Michael Burry owns ‘sizable’ Fannie Mae and Freddie Mac common stock, believes re-listing for both ‘nearly upon us’

Investor Michael Burry said on his paid blog Cassandra Unchained that he has significant positions in both Fannie Mae and Freddie Mac stocks. He also believes a relisting of the two US housing finance giants is an imminent possibility.

Burry’s long blog post, which he said would take 30 minutes to read, outlined the reasons why the famous investor is bullish on two housing finance companies operated by the US government, the challenges to their IPOs, and the steps authorities should take to prepare the companies for the return of Wall Street, Bloomberg reports.

In November, the hedge fund manager known for predicting and profiting from the 2008 financial crisis said he was focusing on his paid newsletter following the closure of Scion Asset Management.

Burry’s incredible journey through the Wall Street crash of 2008 was detailed in Michael Lewis’ book ‘The Big Short: Inside the Doomsday Machine’; This book was also adapted into the movie ‘The Big Short’ in 2015, starring Hollywood stars Ryan Gosling, Steve Carell and Christian Bale.

Why is Michael Burry optimistic about Fannie Mae and Freddie Mac?

Michael Burry touched on his past views on companies he calls “Fraud Macs,” saying he bought Freddie Mac’s five-year credit default swaps in the years leading up to the company’s meltdown and subsequent government conservatorship. He added that he became bullish on two US mortgage finance companies only after Donald Trump was elected President.

“I personally own good-sized stocks of both Fannie Mae and Freddie Mac,” Burry wrote in a post examining current political dynamics and how stocks might be valued during and after a sell-off. Offer price “is an important determinant of the true value of these companies, and I will certainly revisit this thesis as these numbers become clearer.”

On Dec. 8, Fannie Mae’s over-the-counter shares rose 2%, while Freddie Mac’s shares rose 2.4%. Both are prone to volatile fluctuations and are up about 12% since late November, according to the BB report.

Have Fannie Mae and Freddie Mac moved toward relisting?

Also touching on the possible IPOs of the companies, Michael Burry said that the government and regulatory authorities must first scale up some challenges, such as easing the capital requirements of the two companies, converting certain preferred shares into common shares, and reducing the government’s claim on the companies. He added that unless the government withdraws, its common shares will be “worthless”.

Still, he noted, “there remains one final steep, windy and rocky climb to IPO for both.”

According to Burry, he expects the IPO to be priced at between 1x and 1.25x book value, with shares potentially trading at 1.5 to 2x book value within 1-2 years after listing, Reuters reported.

Burry also wrote that he envisions Berkshire Hathaway taking a significant position in both IPOs — Warren Buffett’s company once had a stake in Fannie, which was sold.

The concept is not without support. In November, billionaire investor Bill Ackman also approved a proposal calling for Fannie and Freddie to relist on the New York Stock Exchange (NYSE).

(With input from institutions)