Is Freddie Mac a long here?

Are you freaked out by by the recent market volatility?  You might not want to buy stocks hand over fist until you take a gut check. Drinking double fisted tonight is a no brainer, however.

FIG Trader might be a tad early on this call, but he is pretty dialed into Freddie Mac. Chew on this over the weekend to see if Freddie (FRE-NYSE) offers a chance to profit off the fear gripping the Street:

Again, we find the bears trawling for mortgage stocks susceptible to “headline” news due to the chaos in the subprime ABS market. Mark my word, if anything, well capitalized Freddie Mac will be taking advantage of the chaos. Forget about the “noise” coming about “derivative losses” as a result of the mark to market of positions that theoretically are hedging business risks. These allow the company to report rather stable “spread” margins on its on balance sheet mortgage spread business. That and the guarantee of mortgages is the essence of the business model, for which they have operated the same way for twenty years. The difference between the late nineties and the early part of this decade ( besides the reasonable (and merited for the most part) contraction in valuation is the Freddie has to provide values for derivatives for which there is no secondary market (and hence no real way to assess value).

But FIG Trader does not paint all big-cap financials with the same brush. He like Freddie’s valuation relative to the its diverse peers here, does not like the brokers...and reserves particular scorn for those fellas at 85 Broad:

At a discount to the price/book of the peer financial group, and a more dependable revenue stream than banks or broker-dealers, which would you rather own (or short)? At Freddie there were perhaps a few rogue traders (and profitable!) and some bad internal controls. For that they have to appear at Senate hearings.

At Goldman, they are called superstars, and go on to head the Treasury department.

With that we will wrap up a busy week. Have a great weekend, Goldman-ites included!

The Long Case for Freddie Mac
FIG Investor and Trader Intelligence
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The content contained represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned

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