ones in their Brokerage and IRA's are virtually worthless.
Here is a small list of what happen to a few Fannie and Freddie preferreds yesterday;
FRE-B: FREDDIE MAC VAR PR Price: $2.01/ down -10.74/ or down-84.24%
FNM-R: FANNIE MAE PFD R/ Price $ 2.25/ down -11.12/ or down -83.17%
Believe me, your broker does not want you to lose money. In fact, they hate it. But, and here's the reality, many brokers don't know any better, they take their firms advice, and much of the advice is terrible.
I told investors over and over again that the financial services industry is not a charity business. Whether youre dealing with a bank, brokerage or insurance company, their first loyalty is to the firm and to themselves. This should be very obvious by your investment results, and the fees and commissions you are charged.
If you know what you're doing, you can save a ton of money in investment costs. The more you know about the various products and services offered by a financial institution, the better off youll be. You do not need to let brokers, insurance companies, or brokerage firms tell you whats in your best interest.
On the other-hand, you can stay where you are and do nothing. One day maybe you'll make all the losses you took on Fannie, Freddie, tech stocks, mortgage bonds, real estate, and the many worthless investments you purchased through the years.
My advice is a simple one. Ignore the brokerage firm ads you are seeing on TV. It's all a bunch of "bull"- get it? Unless you enjoy viewing your financial future from underneath a bus, I would run to my nearest discount broker.
Today's Market
OPEC announced it would keep oil production at near-record levels, and Oil prices fell to around $104 per barrel. Crude futures were down on fading concerns about Hurricane Ike's threat to facilities in the Gulf of Mexico.
July pending home sales fell more than expected, while wholesale inventories increased more than expected. Reduced consumer demand is adding to the increase in inventories.
One trend that I am skeptical of is the rising dollar. The U.S. government's move to save Fannie Mae and Freddie Mac may begin to have negative implications on our currencies, particularly after the elections. For now, the election year magic should keep an immediate slide from occurring.
