Week Ahead: GSE Bail Out, Who's Next?

The inevitable became reality over the weekend, as the federal government, specifically the Federal Housing Finance Agency took control of Fannie Mae and Freddie Mac.

Well, the big surprise everyone expected, but which stubborn Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) shareholders prayed would not occur, is now reality. The Treasury Secretary came to his senses last week, and realized an equity investment backstop was not going to be effective at completely stopping the bleeding of the GSEs.

Regarding FNM and FRE stakeholders, we're sorry but we warned you as recently as two weeks ago in our article, "Financial Crises Outnumber Hurricanes." Specifically, we stated, "...fear not, as Fannie-Freddie (hurricane) has been deemed too big to fail. Only the equity holders, who thought "government sponsored" meant their money was safe, stand to be flooded out." And that's exactly what happened...

We've now saved (loosely defined) Bear Stearns (NYSE: JPM), MBIA (NYSE: MBI), Ambak Financial (NYSE: ABK) and the GSEs. So, who's next? Lehman Brothers (NYSE: LEH) looks desperate for capital; I'm looking eastward into Europe and Japan after that.

The Week Ahead

Monday

All the buzz should be about the GSE rescue on Monday, and while we are reporting tough news for the two, as far as equity holders are concerned anyway, major index futures pointed higher in the early AM as the market expressed its approval.

Fed hawk, Richard Fisher is set to address a group on Monday. Fisher is of unique interest due to his recent vote for rate hike. With unemployment on the rise, consumer spending likely to deteriorate after a mediocre August, and a good chunk of mortgages in default or foreclosure, consumer credit is quickly gaining credibility as a cause for concern. Thus, greater than usual interest should find the Consumer Credit Report for July on Monday afternoon (3:00 PM). Bloomberg's consensus of economists expects credit to have expanded by $8.8 billion, which compares to $14.3 billion in June and $7.8 billion in May.

The day's very light earnings schedule includes Finisar (Nasdaq: FNSR), Mitcham Industries (Nasdaq: MIND) and Sasol Ltd. (NYSE: SSL).

Tuesday

As crude collapses under a momentous unwind of too many one-sided bets (and leveraged at that), OPEC offers information that could have a stabilizing or counter impact, at least temporarily. OPEC is meeting in Vienna, and will discuss and set output levels while reviewing global demand. By Tuesday, we may know if Hurricane Ike will threaten the same oil installations Gustav recently shut down. Ike appears to be headed right into that Southern Louisiana/Texas region. So, looks like there could be good reason for a short-term oil rally this week.

With not much "back to school" driver left, the ICSC-UBS Weekly Same-Store Sales results look to have little support going forward. Last week, sales rose 2.2% on a yearly basis, comparing to 2.3% the week before. Housing data has offered reason for hope of late, and as a result, has also likely regained its ability to detrimentally impact related stocks with a worse than expected report. Swings are likely until fundamental factors are set in place for solid recovery. Now that we have set the table, the Pending Home Sales Index is due for 10:00 AM release on Tuesday.

The Wholesale Trade Report is also scheduled for 10:00, with Wholesale Inventory seen increased 0.7% in July, versus 1.1% in June. Remember, it's the inventory-to-sales ratio that matters most, and this is still on a long-term trend line of improvement thanks to ongoing progress in just-in-time production and distribution efficiencies.

Just one day removed from the big Treasury decision to take over the GSEs, Ben Bernanke is scheduled to address a group on the topic of education. It will be interesting to hear his commentary, as he's unlikely to escape the topic. The earnings schedule is short, but includes AeroVironment (Nasdaq: AVAV), Korn Ferry Int'l (NYSE: KFY), Pep Boys (NYSE: PBY), Shuffle Master (Nasdaq: SHFL) and VeriFone (NYSE: PAY).

Wednesday

Not much to do on Wednesday, but we've got the regular Mortgage Bankers Association Report on mortgage activity and the EIA Petroleum Status Report. This week's oil inventory data covers the period affected by shutdowns related to Hurricane Gustav. Both production and refinery capacity was shut down as the storm passed through in relatively benign fashion. Meanwhile, by Wednesday we should have a pretty good idea of where exactly the latest storm, Ike, will strike North America.

Wednesday's earnings schedule includes Bakers Footwear (Nasdaq: BKRS), Hooker Furniture (Nasdaq: HOFT), Spartech (NYSE: SEH), Stewart Industries (Nasdaq: STEI) and Sunrise Senior Living (NYSE: SRZ).

Thursday (September 11th)

We do not need to tell you that our hearts will be heavy on Thursday. The Greek anticipates making a trip Downtown, and I'm not afraid to admit that I'll probably need a moment to myself somewhere quiet and it'll be an especially long subway ride back uptown afterward... assuming I even make it out the door in the first place. The memories of that day are a weight on my heart that I cannot foresee lightening anytime soon.

Weekly Initial Jobless Claims take priority each Thursday now, as rising unemployment tests the nerves of those investors who have already taken to dipping their toes into the water. Bloomberg's consensus is looking for 440,000 new benefits filers, but the consensus is meaningless on this figure. Forecasters never stray too far from the prior week result, which in this case was 444K. The 4-week moving average has actually moderated over the last couple weeks. Nonetheless, it seems more than likely we'll top 500K weekly lost positions before long.

Import Prices probably fell 1.7% in August, according to economists. We're looking for a three letter word that is commonly preceded by a four letter word these days. Prices rose 1.7% in July. Yes, it's "oil!"

The International Trade Report is expected to show deficit expansion to $58.0 billion in July, from $56.8 billion in June. The Treasury Budget Deficit for August should have narrowed, according to economists, to $107 billion.

Also look for the RBC Cash Index on Thursday morning. This sentiment measure posted a steep climb of 132% in August, albeit from a rock bottom point to reach 33.8. At 10:00 AM, the Census Bureau should report the Quarterly Services Survey, and at 10:30, the EIA notes its Natural Gas Report. Finally, Fed Vice Chairman Kohn is scheduled to discuss Financial Regulation Research.

The earnings schedule includes Campbell Soup (NYSE: CPB), Global Crossing (Nasdaq: GLBC), Krispy Kreme Doughnut (NYSE: KKD), Lululemon (Nasdaq: LULU) and U.S. Global Investors (Nasdaq: GROW).

Friday

Friday offers a full slate, with four powerful economic reports scheduled. The Producer Price Index is expected to post a headline price drop of 0.5% in August, on the back of the relative oil price slide. Core Prices, ex-food and energy, are expected to increase 0.2%, compared to 0.7% in July.

Retail Sales for August, due at 8:30, is forecast to rise 0.3%, versus a 0.1% decline in July. Excluding the struggling auto industry, sales are seen falling 0.2%, versus a 0.4% rise in July. Business Inventories should have increased 0.5% in July, according to the experts. This compares to a 0.7% increase in June. Again, look to the inventories-to-sales ratio for best relative take on inventories. The University of Michigan Consumer Sentiment Index is seen improving to 64.0 in September, after measuring 61.7 in August.

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