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Solving the Fannie/Freddie Mystery

Lots of discussion about the "Fannie/Freddie mystery," i.e.: Why, if the common is worthless, have the stocks rallied 22 percent (for Fannie Mae ) and 57 percent (for Freddie Mac ) this week?

A couple of points:

1) Merrill Lynch, in a sensible report this morning, noted that capital depletion is not likely for several quarters and that it was "premature" to consider the Treasury recapitalization plan;

2) There is less anxiety about the more radical total bailout: Rep. Barney Frank said he doesn't know if a bailout is "inevitable", and Goldman Sachs said yesterday that even if there was a bailout it would be "manageable";

3) Both companies appear to be scaling back on mortgage portfolios, that is they are making some effort to improve their balance sheets;

4) Perhaps most importantly, there are short-term trading patterns that are very favorable in the past few days: higher highs and higher lows, the kind of pattern that attracts momentum traders.

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CNBC's Financials in the News:

- Citigroup
(Story: Citi Limits Color Copying)

- Goldman Sachs
(Story: Authorities Probe Fidelity, Goldman Link)

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