Subprime concerns continued to weigh on the market today after Citigroup analysts estimated that Fannie Mae and Freddie Mac would suffer a loss of $4.7 billion loss in value as a result of declining subprime mortgage valuations. Soon after, a Freddie Mac spokeswoman countered, saying the analysts were "mistaken" and that the groups haven't seen "any material markdown of value". Clearly there are some major reasons for concern here, but investors remain uncertain as to whether or not the groups will be able to ride out the storm.

The Citigroup report indicated that Fannie Mae's subprime holdings have dropped $1.5 billion - or 2.5% of the company's value. Meanwhile, Freddie's holdings dropped $3.2 billion - or 8% of the company's value. However, since these are bonds that are not going to be forced into liquidation, the actual impact on the company's values are lessened. And in the end, these billions hardly make a huge dent on the $1.4 trillion in loans that they have outstanding.

The two government companies, which buy and package home loans, have thus far avoided substantial damages from subprime loan defaults. The two companies have a combined $182 billion in backed subprime loans, however, the vast majority of these loans remain AAA rated. While Freddie and Fannie do not guarantee these loans, the companies will certainly be damaged if defaults continue as they have in recent weeks.

In the end, this is definitely a situation that is worth watching. These two companies carry a lot of weight in the mortgage market as they are backed by the government. The subprime problem is far from over and may take until 2009 to resolve according to some industry executives. In the meantime, it is important to keep an eye on default rates in order to make sure the problem doesn't spread significantly and cause further selloffs in other sectors.

Kraft Foods (NYSE:KFT) is now home to yet another famous investor as Warren Buffet joins the ranks of famed activist investors Carl Icahn and Nelson Peltz who have already built up sizable stakes in the company. Shareholders are hoping that the involvement of all these famed investors will result in extraordinary gains.

It is unclear whether Buffet, who owns less than 5 percent of the company, will side with the two activists in their plans for the company. Icahn and Peltz proposed a divesture of key brands in an effort to provide quicker returns for shareholders. There is speculation that they could face some problems with Buffet, however, given his track record of investing in companies undergoing a restructuring brands internally - he might be siding with management.

Many others insist that Buffet may simply be interested in the prospects of the spin-off combined with a strong brand. Historically, spin-offs have tended to outperform the larger market in their first few years as an independent company, especially when the company possessed a leading brand. Clearly, Kraft is a great fit for this type of strategy and so far the company's shares are up over 11% since the spin-off was completed last March.

In the end, this is definitely a unique situation given the involvement of so many famous investors that may even be on opposing ends of the spectrum when it comes to plans for the company's brands generating poor operating results. Combined, these factors make KFT a stock that is definitely worth watching!

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Washington Group International's (NYSE:WNG) merger plans have been drawing some criticism from shareholders. Today one the company's largest shareholders, David Einhorn, said in a regulatory filing today that he would vote against the plans. The 10 percent shareholder believes that the proposed $2.3 billion transaction is a bad deal for shareholders and insists that few other large shareholders support the idea.

David Einhorn's lengthy letter to the board of directors opposed not only the undervalued bid but also the sale process itself. During the sale process, the company relied on the fairness opinion of Goldman Sachs instead of conducting an auction process despite the fact that the company received several unsolicited bids earlier. More, based on the proxy statements, it is clear that the board relied on an overly conservative forecast the failed to properly value the company's future growth prospects. Various contracts and income opportunities that were not fully appreciated could add substantial value to a buyout price that Einhorn estimates as high as $117 per share!

David Einhorn also argued that the company may be better off as a standalone enterprise. Washington Group is over-capitalized at the moment and URS, the acquirer, plans to take advantage of the fact to get a relatively cheap transaction. Einhorn argues that this cash could be returned to shareholders in the form of a special dividend or share buyback if the company decided against the proposed transaction. If the company were recapitalized at the same proportions as the buyout, shareholders could obtain $27.50 per share in cash and keep the company instead of selling out for $43.80!

In the end, the proposed transaction is clearly bad news for shareholders. Given that a 10 percent shareholder now publicly opposed the merger while insisting that others feel the same way, there is a possibility that the merger could be rejected. If this happens, we could see higher bids in an auction process or significant actions taken to unlock shareholder value through a recapitalization. Either way, this is great news for investors and definitely makes WNG a stock worth watching!

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