¿El regreso de Fannie Mae (FNMA) y Fredie Mac (FMCC)?

During the quarter, we had a loss in the preferred stocks of Fannie Mae and Freddie Mac
(“GSE preferreds”). We had bought them in 2014, partially hedged by shorting common
stock. Our thesis was that we could do well if the companies were recapitalized and released
from conservatorship, and that shareholders had valuable claims against the U.S.
government, which had unilaterally changed the deal and essentially nationalized the
companies right as they were about to recover. We believed that under the Trump
administration, there was substantial interest in settling the lawsuits and releasing the
companies.
In January, the GSE preferreds fell when it became clear that the Trump administration had
left without putting the GSEs on a clear path to being released. Nevertheless, we remained
optimistic about the legal case, which had reached the U.S. Supreme Court. In the lower
courts, Democratic-appointed judges had tended to support the government and Republicanappointed judges had tended to support the shareholders; so we were surprised in June when
the Supreme Court ruled in the government’s favor in all the important aspects of the case.
This caused the GSE preferreds to collapse. In the earlier years, the position had been quite
profitable and we reduced it at favorable prices. While we achieved a low double-digit IRR
over the life of the position, it was a loser in 2021.
The recent change in market narrative away from inflation and away from the companies we
own has interrupted what was otherwise a favorable environment for us. We suspect that this
is a hiccup. It is hard after 40 years of generally falling inflation and a decade of rewarding
bets on deflation for the market to change its view. If we are correct, the data will refute the
consensus view.