Sell Fannie Mae And Freddie Mac Now!
The Dynamic Wealth Report
September 4, 2009
Better Than A Lottery Ticket?
by Corey Williams, Editor
Earlier this week, I was on my way to the office. I stopped at
Circle K, a local convenience store, for a cup of coffee. Stepping into
line to pay, I was unlucky enough to be stuck behind a lottery junkie.
Unfortunately, this wasn’t the first time this has happened.
You know the type. Their retirement plan is to win the jackpot.
I’m not talking about someone who plays a few lucky numbers when the
jackpot gets big. The lottery junkie plays $20, $50, or $100 every time
they walk into the store.
I spent the next few minutes watching the clerk scan ticket after ticket
to find a few meager winners. The junkie always rolls the winnings into
the next round. Often time adding a few more bucks to make sure they’ve
got a “good” chance to win the next drawing.
Now, I can’t be sure but I think the lotto ticket junkies have all
opened trading accounts. How else can you explain the market action in
Fannie Mae (FNM) and Freddie Mac (FRE).
Fannie and Freddie have almost quadrupled in just the past month!
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These two stocks are worse than buying lottery tickets. Mark my words,
these two companies (and I use the term loosely) are done. The stock is
worth zero, zip, nothing, nadda…
If you’re planning on buying one of these stocks looking for a big
payday… you’re in for a rude awakening. The day will come when you open
your brokerage statement to see the stock is worthless.
When will the final reckoning come for Fannie and Freddie?
A report from Moody’s points to the company’s demise. They concluded the
government would need to keep funding the companies for more than a
decade. Only then would they be able stand on their own again. I think
this estimate’s too generous.
The two companies together are nearing $1 trillion in total government
assistance.
There’s no way they’ll be able to reimburse that much money. Even in the
best of times. But right now it’s the worst of times for mortgage
lenders. Loans are going bad at an unprecedented rate.
Take a look at these numbers…
The number of loans behind on their payments rose to 9.4% in Q2. And, the
number of homes in foreclosure rose to 4.3%. The picture isn’t getting
any prettier either. The number of loans on the verge of going into
foreclosure is now almost 8%. Every single one of these numbers is at an
all time high.
Clearly this problem is going to get worse before it gets better.
I don’t see Congressional support for these companies lasting a decade.
If (or should I say when) the companies are dismantled, the debts will
exceed the assets. The stock will be worth nothing.
If you own FNM or FRE, the only thing going in your favor is time. The
debate on how to restructure the housing-finance system is just getting
warmed up. I’m sure everyone with a stake in the mortgage or banking
business will have a plan for fixing the system. The battle in
Congress
is sure to be partisan, ugly, and lengthy.
This gives you a chance to get out.
If you own stock in either of these companies, use this time to sell. Get
what you can. And if you ever have the urge to gamble on either of these
stocks, go buy a lottery ticket. At least then you’ll have a chance…
• Danaher (DHR) was upgraded by FBR Capital this week. They now have an
"Outperform" rating on the stock. Manufacturing companies
are benefiting from the ISM manufacturing report turning positive for
the first time since January ’08.
• Deere (DE) was downgraded to an "Underweight" rating
by JP Morgan. They’re concerned falling crop prices will hurt the US
farm economy.
• Piper Jaffrey started coverage on Nanometrics (NANO) this week with an
"Overweight" rating. A rebound in the semiconductor business has them well
positioned for a return to profitability.
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