Your Final Warning

| June 18, 2010 | 0 Comments

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.

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.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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