Your Final Warning
The Dynamic Wealth Report
June 18, 2010
by Corey Williams, Editor
This is it… Right now is your last chance to get out!
Fannie Mae (FNM) and Freddie Mac (FRE) stocks are heading to $0.
Earlier this week, the two mortgage finance giants were ordered to delist
their stocks from the New York Stock Exchange. Both stocks have plunged
since the news hit.
As I’m writing, FNM is trading for $0.44 and FRE is trading for $0.55. Both stocks are down more than 50% in the last two days.
I told you to sell FNM and FRE back on September 4th of last year.
Hopefully you listened. At the time, both stocks had recently quadrupled.
FNM was trading for $1.80 and FRE was trading for $2.00.
I told you it was your best chance to get out. Since then, both stocks
are down more than 70%! But some of you didn’t want to listen.
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One of our readers… Martin M. wrote in:
“FNM and FRE are a great play, you shouldn't discourage people from
making money.
BTW, FNM holds/guarantees 90% of all residential mortgages in the U.S. There is no way they are going out of business or the entire country's
housing market would collapse and every politician will be voted out of
office. Congress will never sink these companies. Think about it...”
Well, I’ve thought about it… I’ve also watched FNM and FRE freefall for
nine months.
And I’m glad I told you to sell these two stocks.
To be fair, Martin is correct about the important role FNM and FRE play
in the residential real estate market. Without these two agencies
providing liquidity to the mortgage market, the housing bust would have
been much worse than it has.
FNM and FRE, along with FHA, were the only financing options available to
home buyers after the credit markets collapsed in 2008. And they’re
still responsible for the majority of home loans being made today.
But their continued operation under government conservatorship doesn’t
mean their stock has any value.
There has simply been too much taxpayer money pumped into these two
agencies. Since they entered into conservatorship (aka bankruptcy) in
2008, FNM has received $83.6 billion and FRE has received $61.3 billion.
Billions of taxpayer dollars are covering losses on bad mortgages and
guarantees on mortgage-backed securities.
At this point, there’s still no end in sight for mortgage loan losses.
According to the latest report from RealtyTrac, a total of 322,920 homes
received a foreclosure filing in May. That’s 1 out of every 400 U.S.
homes receiving some sort of foreclosure notice in the last month.
It’s
the 15th month in a row more than 300,000 foreclosure filings were made.
We’re nowhere near an end to the high rates of foreclosures. And that
means more loans going bad.
It’s a certainty we’ll see more taxpayer money pumped into FNM and FRE
to cover these losses.
I don’t see any possible way for FNM and FRE stockholders to earn any
money. The math just doesn’t add up. The losses are too big… and the
damage is done.
If you rolled the dice and held onto these stocks, you’re looking at some
steep losses. But it’s only going to get worse. Cut your losses now. And
get out while you can still get some of your money back.
• Sunoco (SUN) was upgraded by Barclays Capital
and BMO Capital Markets this week. The petroleum refiner posted a
surprise profit last quarter.
• L-3 Communications (LLL) was downgraded to sell by
Argus this week. The high tech communications company is down after a
report they won’t be getting any new contracts or orders from U.S.
Federal Government agencies.
• Deutsche Bank started coverage on FedEx (FDX) this
week with a buy rating. The global transportation and logistics company
has an average analyst price target of $100.
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