Ouzilly, France

What’s going to happen to the mortgage twins — Fannie and Freddie? Yesterday, investors got nervous. They wanted to know. Would the feds officially nationalize them? No one believes the two will disappear. But no one knows on what terms they will be saved either. Both stocks sold off yesterday — with Fannie taking a 27% whack... and Freddie getting hit for a 22% loss.

The feds let it be known that they stood behind the two back in 1968 — when they were set up in their present form. They were no longer on the government’s financial books, but every lender knew they wouldn’t be allowed to go broke. So far, Treasury Secretary Hank Paulson has counted on that implicit guarantee — along with a long line of credit — to keep the two going. But now that investors are selling off the stock, he may have to come up with some real cash to put on the equity side too.

As reported here — we still have trouble believing it — Fannie and Freddie are each in the red by about $50 billion. They’re about $100 billion short, in other words. And judging by yesterday’s trading, private investors are in no mood to ante up. Which leaves good ol’ Uncle Sam. He’s not very bright; but at least he has very deep pockets... and a printing press in the basement.

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But that still leaves an open question: the feds may be forced to take back Fannie and Freddie (they were publicly owned prior to ’68), but at what price? At $10 a share? Or $2 a share?

Apart from Fannie and Freddie, stocks generally rallied yesterday. The Dow rose 69 points.

Oil rose to $116. Gold rose too — to $822.

Gold is down nearly 3% for the year. But our Trade of the Decade is still, technically, up — since stocks are off 14%.

Gold is the "the epitome of human stupidity," said an opinion in the Telegraph newspaper. "A metal that is dug out of the ground at great cost to be reinterred in bank vaults as a protection against the same stupidity as caused it to be dug up in the first place."

The writer is right. Gold is useful because humans are stupid. That’s why it is always useful; because humans are reliably numbskulls. And it is particularly useful when humans are particularly stupid. Remember, a correction is equal and opposite to the deception that preceded it. When people have deceived themselves in an especially monumental way, the following correction is a doozy. And that’s when you want to have some kruggerands in your pockets and a little bolt-hole in South America.

We never know what will happen, but we’ll stick with our Trade of the Decade a while longer — just to see how it turns out.

What else happened yesterday?

Word came that more students are choosing community colleges; analysts believe it is because they are cheaper.

GM is said to be giving up its sponsorship of the Oscars for obvious reasons — it’s running out of money. And shopping malls are finding it harder to bring in customers — partly because people are not shopping as much as they used to and partly because they’re not driving as much as they used to.

Of course, there’s a long list of things that aren’t what they used to be — house prices, stocks, emerging markets, consumer spending, bank lending, Wall Street bonuses... and so forth. Our guess is that the list is going to continue to stretch.

With that, we say goodbye for today... we’ve got to get ready for the big party — at which, your author gets to make a fool of himself twice. First, when he gives a short welcome speech, in French... and again when he performs a few songs with the band. He is a terrible musician under any circumstances, but in front of a crowd, after a few drinks, he is pathetic.

Your editor has two only two good qualities. As you know, he is extremely humble... even if he is insincere about it. More importantly, he also doesn’t embarrass easily.

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