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 and Freddie Mac 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.
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.
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
iBubble 2010 = Apple's Tablet
Like a blank slate, Apple's upcoming Tablet has given tech enthusiasts a place to project some of their wildest expectations. After three years of development, Apple is finally expected to unveil its iPad or iSlate, a 7- to 10-inch touchscreen device, in the coming weeks.
The momentous occasion will usher in a new era of either mobile computing or portable high-definition entertainment systems -- or some combination of the two, depending on who's talking. In fact, all the hype surrounding the Apple Tablet has inflated one of the biggest bubbles in tech. Need proof?
Players including Microsoft and Dell have been prepping touchscreen tablets of their own to test whether the market is real or imagined.
But is a cool innovation really enough to spark a product revolution? Touchscreens have certainly transformed the smartphone market -- poking and finger-swiping on big, colorful screens have replaced the scroll-down, menu-driven controls common to yesterday's phones.