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šŸ’° 5 Fact Friday: Fannie, Freddie, and the Privatization Play

Bill Ackman recently shared his bold thesis on Fannie Mae and Freddie Mac, the two largest government-sponsored enterprises. Together, these mortgage giants carry $8 trillion in liabilities on the federal balance sheet.

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Hey Money Maniacs,

Happy New Year! Sure, the S&P 500 slid 1.6% in the final days of 2024ā€”its worst year-end since ā€™05ā€¦

But we just wrapped up two straight 20%+ years, a Bitcoin double-up, and gold hitting record highs. Not too shabby, right?

Now, letā€™s talk 2025. Weā€™re kicking things off with our first annual Prediction Surveyā€”scroll down and share your two cents!

COMMUNITY
1. Share Your 2025 Predictions šŸŽÆ

This year is shaping up to be full of big questions:

  • Will gold cross $3,000?

  • Is a recession around the corner?

  • How many Fed rate cuts are coming?

  • Will small-cap stocks finally have their moment?

And we want your take!

It only takes 2ā€“3 minutes to complete our multiple choice survey, but the bragging rights for nailing it? Those last forever.

Weā€™ll revisit these forecasts throughout the yearā€”and shoutout our most accurate predictors. Donā€™t miss your chance to be the Money Maniac to beat in 2025!

OUR PARTNER: THE OXFORD CLUB

The NEXT Trillion Dollar Company?

This company just signed a MASSIVE deal with Apple.

It gets their AI tech in Appleā€™s iPhones and iMacs until 2040!

But it goes beyond that.

The company is getting its tech into products by Nvidia, Google, and Samsung too.

Its AI tech is so crucialā€¦

Nvidia is actually buying up the stock too.

Theyā€™ve invested more in this one company than any otherā€¦ nearly $150 million.

Is this stock the next Nvidiaā€¦ which has gone up 81,700% over the last 20 years?

REAL ESTATE
2. No Hope For A Housing Boom āŒ

The U.S. housing market feels like a game of freeze tag gone wrongā€”stalled by high mortgage rates and ballooning costs for buyers.

Interest rate cuts were supposed to bring long-awaited relief, but with the Fed signaling fewerā€”or noā€”cuts in 2025, mortgage rates are stuck just below 7%.

So, hopes of a 2025 real estate recovery? Dashed. Instead, cautious optimism points to a slow and uneven thaw.

According to the National Association of Realtors (NAR), 2024 logged the fewest existing-home sales in three decades. In 2025, Realtor.com expects a modest 1.5% increase, leaving sales 23% below pre-pandemic levels despite ~7% population growth.

Whatā€™s holding the market back?

  1. Mortgage Rates: Rates are projected to settle between 6.3ā€“6.5% in 2025. Surveys show that many buyers wonā€™t pull the trigger until rates dip closer to 5.5%, which looks unlikely in the near term.

  2. Affordability Crunch: Home prices are up 30% from pre-COVID levels, far outpacing income growth. Plus, rising insurance and property taxes arenā€™t helping.

  3. Locked-In Sellers: Nearly 60% of mortgages carry sub-4% rates, making the prospect of moving and refinancing at todayā€™s rates far less appealing. For many, the higher monthly costs simply arenā€™t worth it.

Still, not everyone can wait for better conditions.

As Redfinā€™s Chen Zhao notes, ā€œreasons for moving accumulate,ā€ whether itā€™s a new job, a growing family, or even more space for that pandemic puppy. These forces are expected to ā€œunlockā€ more sales, but theyā€™ll be driven by necessity, not opportunity.

Despite the sluggish sales pace, economists project another 2ā€“4% rise in residential real estate prices in 2025. Persistent underbuilding since 2009 has left limited housing supply just as millennialsā€”Americaā€™s largest generationā€”reach the average age of homeownership.

Bottom line? The stalemate continues.

Without a significant shift in mortgage rates or inventory, the housing market will continue its slow crawl. Both buyers and sellers are in a holding pattern, waiting for better days ahead.

MARKETS
3. The Long Road To Privatization šŸŽ²

Bill Ackman recently shared his bold thesis on Fannie Mae and Freddie Mac, the two largest government-sponsored enterprises (GSEs). Together, these mortgage giants carry $8 trillion in liabilities on the federal balance sheet.

Whatā€™s a GSE? Think of it as a hybrid between a private company and a government agency. They operate like businesses but with a public mission to make homeownership more accessible.

Ackman argues that a second Trump administration could finally end the GSEsā€™ 16-year federal conservatorship, potentially unlocking hundreds of billions in profits for the governmentā€”and investors like himself.

Hereā€™s the backstory:

  • In 2008, Fannie Mae and Freddie Mac guaranteed nearly half of Americaā€™s mortgages.

  • During the financial crisis, their thin capital reserves couldnā€™t absorb rising losses. Bankruptcy became a serious risk, putting further pressure on already falling mortgage values.

