Renowned hedge fund manager Bill Ackman has cautioned that forced liquidations and margin calls in the cryptocurrency market are triggering sell-offs in Fannie Mae and Freddie Mac shares.
On November 21, Ackman stated via social media that he previously underestimated the two government-sponsored enterprises' indirect exposure to cryptocurrencies. The connection isn't directly visible in financial statements but lies within their shareholder base - many crypto investors also hold positions in these mortgage giants.
Ackman explained that when cryptocurrencies like Bitcoin experience sharp declines, leveraged investors face margin calls. To meet liquidity needs, they liquidate other assets including Fannie and Freddie stocks, creating price correlation between these equities and crypto prices. The Pershing Square founder acknowledged that while his fund doesn't hold Bitcoin directly, they've effectively held "equity proxies for Bitcoin" in the short term.
He emphasized that technical factors can temporarily outweigh fundamentals, with Fannie and Freddie serving as prime examples of this phenomenon.
Mixed Financial Picture for Freddie Mac
As a government-backed entity providing liquidity through mortgage purchases and securitization, Freddie Mac presents a mixed financial profile.
Positive indicators include: - 46.89% net profit margin - Exceptional 297.1% free cash flow yield - 66.68% free cash flow margin
However, concerning metrics reveal: - "Poor" financial strength rating - Sky-high 49.99 debt-to-equity ratio - Negative $0.02 EPS - Modest 2.9% revenue growth over three years
Valuation metrics show: - $5.35 billion market cap - 1.06 P/S ratio - 2.31 forward P/E - Neutral-range 44.07 RSI-14 - High 2.24 beta indicating market volatility
Valuation Concerns and Market Risks
Analysts flag multiple red flags: - Current valuation appears "significantly overvalued" - 0 Altman Z-Score signaling financial distress - Inherent interest rate and regulatory risks - Extreme volatility (2.24 beta) - Consensus analyst rating: Neutral
The combination of high leverage, crypto market spillover effects, and fundamental risks suggests investors should approach these stocks with caution.