Traders Smell Blood As Government Unchains Fannie and Freddie--Shares Soar...

Because apparently 16 years of government control isn't enough time to figure out what to do with two companies that essentially power the American Dream—The Treasury Department and FHFA just dropped what might be the most anticipated sequel in financial markets: "How to Free Fannie and Freddie Without Breaking Everything." The market, naturally, responded by sending both stocks to levels not seen since the Obama administration.

(Source: Giphy) 

In short, Federal agencies just laid out a roadmap for the companies’ “orderly” release from government conservatorship. Translation: They might finally be allowed to adult again after being bailed out during the 2008 financial crisis. Now with that said, the government's new framework is less of a blueprint and more of a "maybe we should think about this some more" memo. They're asking for public comment, presidential approval, and probably a series of interpretive dances before either company sees daylight. In peak bureaucratic fashion, they've managed to make privatization sound like a DMV appointment.

(Source: Barrons) 

However, Wall Street, in its infinite wisdom, has decided these new requirements are about as meaningful as a tech company's privacy policy. The stocks surged 24-30%, largely because investors are betting Trump's potential second term will streamline this process faster than you can say "deregulation." 

Now of course, this isn’t just another Wall Street betting game. Fannie and Freddie are basically the plumbing of America's housing market. When they work, nobody notices. When they don't, well… cue 2008. For this reason, Bill Ackman and John Paulson (who’ve been holding these stocks with the patience of monks) are understandably hyped. Ackman has even floated a 2026 public offering that could value shares at a casual $31—assuming the government doesn’t heavily dilute common shareholders.

(Source: Yahoo Finance) 

What’s more is that the timing of this isn’t subtle. Over the years, there’s been no shortage of talk about returning Fannie and Freddie to private control. Even the first Trump administration tried to make it happen before getting sidetracked by, you know, a global pandemic. Which means now with inauguration day looming, every player in the housing market is either celebrating or drafting strongly worded letters. Industry groups are doing what industry groups do best: warning that any change could bring about the apocalypse while simultaneously positioning themselves to profit from it.

Now whether this is finally the beginning of the end for conservatorship or just another false start, we're watching what could be the largest financial reconstruction since... well, since these companies needed saving in the first place. In the end though, the stocks are no doubt soaring, the government is government-ing, and somewhere, a hedge fund manager is already picking out yacht colors.

(Source: Giphy) 

For this reason, the only guarantee with all of this is that someone, somewhere is going to make a fortune off of this. Whether that's you probably depends on how much you trust the government to execute a plan that's taken longer than most marriages to develop. Meaning, do what you will with this information and place your bets accordingly—especially since this is not financial advice whatsoever. Remember, I write articles for a living, which is basically like being a financial comedian without the stand-up special. So really, what do I know?

In the meantime, keep an eye on this story and pay close attention as Trump once again takes the Iron Throne later this month. As always, stay safe and stay frosty, friends! Until next time… 

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Stocks.News does not hold positions in companies mentioned in the article.