Fannie Freddie IPO Could Make You Rich; Burry Sees Up to 100 % Gain

Michael Burry, the investor renowned for predicting the 2008 housing crash and portrayed in 'The Big Short,' is now taking a different stance on America's mortgage giants. He believes that, if you follow his lead, you could potentially profit significantly from their upcoming return to the public markets.

In a detailed analysis published on his Substack newsletter, 'Cassandra Unchained', Burry revealed that he owns a 'good size' position in both Fannie Mae and Freddie Mac common shares. He expects their long-awaited relisting is 'nearly upon us', according to reports from Seeking Alpha.

For investors prepared to handle some volatility, his forecast is compelling. Reuters reports that Burry projects the initial public offering (IPO) price could be set between 1 and 1.25 times book value, with shares possibly rising to 1.5 to 2 times book value within one to two years of listing. Such gains could amount to up to 100% for those who participate at the offering stage.

The market responded positively to this news. Fannie Mae shares increased by approximately 1.4% in mid-afternoon trading on Monday, while Freddie Mac saw a rise of about 1.8%, according to Seeking Alpha.

Why This Matters for Your Portfolio

While Fannie Mae and Freddie Mac may not be household names in Britain, they are fundamental to the US housing market. These government-sponsored enterprises (GSEs) own or guarantee around 62% of outstanding US mortgages and support roughly 70% of conforming bank loans, Reuters reports.

Since their bailout during the 2008 financial crisis, which cost taxpayers between £140-£143 billion ($187-£191 billion), they have remained under federal conservatorship. They were delisted from the New York Stock Exchange in 2010 and now trade over the counter on the Pink Sheets, according to industry publication Scotsman Guide.

However, speculation about their privatisation has driven their shares higher. Over the past 12 months, Fannie Mae's stock has surged more than 380%, climbing from below £1.68 ($2.24) to around £8.42 ($11.22) per share. The stock reached a 52-week high of nearly £12 ($15.99) before experiencing a recent pullback.

The Trump Administration's Historic Gamble

Last month, William 'Bill' Pulte, director of the Federal Housing Finance Agency, confirmed that the government is considering selling up to 5% of each company's shares, according to HousingWire. This potential offering could raise approximately £22.5 billion ($30 billion) and may value the combined entities at between £375 billion and £525 billion ($500 billion to $700 billion).

Pulte stated, 'I anticipate that the president will make a decision either this quarter or early next year as it relates to the IPO,' during the ResiDay conference in New York, reports indicate.

If successful, the deal could surpass Saudi Aramco's 2019 IPO, which raised around £22 billion ($29.4 billion). Major Wall Street banks, including Goldman Sachs, JPMorgan Chase, and Bank of America, are reportedly vying for roles in the offering.

A Word of Caution

Not everyone shares Burry's optimism. Billionaire investor Bill Ackman warned last month that Fannie Mae and Freddie Mac remain 'a long way from being ready' for an IPO, citing complex capital requirements and unresolved issues concerning existing shareholders, according to Seeking Alpha.

Burry countered, stating, 'Once each company is released from capital restraint by their IPOs, I expect growth to accelerate naturally.' He also suggested it wouldn't be surprising if Warren Buffett's Berkshire Hathaway took a substantial stake in any new offering. Berkshire previously held Fannie Mae shares before divesting.

What Investors Should Consider

For ordinary investors tempted by the prospect of doubling their money, caution is advised. Regulatory uncertainty, potential dilution from new share issues, and the volatile nature of Pink Sheet trading all demand careful consideration.

Nonetheless, Burry has indicated he plans to hold his positions for at least three to five years, signalling his conviction that patience will pay off.

'There remains a final steep, windy, and rocky climb to IPO for both,' he acknowledged, according to Seeking Alpha. 'The deeper the fund of historical knowledge, the stronger the analytic foundation, the better the result will be for the investor.'