Monday, September 08, 2008

“Equal-Weight” a Wipeout? The Least Helpful Calls You Will Get Today

The least helpful calls you will get today will all be about two companies in the same business, and they will be so unhelpful it will make your head spin.

We refer to the inevitable price target reductions and recommendation downgrades of not only the common stock of Freddie Mac and Fannie Mae, but their recently issued, so-called “preferred” shares, as well.

Unlike most “unhelpful calls” we here at NotMakingThisUp highlight, these calls will not come from only one firm. They will come from many of Wall Street’s Finest.

Already one has slashed his ratings on the two stocks from “Buy” to “Sell,” as if that matters, while a second has gone to a positively mystifying recommendation of “Equal Weight.”

As today’s Wall Street Journal reports:

Under the plan, the government could wipe out most of the value of the common shares by buying nearly 80% of both companies “at a nominal price.” That would leave common stock holders with the remaining 20%, or one-fifth of what they owned on Friday.

How do you “Equal-Weight” a wipe out?

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Len said...

"How do you “Equal-Weight” a wipe out?"
You have NO vision, you have no insight, you have no original thoughts.
You only Follow, you do not lead.

mxq said...

Maybe its to hedge themselves against erroneous, repeat-headlines run by the Chicago Tribune and other media outlets.

Maybe this GSE story really already ran 4 years ago...we're just waiting for someone to confirm otherwise...

Walt French said...

"How do you “Equal-Weight” a wipe out?"

One does what, up until an announcement (Tuesday eve!) from S&P, indexers did: one holds the same fraction of ALL companies' shares. E.g., for a $1 billion fund indexed to an index with $10 trillion of mkt cap, 0.01% of each company's shares. Easy. (No divide-by-zero errors.)

Note that many index funds have parents IN the target indices, so feel compelled to follow a "computer program" that prescribes holdings as a safe harbor against self-dealing.

Many indexers must have taken that as a prohibition against selling FNM and FRE on Monday & Tues, when S&P was unconscionably silent about their indexes.

infoage said...


Jeff, now that I have the song stuck in my head, you can too...:)

Reissuer said...

Like the new site look: a case of the equally waited new blog wiping out the old one perhaps? Congrats anyway! And yes we will read the book, now we can really clearly see where to buy it...