We are getting into Fannie Mae (NYSE: FNM) this morning.  After what appears to be a recent bottom we are seeing confirmation of upside momentum in Fannie Mae (NYSE: FNM):

Recent bottom in Fannie Mae (NYSE: FNM):

Volume has been building in Fannie Mae (NYSE: FNM), which is showing us strength:

Stochastics for Fannie Mae (NYSE: FNM) are also in excellent position for a continued move to the upside:

Our daily chart is showing upside momentum:

Stocks to Watch for Monday September 8

Bond manager Bill Gross wants to spread the bailout wealth. Gross says in a commentary posted on the Pimco Web site Thursday that the government must “open up the balance sheet of the U.S. Treasury” to support Fannie Mae ( FNM ), Freddie Mac ( FRE ) and, in a new twist, “Mom and Pop on Main Street U.S.A.” as well.

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Barron's is portraying a "curtain call" in store for shares of Fannie Mae (FNM) and Freddie Mac (FRE), which fell over 20% each Monday on concerns of insolvency.  Barron's suggested that the government would be likely to bail out the two government sponsored entities [GSEs], wiping out its equity holders, preferred, common and even subordinated debt holders.  Both of these stocks are near multi-decade lows and have dropped over 90% since 2007.

Government officials are likely seeking to avoid a full-fledged takeover of the companies, said Bert Ely, an Alexandria, Va.-based banking industry consultant and a longtime critic of Fannie and Freddie. More likely, he said are less-sweeping moves to calm rattled debt investors.

Those include having the Federal Reserve or Treasury Department lend to the companies. A government purchase of shares, he said, is "the step of last resort."

We have been saying to steer clear of the Fannie/Freddie duo for quite some time now. It’s good to see that Barrons seconds our thoughts as they put out a pretty hard-hitting piece in their weekly issue over the weekend. A bounce in those stocks was inevitable, but it appears that it was short-lived and it’s finished.

This little blurb from Barrons says it all and underscores our bearish views on the companies:

"The almost inevitable government recapitalization of Fannie Mae and Freddie Mac will likely wipe out investors—and management," Barron's magazine says.

Assuming their assets were liquidated now, based on their fair-value reporting, Freddie Mac's (FRE) net worth would be -$5.6B, while Fannie Mae's (FNM) would fall to just $12.5B, from $36B at year-end.

Wall Street declines on Freddie Mac loss

Stocks retreated Wednesday, a day after a big rally, as troubled mortgage financier Freddie Mac reported a larger-than-expected second-quarter loss and touched off fresh concerns about the financial sector.

A lesson I learned from the Bear Stearns (BSC) fallout was that if you get into a stock when it hits rock-bottom, your investment can only go up. While I was a little late with the Bear Stearns opportunity (when it briefly traded at $2 and change); I see a potential opportunity for me (and like minded investors) to make good on the now notorious: Freddie and Fannie.

After the stunning developments that occurred today I thought it would be a good idea to update my previous views on Fannie Mae (FNM) and Freddie Mac (FRE). I'm not going to get into any moral hazard discussions because A) I don't believe in judging others, and B) it is irrelevant to evaluating this investment. A few key points:

Over the last week, Freddie Mac (FRE) and Fannie Mae (FNM) have seen their share prices decimated. The primary concerns are higher funding costs and misinformation about the companies' business and balance sheets.

In listening to all of the rumors and discussions on television in regards to the GSEs' prospects, it is clear that most commentators and observers discussing these institutions have very little understanding of the actual businesses.