Massive Confusion Over Rally In AIG, Fannie And Freddie

traderperplexed tbi

We weren’t the only ones confused by yesterday’s bizarre rally in beaten-down companies like AIG (AIG), Fannie Mae (FNM), Freddie Mac (FRE).

There are a few different stories, some having to do with the new plan for the GSEs, or maybe the resignation of James Lockhart, or maybe a surprise profit in another beaten down lender.

Nobody has a good explanation.

NYT: The numbers were astounding, especially on a day when the broad market drifted lower. American International Group, synonymous with the financial crisis, jumped 63 — yes, 63 — per cent in one day. The troubled mortgage finance companies Fannie Mae and Freddie Mac shot up 30 per cent.

So on an otherwise slow financial news day, what drove this move? Wall Street analysts were groping for explanations. Some said investors who had bet against these stocks were rushing to buy and cover their short positions. Others pointed to trading in the options market, or speculated that high-frequency computer trading could have played a part.

Ah, this is good and important. High-frequency trading has officially joined the ranks of excuses analysts can give when they have nothing to say. It joins “profit-taking” and the “increasing risk appetite” as non-answer answers that are acceptable.

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