Tags: Speculators | Fannie | Mae | Penny | Stock

Speculators Play with Fannie Mae as Penny Stock

By    |   Thursday, 05 Aug 2010 03:48 PM

The meltdown of mortgage agencies Fannie Mae and Freddie Mac may ultimately cost taxpayers $1 trillion. And trading in Fannie Mae as a penny stock may cost some speculators their shirts.

That’s because a small move in a penny stock means a big move in the value of shareholders’ investment.

Here’s how it works. Fannie recently traded at 39.4 cents. That means just a 4 cent drop in the share price would cost stock holders more than 10 percent of their investment.

But Fannie’s daily trading volume has averaged more than three times that of Goldman Sachs since June, The New York Times reports.

“The volumes are astonishing,” Bose George, a financial analyst at Keefe Bruyette & Woods, told The Times. “It’s like a casino.”

Given that stock trading is a zero sum game, you can bet that some speculators are losing big.

Fannie’s stock has come down quite a long way since surpassing $87 a share in June 2001 – more than 99 percent.

If you do take a flier on Fannie, don’t plan on holding it long.

“It’s not really a stock anymore — everyone knows this is going to zero,” George said.

The solution to Fannie and Freddie’s woes?

“It’s clear Fannie Mae and Freddie Mac need to go,” White House adviser Paul Volcker told Smart Money.

“We don’t need these hybrid institutions. You don’t know whether they should be responsible to the government or to stockholders.”

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The meltdown of mortgage agencies Fannie Mae and Freddie Mac may ultimately cost taxpayers $1 trillion. And trading in Fannie Mae as a penny stock may cost some speculators their shirts. That s because a small move in a penny stock means a big move in the value of...
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Thursday, 05 Aug 2010 03:48 PM
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