Three Stocks that are in Trouble

WASHINGTON – Investors are still trading common shares of Fannie Mae, Freddie Mac and American International Group Inc. by the billions, even though analysts say their prices are almost certain to go to zero.

All three are majority-owned by the government and are losing huge sums of money. The Securities and Exchange Commission and other regulators lack authority to end trading of stocks in such "zombie" companies that technically are alive — until the government takes them off life support.

Shares of the two mortgage giants and the insurer have been swept up in a summer rally in financial stocks. Investors have been trading their shares at abnormally high volumes, despite analysts' warnings that they're destined to lose their money.

"People have done well by trading them (in the short term), but when it gets to the end of the road, these stocks are going to be worth zero," said Bose George, an analyst with the investment bank Keefe, Bruyette & Woods Inc.

Some of the activity involves day traders aiming to profit from short-term price swings, George said. But he said inexperienced investors might have the misimpression that the companies may recover or be rescued.

"That would be kind of unfortunate," he said. "There could be a lot of improvement in the economy, and these companies would still be worth zero."

The government continues to support the companies with billions in taxpayer money, saying they still play a crucial role in the financial system.

Fannie and Freddie buy loans from banks and sell them to investors — a role critical to the mortgage market. They have tapped about $96 billion out of a potential $400 billion in aid from the Treasury Department.

Officials have said AIG's failure would be disastrous for the financial markets. Treasury and the Federal Reserve have spent about $175 billion on AIG and AIG-related securities. The company also has access to $28 billion from the $700 billion financial industry bailout.

But analysts say the wind-down strategies for the companies are almost sure to wipe out any common equity, making their shares worthless.

"There are some folks that believe that somehow that 20 percent (of the stock) that's out there in the public market might be worth something someday," said Daniel Alpert, managing director of the investment bank Westwood Capital LLC. But he said the three companies are doomed because they are "massively indebted," and the values of their assets are declining.

The stocks remain in circulation mainly for two reasons: They've violated no rules on the New York Stock Exchange, where they are traded. And no regulator has the power to suspend their trading without evidence securities laws are being violated.

Alpert said no regulations exist to deal with cases where the government props up unsustainable companies.

By contrast, regulators were able to warn investors about stock in the "old" General Motors, which also sits on a mound of government debt. The SEC and the Financial Industry Regulatory Authority, the brokerage industry's self-policing group, have issued alerts and taken other steps to prevent investor losses on that stock.

In that case, the SEC could act because GM acknowledged the stock was headed for zero in a restructuring plan filed with the SEC.

The SEC says it has no reason to suspend trading of stocks that still technically meet its standards, which include filing timely financial reports and disclosing events that could affect share values.

The NYSE's rules include maintaining minimum numbers of shareholders and market capitalization. But they give the exchange full discretion over which stocks are listed — regardless of whether a company meets those listing standards.

FINRA has jurisdiction over NASDAQ-traded stocks and over "pink sheet" stocks, which are worth too little to be traded on a major exchange. It has no jurisdiction over stocks on the NYSE.

Shares of Fannie, Freddie and AIG — along with their trading volumes — have jumped this summer, when activity normally fades as traders take vacations. Fannie shares have more than tripled since the end of July. Their volume soared to 360 million shares Thursday from 6.45 million shares on the last day of July.

Freddie and AIG shares have surged threefold since then. Freddie's volume jumped to 191 million shares from 4.5 million. And 148 million AIG shares changed hands on Thursday, compared with 5 million on July 31.

By comparison, the trading volume of General Electric Co.'s common shares fell to around 63.7 million shares Thursday, compared with 109 million shares July 31. The stock price rose 5.3 percent in that stretch.

AIG shares rose $10.15, or 26.9 percent, to $47.84 Thursday. Analysts speculated the company might be reconciling with former CEO Maurice "Hank" Greenberg, who could help bring private capital and other business benefits to the company.

A reverse stock split in early July raised the price by a factor of 20. In a reverse split, a stock price is increased, and the number of shares are reduced by a similar proportion. It has no effect on shareholders' equity.

Fannie shares closed up 3.8 percent at $1.92 Thursday; Freddie shares rose 10 percent to $2.24.

Fannie and Freddie's government owners haven't announced their plans for the companies. That means there's a possibility — however remote — that their shares could retain some value. But the administration is expected to announce in February that the companies will be wound down, merged into a federal agency or have their bad mortgage assets split into a new government-backed company.

