Double Trouble: Fannie Mae, Freddie Mac Post Strong Gains for Second Day

Fannie Mae (FNM) and Freddie Mac (FRE) are posting strong gains in early trading after strong demand for its bonds restored confidence in the trouble purchasers of home mortgages. Don't get suckered into this one on the long side.

Fannie Mae is up more than 17% in early trading and Freddie Mac is up more than 20% at $4.06, marking the second day of huge upside for the stocks. Never before in recent days have we seen a better short.
The stock is also getting some lift from a new Citigroup equity research report that said the two companies have enough capital to absorb probable losses through the end of the year. How is that news worth cheering?
The report is further evidence that a government bailout is unlikely. Rumors of a possible takeover, which would have severely impacted shareholder equity, helped ignite the financial stock sell-off.
Estimated third and fourth quarter revenue of $7.5 billion for Fannie Mae and $5.5 billion for Freddie Mac would cover likely losses of $1.5 billion and $1.2 billion, Citigroup said, according to Reuters.
The excess capital over minimums in the second half of the year would total $20.3 billion for Fannie Mae and $12.7 billion for Freddie Mac, Reuters reported.

If you need some shorts to balance a long portfolio, there are few better options out there for those that can stomach the volatility.