FMCC FREDDIE MAC : Bullish and Bearish Analyst Opinions

The author criticizes the use of low-liquidity assets FNMA and FMCC to recover poor quarterly returns.

Stocks surged on Bill Ackman calling them "stupidly cheap" and reiterating the thesis for release from government conservatorship. The primary catalyst is political/regulatory action. Any progress toward release would lead to significant revaluation. The asymmetric payoff (10x potential) is tied to an uncertain binary event, making it a speculative watch. Conservatorship persists indefinitely or is resolved unfavorably for private shareholders.

The author views the stock as an incredibly cheap common stock that has suffered a severe drop, and believes holding through the pain will eventually lead to a spectacular recovery.

1. THE FACT: Trump is using authorities granted by the 2008 conservatorship of Fannie Mae and Freddie Mac that allows the companies to increase by around $200 billion their holdings of mortgage bonds. 2. THE BRIDGE: An increase in mortgage bond holdings by Fannie Mae and Freddie Mac could imply increased demand for mortgage-backed securities or a potential for these entities to become more active in the housing finance market. This could be a positive catalyst for the companies themselves or related assets. 3. THE VERDICT: Trump's action to allow FNMA/FMCC to increase mortgage bond holdings by $200 billion is a positive for the companies.