Michael Burry, the visionary investor immortalized in The Big Short, is once again capturing Wall Street's attention. Known for predicting the 2008 subprime mortgage collapse, Burry has revealed a "substantial" stake in the common stock of Fannie Mae (FNMA) and Freddie Mac (FMCC), the government-sponsored enterprises that dominate the U.S. mortgage market. In a lengthy 6,000-word post on his Substack, titled Cassandra Unchained, Burry declares, "I own both to a large extent," and states that their relisting is "almost upon us."
Fannie Mae and Freddie Mac, dubbed the "toxic twins" for their role in the financial crisis, were bailed out by the government in 2008 with capital injections of more than $187 billion. Under federal conservatorship ever since, they guarantee or own 62% of outstanding mortgages in the U.S., underwriting 70% of conforming bank loans. Before the bankruptcy, Burry was a harsh critic of them, calling Freddie "Frauddie Mac" in internal reports and betting against them with credit swaps. Today, the landscape has changed: with the Trump administration signaling interest in freeing them from government oversight, Burry sees a historic opportunity.
In his analysis, Burry projects that an initial public offering (IPO) could value the stock at 1 to 1.25 times its book value, with the potential to trade at 1.5-2 times within one or two years post-listing. He argues that regulators must relax capital requirements, convert preferred stock to common stock, and reduce government ownership to unlock real economic value. Without these steps, he warns, common equity could be diluted. He even speculates that Warren Buffett's Berkshire Hathaway would take a significant position in the IPOs.
The announcement has boosted over-the-counter shares: FNMA rose 1.4% and FMCC 2.4% on Monday, accumulating gains of 12% since the end of November. Burry sees them as a long-term hold of three to five years, highlighting their essential role in a stable real estate market. "The toxic twins are no longer toxic," he proclaims, reversing his previous bearish narrative.
This bet revives the debate on reforming GSEs (Government-Sponsored Enterprises). Visionary success or regulatory risk? With Congress divided and elections on the horizon, the road to IPO promises to be "steep, winding, and rocky," as Burry describes it. If he's right, he could repeat the feat of 2008, multiplying fortunes in a sector that still bears the scars of the past. Wall Street observes: the 'Big Short' has become the 'Big Bet'.
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