U.S. lifts $400 billion cap for Fannie, Freddie – CNBC
FRE
FNM
FRE & FNM broke the critical support level (61.8% Fibonacci Retracement level) after a KBW analyst downgraded the two to the firm’s lowest rating, cut price targets on both stocks to zero from $1. KBW said their common and preferred shares would be “worthless” given the nearly $100 billion they will continue to owe the government, even if recapitalized. FRE broke the critical support level of $1.705 and FNM broke $1.483 support level. Both stocks are below the 20D & 50D MA, all other technical indicators show bearish convergence.
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I bought FRE & FNM at about $0.60 and I have made 150% paper gains for these two stocks to date. Despite getting frequent reminders from my buddy to take profit, I am sticking to my original trading plan.
My trading plan
• Stock price target: $25 (FRE historical high is about $70, FNM is about $80)
• Time frame: 3 to 5 years
Potential Rewards
• 4200% (from $1,000 to $42,000) each stock
Risks
• I can lose EVERYTHING if FRE & FNM bankrupt or delisted from the stock exchange due to company re-structuring to clear all the bad debts & toxic assets! I am prepared to lose a total sum of $2,000 on FRE & FNM when I first buy the stocks.
My Risks Assessment on why I think this is a good bet!
(This is more like a gambling instead of calling it as investment!)
• FRE & FNM will not go bankrupt as US government has spent some much tax payers’ money to bail them out. They should have gone bankrupt long time ago if US government wants to do so. Thus, in my opinion, FRE & FNM are good investment with calculated risks. The profit potential is extremely handsome even though it does not reach my price target. Of course, the assumption is they will not get de-listed during my investment time frame. Hope Murphy’s law does not applied here!