Market Optimism Runs High with Trump’s Presidency
The market has been on a remarkable two-year run, and many investors are bullish about its future prospects. The promise of deregulation and corporate tax cuts has created a sense of optimism, which could propel stocks even higher. One prominent investor who shares this enthusiasm is billionaire Bill Ackman, a vocal supporter of President-elect Donald Trump.
Ackman’s Bold Prediction
Ackman, founder of Pershing Square Holdings, has delivered impressive gains over the past five years. He now believes that two of his fund’s long-time holdings, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage (Freddie Mac), are poised to surge roughly 900% thanks to the incoming Trump administration.
A Brief History of Fannie and Freddie
To understand Ackman’s thesis, it’s essential to revisit the history of Fannie Mae and Freddie Mac. In 2008, the U.S. Treasury Department took these government-sponsored entities (GSEs) into conservatorship after they accumulated too many subprime mortgage loans. Since then, Fannie and Freddie have been passing along their profits to the Treasury under the net sweep agreement. The Treasury also holds significant senior preferred stock and warrants in both GSEs.
The Path to Recapitalization
Ackman envisions a scenario where Fannie and Freddie are credited for their previous distributions to the Treasury Department, which would then retire the senior preferred stock. The GSEs’ total capital requirements would be set at 2.5% of outstanding mortgage guarantees, creating a fortress balance sheet that could have covered roughly seven times the losses incurred during the Great Recession.
A Potential Windfall
Ackman estimates that the value of both Fannie and Freddie could reach around $34 per share, representing an upside of 888% for Fannie and 909% for Freddie from their current levels. While this prediction is enticing, investors should be aware of the significant risks and variables involved.
Alternative Investment Opportunities
For those who want to take a more cautious approach, Ackman suggests considering the junior preferred shares, which still trade at a significant discount. These shares have higher priority than the common shares in the capital stack, offering less upside but potentially lower risk.
Don’t Miss Out on the Next Big Opportunity
If you’re worried about missing out on the next big investment opportunity, consider taking a closer look at our expert team’s “Double Down” stock recommendations. These rare alerts have led to impressive returns in the past, with companies like Nvidia, Apple, and Netflix delivering substantial gains for investors. Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
Leave a Reply