Bill Ackman’s Bold Bet: Fannie Mae and Freddie Mac Set for a $34 Surge with Trump’s Support
Bill Ackman Predicts Major Upside for Fannie Mae and Freddie Mac as Trump Administration Eyes Conservatorship Exit
December 30, 2024 – Renowned billionaire investor Bill Ackman, CEO of Pershing Square Capital Management, has stirred significant interest in the financial markets with his recent declaration on X (formerly Twitter). Ackman revealed his strategic investment in Fannie Mae (FNMA) and Freddie Mac (FMCC), projecting substantial gains as these government-sponsored enterprises (GSEs) approach a pivotal transition out of conservatorship.
What Happened
In a compelling post on X, Bill Ackman addressed frequent inquiries about stock recommendations, emphasizing his selective approach based on compelling risk-reward dynamics. Ackman disclosed that Pershing Square has held Fannie Mae and Freddie Mac common stocks for over a decade. Despite these investments trading around the average cost and underperforming to date, Ackman highlighted a transformative opportunity on the horizon. He anticipates that within the next two years, the Trump administration will successfully remove Fannie Mae and Freddie Mac from conservatorship—a process previously initiated during President Trump’s first term but left incomplete by Secretary Steven Mnuchin.
Ackman outlined his optimistic forecast, projecting each company’s value to surge to approximately $34 per share by their anticipated Initial Public Offerings (IPOs) in 2026. He suggested IPO prices might be set around $31 per share, offering investors a ~10% discount to intrinsic values. Furthermore, Ackman estimated a potential profit of ~$300 billion for the government through full warrant exercise and strategic sell-downs of common stock over the subsequent five years. While Ackman remains bullish on junior preferred stocks, he notes their returns are less substantial due to capped upside potentials. Acknowledging the high uncertainty, Ackman advised investors to limit their exposure to amounts they can afford to lose.
Key Takeaways
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Strategic Investment in Fannie Mae and Freddie Mac: Bill Ackman’s Pershing Square has maintained ownership of FNMA and FMCC common stocks for over a decade, anticipating significant future gains.
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Potential Exit from Conservatorship: Ackman believes there is a credible pathway for FNMA and FMCC to exit conservatorship within the next two years, contingent on political support from a potential second Trump administration.
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Valuation and IPO Projections: He projects each company’s value at ~$34 per share during their IPOs in 2026, with IPOs potentially priced at $31 per share, offering substantial investor returns.
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Market Reaction and Stock Surge: Following Ackman’s endorsement and Trump’s re-election, shares of Fannie Mae and Freddie Mac experienced a significant surge, reflecting heightened investor optimism.
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Capital Accumulation: Both GSEs have amassed $97 billion in combined capital through retained earnings, approaching what Ackman describes as a "fortress-level" of capital.
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Economic Implications: While Ackman and other investors foresee substantial benefits, some economists caution that privatization could lead to increased mortgage costs, disproportionately affecting lower-income families.
Deep Analysis
Current Stock Performance and Market Sentiment
Fannie Mae (FNMA) has witnessed an 18.88% surge, climbing from $2.49 to $2.96. This bullish momentum is largely attributed to Ackman’s strategic endorsement and the anticipation of political and structural reforms. The significant late-day price increase suggests robust buying activity, driven by both retail and institutional investors speculating on the imminent exit from conservatorship.
Key Factors Influencing Fannie Mae’s Prospects
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Ackman’s Endorsement: Ackman’s public confidence in FNMA underscores a credible long-term investment thesis, bolstered by potential political shifts and structural reforms aimed at deregulatory measures.
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Conservatorship Dynamics: FNMA and FMCC have been under conservatorship since the 2008 financial crisis. The anticipated removal of conservatorship is expected to restore their profitability and autonomy, significantly revaluing their stocks.
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Political Landscape: Ackman’s projections hinge on the likelihood of a second Trump administration, which he believes will successfully navigate the deregulatory process necessary for releasing the GSEs from conservatorship.
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Risk Factors: Ackman acknowledges substantial uncertainty, urging investors to limit their exposure. Potential regulatory hurdles and political opposition could delay or derail the conservatorship exit timeline.
Technical Analysis and Investment Strategies
Fannie Mae’s stock faces short-term resistance around the $3.00 mark, with a medium-term target of $3.65 (52-week high). The Relative Strength Index (RSI) suggests the stock may be entering overbought territory, indicating a potential pullback. Sustained high trading volumes will be crucial to confirm the continuation of the current rally.
Investment Outlook
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Short-Term (Next Few Weeks): Continued bullish sentiment is expected, with potential resistance around $3.00–$3.65. Profit-taking may occur if speculative buying subsides.
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Medium-Term (2024–2025): If political conditions favor a Trump reelection, FNMA could experience sustained growth as the exit from conservatorship becomes more probable, potentially reaching Ackman’s valuation estimates.
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Long-Term (2026): Successful conservatorship exit and IPO execution could yield exponential returns, aligning with Ackman’s projection of ~$34 per share. However, risks such as dilution and government intervention remain.
Investment Recommendations
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Risk-Tolerant Investors: Allocate a modest portion of the portfolio to FNMA for speculative growth, considering the high upside potential.
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Risk-Averse Investors: Monitor key milestones, including political developments and conservatorship progress, before committing.
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Trading Strategy: Capitalize on short-term volatility with tight stop-loss orders to protect gains.
Did You Know?
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Historical Context: Fannie Mae and Freddie Mac have been pivotal in the U.S. mortgage market since their establishment, playing a crucial role in ensuring liquidity and stability.
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Conservatorship Beginnings: Both GSEs were placed under conservatorship by the Federal Housing Finance Agency (FHFA) in 2008 during the financial crisis to stabilize the housing market.
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Previous Deregulatory Efforts: During President Trump’s first term, Secretary Steven Mnuchin initiated steps towards deregulation and potential exit from conservatorship, setting the stage for current expectations.
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Capital Fortress: The combined capital accumulation of $97 billion by FNMA and FMCC signifies a robust financial foundation, enabling them to potentially operate independently of government support post-conservatorship.
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Economic Debate: The privatization of Fannie Mae and Freddie Mac remains a contentious issue among economists, with debates centered around its impact on mortgage affordability and market stability.
Bill Ackman’s strategic insights and optimistic projections place Fannie Mae and Freddie Mac at the forefront of investment discussions. As political landscapes evolve and structural reforms potentially come to fruition, investors are closely watching these GSEs for their next significant moves in the mortgage and financial sectors.