Ackman’s Bait-and-Switch for Fannie and Freddie

Bill Ackman, billionaire investor and head of Pershing Square Capital Management, has a history of profiting from his tweets. On Sunday night, he posted that investors should ignore the Iran war and buy into Fannie Mae and Freddie Mac, which led to both stocks surging by as much as 41% in Monday trading.

Ackman’s firm is the largest shareholder in both companies, holding over 210 million shares combined. His enthusiasm for Fannie and Freddie may be genuine, but it’s also self-serving. As he has publicly advocated for the privatization of these government-sponsored enterprises, his own interests are clearly aligned with a significant increase in their stock prices.

Fannie Mae’s $14.4 billion in net income last year stands in stark contrast to its combined market cap of roughly $10 billion. This disparity suggests that investors have been underestimating the value of these companies, possibly due to lingering concerns about their conservatorship status. Ackman’s timing raises eyebrows, particularly given his history of recommending trades on the final day of a quarter.

In December 2024, he published a detailed thesis calling the GSE trade his best idea for 2025. The post garnered 4.9 million views and sent shares surging by similar margins. This time around, Ackman’s message was simpler: “Ignore the bears.” However, investors should be cautious not to ignore warning signs.

Critics have long argued that a rushed privatization process could raise borrowing costs and recreate the conditions that fueled the Great Recession. UCLA economist Wesley Yin has raised questions about whether the government would truly risk repeating that mistake. Ackman’s dismissive tone – “Ignore the MSM” – belies the uncertainty surrounding this issue.

The fact that investors are feeling extreme fear as the Iran war rages on adds to the complexity of the situation. Ackman’s message may have been confidence-boosting, but it’s also a reminder of the risks involved in investing. As he acknowledged in his December post, there remains a high degree of uncertainty about the ultimate outcome.

The housing market is already facing challenges due to Fannie and Freddie’s conservatorship status. Michael Burry has blamed their inefficiencies for keeping borrowing costs low – and interest rates artificially depressed. However, Ackman’s solution – privatization via an IPO – has been touted as a panacea since 2008, with little progress made in the intervening years.

The White House housing director Bill Pulte has promised a decision on the IPO by the end of this year or early next. Until then, investors would do well to approach Ackman’s recommendations with caution. The market may be responding to his enthusiasm, but it’s also ignoring warning signs. As the dust settles, one thing is clear: Fannie and Freddie are more than just stocks – they’re a microcosm of the broader issues facing the housing market and the economy as a whole.

Ackman’s tweet was attention-grabbing, but it’s also a reminder that investors should be wary of taking advice from those with a vested interest in the outcome. The road to privatization may be fraught with uncertainty – and potential pitfalls.