Capstead Mortgage Corp (CMO)

mic510 (< 20) Submitted: 1/28/08 1:59 PM : Start Price: $15.30 CMO Score: -15.94

With the 'Top Bear' pitch saying that leveraged ARMs increasing in riskiness is why they should underperform totally leaves out the fact that Capstead's ARM portfolio is GUARANTEED by Freddie Mae, Fannie Mae, and Ginny. If the mortgagee can't pay the mortgage, the risk is not CMO's, it is for the GSE to worry about. Capstead still gets paid. Capstead does not bear the risk on these ARMS, the GSE does. Interest rate cuts will make the spread Capstead earns even wider, thereby making the stock a no-brainer to outperform as long as the Fed stays in the rate cutting cycle. Also, CMO is raising more money to purchase more guaranteed ARMs, just like others in the same business, because management obviously knows this already.

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