Famed investor Michael Burry, recognized for his successful prediction of the housing market collapse depicted in “The Big Short,” has disclosed his substantial investments in mortgage finance giants Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC). Burry emphasizes a positive outlook for these government-sponsored enterprises (GSEs), suggesting they have substantially improved since their troubled past.
Burry’s Bullish Outlook on Fannie and Freddie
In a recent analysis shared in his newsletter, “Cassandra Unchained,” Burry outlines a compelling case for investing in Fannie Mae and Freddie Mac. He anticipates that these companies could experience significant growth should they return to public markets. Burry believes that an initial public offering (IPO) could value shares between 1 and 1.25 times book value, with expectations that trading could reach 1.5 to 2 times book value within one to two years post-IPO.
“Once each company is released from capital restraint by their IPOs, I expect growth to accelerate naturally,” Burry stated. His confidence signals a marked shift in his perspective on these entities, which he previously characterized as having a “foreboding history” and “fragility.”
Burry’s change of heart is noteworthy, especially considering his earlier warnings about the risks associated with the GSEs, including their role in the 2008 financial crisis. His new stance reflects a belief that Fannie Mae and Freddie Mac have undergone sufficient rehabilitation to merit renewed investment.
Potential IPOs and Market Implications
Burry also speculated about the possibility of Berkshire Hathaway Inc. (NYSE:BRK) taking a “substantial position” in Fannie Mae and Freddie Mac if they proceed with an IPO. Berkshire Hathaway previously held shares in Fannie Mae before the 2008 crash, indicating a historical interest in these mortgage giants.
The timing of Burry’s investment aligns with reports suggesting that the administration of Donald Trump may consider launching IPOs for both companies later this year. Currently, Fannie Mae and Freddie Mac guarantee approximately 62% of all outstanding U.S. mortgages, underpinning a significant portion of the American housing market.
Burry’s analysis not only reflects his optimistic outlook on the GSEs but also highlights broader market implications if these entities successfully transition back to public markets. The potential involvement of major players like Berkshire Hathaway could further invigorate investor interest and confidence in the mortgage sector.
As the market watches these developments closely, Burry’s investments serve as a potent reminder of the evolving landscape of mortgage finance and the shifting perceptions surrounding Fannie Mae and Freddie Mac.
