An Overlooked Corner of the Trump Trade: Fannie Mae and Freddie Mac Soar in 2023

Introduction

As 2023 progresses, an unexpected segment of the Trump trade narrative continues to thrive: the preferred shares of Fannie Mae and Freddie Mac. Rising from the ashes of the 2008 financial crisis, these mortgage finance giants have seen remarkable gains, drawing attention from investors keen on the implications of potential government policy changes.

Remarkable Stock Performance

Both Fannie Mae and Freddie Mac have experienced tremendous growth in their preferred shares this year, with Fannie Mae’s shares surging **121%** and Freddie Mac’s climbing **99%** as of recent reports. Even more impressive is the staggering **420%** rise in their preferred shares since last year. On a particularly good trading day, shares of both companies jumped an additional **4%**, indicating strong investor optimism.

These stocks are now trading at levels reminiscent of pre-crisis times, before the devastating crash of 2008. Investors appear to be betting on the possibility of the Trump administration moving towards a reprivatization of these government-sponsored entities (GSEs), which play a vital role in providing liquidity in the mortgage market.

Background: The 2008 Financial Crisis

The journey of Fannie Mae and Freddie Mac has been tumultuous since their conservatorship began during the 2008 financial collapse. As the housing market crumbled, the U.S. government intervened to rescue both companies, taking control to stabilize the financial system. This governmental oversight meant that any excess profits generated by the two entities were directed to the U.S. Treasury, leaving their shares languishing at around **90%** below their historic highs for over a decade.

Analysts from Bloomberg Intelligence suggest that any efforts to reestablish Fannie Mae and Freddie Mac as private entities would be a complex, long-term undertaking, likely extending until **2026** or **2027** at the earliest.

Investor Reactions: Bill Ackman’s Bold Bet

One notable investor who has been reaping the rewards of this market shift is hedge fund billionaire Bill Ackman. Having held onto shares of both Fannie Mae and Freddie Mac for a decade, Ackman is finally seeing the fruits of his labor. Last month, he presented an extensive **104-page investment thesis** advocating for these stocks. In it, he argued that terminating the government conservatorship would be “consistent with [the] mandate to simplify the government.”

Ackman’s confidence in the profitability and potential of these companies may serve as a catalyst for other investors to take a closer look at Fannie Mae and Freddie Mac, especially as public sentiment towards privatization gains traction.

The Debate: Privatization Pros and Cons

The debate surrounding the privatization of Fannie Mae and Freddie Mac is heated. Critics of the plan express concerns that returning these companies to private ownership could rekindle the risky practices that contributed to the 2008 financial crisis. They worry that privatization could lead to excessive leverage and a lack of regulatory oversight.

Conversely, proponents stress that Fannie Mae and Freddie Mac are currently well capitalized and positioned stronger than in the years leading up to the 2008 collapse. They argue that with the right regulations in place, reprivatizing the firms could lead to increased innovation and responsiveness to market demands.

The Future: What Lies Ahead?

As the years progress, all eyes will be on the financial landscape concerning Fannie Mae and Freddie Mac. The future of these entities hinges on political considerations, regulatory developments, and market dynamics. While they currently enjoy an upswing in their stock performance, the horizon remains uncertain as squarely addressing the issues of conservatorship will require significant deliberation and policy-making.

With the mid-term elections on the horizon and an evolving economic environment, it remains to be seen how these factors will influence the future of the mortgage finance giants. As more investors and analysts join the conversation, Fannie Mae and Freddie Mac will continue to capture market attention—not only as legacy components of the 2008 crisis but as potentially valuable players in an increasingly turbulent economic landscape.

Conclusion

In summary, the stories of Fannie Mae and Freddie Mac illustrate the complexities present in the US financial system. Their recent stock performance signifies a potential shift in investor sentiment and a renewed interest in the possibility of privatization. How this situation unfolds will not only impact investors but also the broader mortgage market and housing finance in the years ahead. As developments continue, observers should keep a close watch on this pivotal chapter in American financial history.