Famed investor Michael Burry has warned that technical chart patterns for government-sponsored mortgage giants Fannie Mae (FNMA) and Freddie Mac point to "worthless stock," following a massive retracement of their post-2024 U.S. presidential election gains. Both equities have dropped over 74% from their September 2025 peaks as fears grow over potential government equity conversion.
Technical Patterns and Severe Retracements
According to Yahoo Finance data, Fannie Mae closed at $1.39 on Election Day 2024 before surging to a peak of $15.31 on September 11, 2025. By Friday, the stock had fallen to $4.04, erasing roughly 80% of its post-election rally. Freddie Mac experienced a mirrored trajectory, climbing from $1.20 on Election Day to $14.15 before sinking back to $3.68.
Writing in his newsletter on Sunday, October 11, 2026, Burry highlighted that both charts formed a massive head-and-shoulders top—a technical shape traders read as the end of a rally. Directing comments to his readers, Burry stated, "What that chart predicts, technically, is worthless stock." While Burry disclosed executing trades in both assets during the week, he kept the direction of his positions restricted to paid subscribers.
Treasury Conversion and Equity Dilution Risks
The fundamental pressure stems from the structure of the 2008 government bailouts. The U.S. Treasury holds senior preferred stock in both entities, creating repayment claims that grow every quarter. Citing market data and commentary from investment bank KBW, Burry noted growing expectations that the Treasury will convert its senior preferred holdings into common stock.
Burry estimates that such a swap would shrink existing common shareholders' share of the company by at least 90%. For common holders to see sustained upside, Burry wrote that two things are required: an end to government control and a sharp cut to Treasury's claims—neither of which has materialized.
- Fannie Mae dropped 74% from its September 11, 2025 high of $15.31 to close at $4.04 on Friday.
- Freddie Mac retreated from a peak of $14.15 down to $3.68, erasing 80% of its post-election rally.
- Michael Burry warned a potential U.S. Treasury preferred stock conversion could dilute common holders by at least 90%.
Why It Matters
Burry's warning highlights a broader macroeconomic squeeze where speculation around political deregulation collides with rigid federal balance sheet realities. Much like his recent commentary warning that AI market valuations reflect a bubble, Burry views the collapse of the Fannie-Freddie trade as evidence of narrowing market breadth reminiscent of 2000 and 2008. Investors tracking broader systemic risk should monitor whether government resolution mechanisms force similar restructurings across traditional markets, particularly as global financial institutions navigate bond losses.
