This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Five Bubbles Set to Burst in 2010

NEW YORK ( TheStreet) -- Investors ready to break out the champagne for New Year's Eve might not want to hear it about these kind of bubbles. After enduring the dot.com bubble, the housing bubble and the credit bubble, here are five potential bubbles to beware in 2010.

Zombies Mowed Down

If you believe that "zombie" stocks like Fannie Mae (FNM) and Freddie Mac (FRE) will rise from the dead again in 2010, then perhaps you should be the one hunting for some brains.

It's true that Fannie Mae and Freddie Mac are still publicly traded and are not wholly-owned entities of the U.S. government. And 2009 was a banner year for investors in both companies, as Fannie Mae shares jumped nearly 70% in 2009 and almost 250% since the March low, and Freddie Mac rallied 118% for the year and more than 280% since the lows on March 6.

But for all intents and purposes, shares of Fannie and Freddie should be considered essentially worthless, no matter how enticing the penny stocks appear to be. Don't take my word for it, though. In August, even as Fannie and Freddie were surging to 52-week highs, FBR Capital Markets protested that "no underlying value remains" in the shares.

That didn't stop traders from driving the share price of both Fannie Mae and Freddie Mac higher in the dwindling days of 2009 after the Treasury Department removed the $400 billion financial cap on the money it will provide to both Fannie and Freddie.

It was this sort of speculative trading that drove these stocks higher in 2009, with traders ignoring the likely scenario where these zombies will continue to be private in name only and largely controlled by the U.S. government through 2010 and beyond. After all, the government owns roughly 80% of each company, with Fannie and Freddie owing a combined $111 billion. Apparently, it's also easy to forget the rumors circulating not long ago that both Fannie and Freddie, now in conservatorship, would be nationalized.

Lost in the end-of-year headlines is a Dec. 24 regulatory filing that showed top executives at Fannie Mae and Freddie Mac will each earn between $4 million and $6 million in 2009. Bose George, an analyst with Keefe, Bruyette & Woods who downgraded both stocks to underperform and cut the price targets to zero in October, says it is a very telling sign that both CEOs were not given stock as part of their compensation.

The obvious reason, George wrote in a research note, is that "the shares have no long term value and that no executive would accept unvested shares of the companies as part of their compensation package. This reinforces our view that the common shares will eventually trade to zero."

For those still daring enough to ride the zombie wave higher into 2010: I'd like to introduce you to some Washington Mutual, Lehman Brothers and General Motors shareholders.

-- Written by Robert Holmes in Boston.
1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.59 -0.01%
AMZN $437.39 0.00%
C $55.68 0.00%
GLD $111.18 -0.71%
FB $87.42 0.59%

Markets

DOW 17,757.91 +138.40 0.79%
S&P 500 2,077.42 +14.31 0.69%
NASDAQ 5,013.1230 +26.2560 0.53%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs