Fabulous Freddie Can Sustain This Rally By Jim Cramer RealMoney.com Columnist 5/14/2008 1:32 PM EDT

Does Freddie's (FRE) better-than-expected number take away systemic risk? We all know that there are only a few companies left -- now that the major banks have issued so much equity -- that could pull down the whole system, and Freddie and Fannie (FNM) are two of them.

We know Fannie Mae was horrible, but we also know that the stock didn't go back to its low.

FRE's much better. Here's why. The bulls on the story, the value bulls, have long held that there will come a time when the earnings stream from fees and insurance would be so great that it would overwhelm the losses. But there were two caveats: No one thought that those streams could possibly kick in this soon, and no one thought that they could ever make good for the losses during the midst of the big downturn.

All of that changed today with this report. Suddenly the value guys have company on the next equity offering -- shorts and growth guys. In fact, FRE went from being part of the systemic risk to part of the reason why we might want to own financials. The fees are that big.

The market's bias is up here. The expiration is acting very positively. The inflation data were terrific. It is true that we have tons of bulls and we are not oversold, but it feels mighty explosive when you take off the table one of the biggest nightmares out there.

I know that the bears are saying that nothing's getting better and everything's getting worse. I would say that FRE should be much worse, and it isn't.

That's enough to sustain this rally in itself.

At the time of publication, Cramer had no positions in the stocks mentioned.

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