All those possibilities are almost certain to eliminate any remaining shareholder equity, analysts said.

Lawrence J. White, a professor at New York University's Stern School of Business, said the higher trading volumes might reflect speculation about the government's February announcement.

With the share prices still so low, White said investors are willing to bet on the outcome of the government's announcement. He said trading volume is likely to grow further, with even sharper price swings, as February approaches.

Still, Freddie Mac Chairman John Koskinen said the price fluctuations were hard to understand.

"I have absolutely no idea what that represents," he said.

Representatives for Fannie, the SEC, AIG, FINRA and the NYSE declined to comment. Spokeswomen for Treasury, which owns most of AIG, and the Federal Housing Finance Agency, which holds Fannie and Freddie in conservatorship, also wouldn't comment.


by the associated press

Wall Street logs fourth week of gains

Not even grisy job losses could get in the stock market's way friday . The Dow Jones industrial average clawed higher to end above the 8,000 for the first time in nearly two months and logged am impressive fourth straight week gains .

The last time the Dow rose for four consecutiv weeks was between September and October of 2007 when the index reached its record above 14,000 . Wall Street's newfound conidence kept swelling this week on better than expected econmic data , a relaxation in banks accounting rules , and reassurance from the world's finance leaders that they will keep propping up the global econmy .

The Labor Departments March unemployment report Friday was the weeks's last big hurdle . The job numbers were certainly grim , but not terrible enough to derail the emerging sence of optimism over the past four mounths that the economy may be beginning to right itself . The Dow finished the week up 3.1 percent . Traders are reacting more moderately to bad news than they might have even a month ago , said Tom Phillips Investments in Oklahoma City .

" If the expectation was for truly horrendous numbers and they're only ugly , that's a good thing " Phillips said . While many investors are looking ahead to an eventual recovery , others say Wall Street might be just as shortsighted now as it was when it was panicking .

Potential pitfalls lie ahed not just for the job market but also in corporate earnighs report and outlloks that start pouring in next week . " We've run too high here , way too fast " said Joe Saluzzi , co head of equity trading at Themis Trading LLC .

Investors have been too quick to overlook the holes in the economy , including employment , saluzzi said . Another loominng threat to the market's four week buying spree is start of the season , which gets under way Tuesday with a report from Dow components and aluminum producer Alcoa INC .

Expections for earnings are already low , but hints that conditions are deteriorating easily could kill the rally .

by the assocated press

Blue Chips

Wallstreet Blue Chippers , AIG and GM , offered growth with your investments .

However , that was yesterday .

Behold , a brand new day . These Companies , are the fresh new Blue Chips . which are in the market today . Nike , Wal-Mart , Famliy Dollor , Johnson and Johnson , Chevron , and their are others .

All these Companies increased sales , and their growing . It looks like these Companies are a nice choice to move your hard earned money to .

The Bear on the Street

Some funds out run the bear , on the street . Even in these ruff days .

Mutual funds that hold a history , that does well in the bear market .

Heartland Value Plus , 8.1% year to date . Last year 1.0% , ten year annualized 11.4% .

Northern Small cap Value -2.7% Last year -11.% ten year 10.2 .

T Rowe Price Small Cap Value -4.4 year to date , last year - 12.3 , ten year annualized 10.2 % .

Columbia Small Cap Value I A - 5.8 % , last year - 12.9 , ten year annualized 11.2 .

Stratton Small Cap - 5.8 , last year - 12.9 , annualized 1.0 % .

These funds all out do , the S&P 500 over , the last decade . And keep the trend going .

The key may be the small cap stocks . Which they all have incommon . A small cap market may not always , beat the bear . But it has out ran the bear for ten years . Which makes them a nice choice to invest in .

For the market and Wallstreet , to make a come back . The investors needs to think real hard , before they move forward .

Wallstreet lost a step

Wallstreet lost a step . The Dow Jones industrial average shed 115 points, or 1.5 percent Tuesday. But it also held on to 382 of the 498 points it racked up a day earlier .

Now , The Dow was up more than 1,200 points after hitting nearly 12-year lows on March 9, and there was little in a way of positive economic or corporate data Tuesday to lift stocks .

Later this week, some big economic reports are scheduled to come out: durable goods for February, a revised fourth-quarter gross domestic product number, and personal income and spending for February .

This is good news for investors , and for the 401k's of the American people . I just hope the Bull can out run the Bear .