Investor Michael Burry in his paid blog Cassandra Unchained, said he holds sizable positions in both Fannie Mae and Freddie Mac common stock. He also believes that a re-listing of the two US housing-finance giants is a close possibility.
The long blog post, which Burry said would take 30 minutes to read, outlined the famed investor's reasons for turning bullish on the two US government-run housing finance companies, challenges ahead of their IPOs, and steps that the authorities must take to prepare the companies for a Wall Street comeback, Bloomberg reported.
In November, the hedge fund manager known for predicting and profiting from the 2008 financial crisis, said he is focused on his paid newsletter after shutdown of Scion Asset Management.
Burry's incredible navigation of the Wall Street collapse in 2008 was detailed in Michael Lewis' book called ‘The Big Short: Inside the Doomsday Machine’, which was also made into 2015's ‘The Big Short’ movie starring Hollywood stars Ryan Gosling, Steve Carell and Christian Bale.
Why Michael Burry is bullish on Fannie Mae, Freddie Mac…
Addressing his older opinions on the companies, which he called “Frauddie Mac”, Michael Burry said that he had bought Freddie Mac’s five-year credit-default swaps in the years leading up to its meltdown and subsequent government conservatorship. He added that he turned bullish on the two US mortgage finance companies only after Donald Trump was elected President.
“I personally own both Fannie Mae and Freddie Mac common stock in good size,” Burry wrote in the post, in which he examined the current political dynamics and how shares may be valued in a sale and beyond. The offering price “is a key determinant of the intrinsic value of these companies, and I will certainly revisit this thesis as those numbers come into focus.”
On 8 December, over-the-counter shares of Fannie Mae rose 2%, while that of Freddie Mac jumped 2.4%. Both are prone to volatile swings and have added about 12% since late November, the BB report added.
Fannie Mae and Freddie Mac headed for re-listing?
Also addressing likely IPOs for the companies, Michael Burry said that the government and regulatory authorities would have to first scale some challenges, such as easing the two companies' capital requirements, converting certain preferred shares into common stock, and scaling back the government’s claim on the companies. He added that without government withdrawal their common shares are “worthless.”
Still, he noted “there remains a final steep, windy and rocky climb to IPO for both.”
According to Burry, he expects the IPO to be priced 1x and 1.25x times the book value, with shares potentially trading at 1.5x to 2x times of the book value within 1-2 years after listing, Reuters reported.
Burry wrote that he also foresees Berkshire Hathaway taking a substantial position in any the two IPOs — Warren Buffett's company once held stake in Fannie, which was sold.
The concept is not without support. In November, billionaire investor Bill Ackman also endorsed a proposal calling for Fannie and Freddie to be re-listed on the New York Stock Exchange (NYSE).
(With inputs from Agencies)
Key Takeaways
- Michael Burry has a 'sizeable' stake in Fannie Mae and Freddie Mac, signaling confidence in their future.
- Challenges for the IPOs include easing capital requirements and reducing government claims, he said.
- Michael Burry projects that listed shares could trade at up to 2x book value within a few years post-IPO.