  • To stabilize the housing market, the Bush administration placed the GSEs into conservatorship under the Federal Housing Finance Agency backed by a Senior Preferred Stock Purchase Agreement.

  • As part of the agreement, Fannie and Freddie have paid $301 billion to the Treasury.

  • In 2019, the Trump administration allowed the GSEs to retain earnings for the first time since the crisis. This has enabled the firms to rebuild their balance sheetsā€”a first step toward privatization.

  • Since then, the Biden administration has taken no further action to advance the process, leaving the GSEsā€™ future uncertain.

Ackmanā€™s thesis? 2025 is the year. He expects a second Trump administration to re-privatize these GSEs, lifting a major overhang on their share prices.

The bull case (Ackmanā€™s view) says a clean exit would let these companies keep more profits, distribute more dividends, and finally trade free of government constraints. Thatā€™s part of why Fannie Mae soared 36% and Freddie Mac jumped 34% after Ackmanā€™s post.

The bear case? Politics is unpredictable. The new administration might not make this a priority, and any delay means more time locked in limbo. After all, Ackman himself has held this trade for over a decade without success.

Bottom line: This is part moonshot, part political chess. If Ackmanā€™s vision pans out, itā€™ll be one of Wall Streetā€™s biggest I-told-you-so moments. But the outcome hinges entirely on government policy, leaving plenty of room for skepticism.

STOCKS
4. Tesla Skids Into 2025 šŸš—

For the first time in over a decade, Tesla delivered fewer cars in 2024 than in the previous year.

Despite record fourth-quarter deliveries of 495,570 vehicles, Teslaā€™s total for the year hit 1.79 millionā€”just shy of the 1.81 million achieved in 2023. Aggressive promotions like free Supercharging and interest-free financing boosted Q4 sales but werenā€™t enough to drive annual growth.

Shares dropped 6% on the news, but the bigger story lies in the mounting challenges facing Teslaā€™s core EV business:

  • Squeezed Margins: Heavy reliance on promotions is cutting into Teslaā€™s operating margins, raising questions about long-term profitability.

  • BYD Closes the Gap: Chinese rival BYD sold nearly as many pure EVs (1.76 million) as Tesla, alongside 2.5 million hybrids. BYDā€™s aggressive pricing is undercutting Tesla and chipping away at its global market share.

  • Ending EV Credit: President-elect Donald Trump has vowed to eliminate federal EV tax credits, which currently lower sticker prices by up to $7,500. Losing this incentive could further dent demand for Teslaā€™s vehicles.

Yet, Tesla investors remain optimisticā€”focusing on the future rather than short-term setbacks. Bulls argue that the success of just one of Teslaā€™s ambitious projects could justify its premium valuation:

  • Full Self-Driving (FSD) software

  • The Cybercab, a sub-$30,000 autonomous robotaxi

  • A new low-cost EV, expected this year

  • The humanoid robot Optimus, part of Teslaā€™s broader AI strategy

At present, however, Tesla is priced like a hyper-growth stockā€”despite showing no growth.

Whether 2024 was a brief hiccup or a pivotal turning point will depend on Teslaā€™s ability to shift gears from an automaker into a robotics and AI powerhouse.

OUR PARTNER: THE DAILY UPSIDE

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Trade wars, shifting policiesā€”are we on the brink of market turmoil? Staying informed has never been more important. Thatā€™s why we read The Daily Upside. Join 1M+ readers and subscribe for free today.

STOCKS
5. Guess That Stock šŸ•µļøā€ā™‚ļø

Think you can crack this weekā€™s mystery? Below are five clues about a onceā€“near-bankrupt used-car retailer that roared back to life in 2024.

1. This company became famous for its towering, glass ā€œvending machinesā€ that dispense used carsā€”a symbol of its mission to simplify the car-buying process.

2. After riding the pandemic e-commerce wave, the companyā€™s shares fell 98% in 2022, burdened by rising interest rates, soaring car prices, and heavy debt.

3. Through aggressive debt restructuring, cost-cutting, and rebounding auto demand, the company avoided bankruptcy. Its stock delivered a staggering 1,017% return in 2023 and another 284% in 2024.

4. In Q3 2024, revenue jumped 32% year-over-year to $3.65 billion, while net income hit $148 millionā€”a stark turnaround from its earlier financial struggles.

5. Yesterday, high-profile short-seller Hindenburg Research accused the company of lax loan approvals and questionable insider deals involving its father-son leadership duoā€”sending the stock down 1.9%.

Spread The Wealth šŸ’ø

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DISCLAIMER: The information provided in this newsletter is for informational purposes only and should not be construed as financial advice or a solicitation to buy or sell any assets. All opinions expressed are those of the author and are subject to change without notice. Please do your own research or consult with a licensed professional before making any investment decisions.

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