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US Mortgage Lenders Make Aussie Coal Stocks Cheaper

The Dow Jones fell back to earth yesterday. US stocks los 2.3%. Oil had nothing to do with it this time; it’s still US$136 per barrel. And, oddly, the Australian market is following US stocks down as we write. It’s opened down 1.6% so far today.

The Dow fell because two government-backed mortgage groups, Fannie Mae and Freddie Mac, tumbled by 13% and 24% apiece. A derivatives trader downgraded both stocks.

The market is terrified about how bad the mortgage situation is. The two major lenders are now at serious risk of collapse…though we’re not convinced the US government would let that happen.

A bail-out may be required. But people could still lose plenty of money on the lenders. And they could fall further on the market. The mortgage black-hole is still vacuuming up bad credit.

Now…do you see why the Aussie market’s slump is odd? In a sane world, if Australia has any exposure to Fannie Mae, it’d be the size of a ladybug’s thimble.

But our world is not totally sane, we guess. So we’re not ruling out any finance companies announcing new exposure to the US mortgage lending fraternity. There’s no underestimating the enthusiasm of idiots during a credit boom.

In fact, our colleague Dan Denning wrote to APRA yesterday to ask whether it had any info on the subject. Here’s the reply he got:

Hi Dan

Thank you for your enquiry about debt owned by Australian banks.

For all of APRA's publicly available statistics on Authorised Deposit-taking Institutions (ADIs), please refer to http://www.apra.gov.au/Statistics/ADIs.cfm.

There’s not much use in looking at those spreadsheets. There’s no column titled “Owns US Mortgage Institutions”. The fact is, nobody really knows how much exposure Aussie firms have. We’ll probably only ever know if some company announces it.

We do know one thing though…Aussie shares are not as exposed as US stocks. And Aussie stocks get cheaper this morning, reader. There’s stupidity in the air.

Ahem. Excuse us…who’s driving this market? You have your eyes on the wrong lane.

Take Felix (ASX:FLX). It does not lend to homeowners in America. It digs up black stuff called coal in Australia. There is no direct link between the two. Do not try to find one. Someone should tell this to the investors who are willing to sell it for 3% less this morning.

In fact, in the words of a Citigroup analyst yesterday, “the coking coal market is expected to remain tight for many years”.

In the meantime we’re keeping our eyes on Energy, Earnings and the Economy. Those three factors will have more bearing on Australian shares in the long-term than Fannie Mae and Freddie Mac.