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The Morning Brief: Mnuchin Spooks Fannie, Freddie Stocks
Shares of Fannie Mae fell 4.3 percent Thursday and Freddie Mac dropped 5 percent following the nomination hearing for Steven Mnuchin, whom President-elect Donald Trump has chosen as Treasury secretary. Lawmakers asked Mnuchin about his statement last November to Fox Business Network’s Maria Bartiromo that it “makes no sense that [the two federal mortgage agencies] are owned by the government and have been controlled by the government for as long as they have.”
Those remarks sent the two stocks soaring at the time. On Thursday, Mnuchin was grilled by Senator Mark Warner, a Virginia Democrat, who said that some observers interpreted his comments as a signal that he wants Fannie and Freddie recapitalized and removed from government control. The former Goldman Sachs Group partner and hedge fund manager fired back, admitting that he’d said some things but clarifying: “My comments were never that there should be recap and release.”
Mnuchin added, “I have been around the mortgage industry for 30 years, and I have seen this for a long period of time. This is an area I believe I have expertise in. For very long periods of time, I think Fannie and Freddie have been well run without creating a risk to the government.”
Mnuchin expressed support for the agencies and their role in providing liquidity for housing finance. He also says he is committed to working with both Democrats and Republicans. “What I have said and believe, we need housing reform,” Mnuchin explained. “We shouldn’t just leave Fannie and Freddie as they are for four or eight years under government control without a fix. I believe we can find a bipartisan fix for these. On the one hand, we don’t want a giant bailout. On the other hand, we don’t run the risk of completely limiting housing finance.”
Fannie and Freddie are large positions of William Ackman’s Pershing Square Capital Management, who famously converted to a Trump fan right after the election.
Netflix shares jumped nearly 4 percent yesterday, closing at $138.41, after the video streaming company reported many more paid subscribers than investors had projected. In response, Credit Suisse Group raised its earnings estimates and its price target on the stock from $133 to $143. “For the longer term, Netflix will be looking to show a greater balance between growth and profitability — which to us validates the long-term investment thesis for its international and newer cohorts to follow along the margin expansion trajectory of the U.S.,” the bank told clients in a note.
However, Credit Suisse kept its neutral rating on the stock. At the end of the third quarter of 2016, at least 15 hedge funds counted Netflix among their top ten holdings, according to Goldman Sachs. Also, at least eight funds with roots to Julian Robertson Jr.’s Tiger Management Corp. held a stake, data provider Novus.com reports. For example, it was the largest position of SRS Investment Management, the company’s ninth-biggest shareholder, and the No. 5 long of Coatue Management .
Shares of hedge fund favorite Valeant Pharmaceuticals International fell 1.4 percent on Thursday, closing at $14.90. The stock, which had surged in the first few days of the year, has retreated by 9 percent since its 2017 peak price on January 10.