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-N and Freddie Mac FRE-N 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 per cent in 2009 and almost 250 per cent since the March low, and Freddie Mac rallied 118 per cent for the year and more than 280 per cent 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.
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Market Outlook 2010:
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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 (U.S.) 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 per cent of each company, with Fannie and Freddie owing a combined $111 billion.
