Michael Burry Flags ‘Bull Trap’ Risk, Holds Back On New Shorts — Why Trump’s Fannie-Freddie Call Matters To His Portfolio Deepti Sri Tue, October 13, 2026 at 12:49 AM EDT 5 min read FNMA -14.11% FMCC -14.40% SPY -0.06% QQQ -0.70% DIA +0.35% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
He says almost all his short exposure is now expressed through Nasdaq-100 and semiconductor puts expiring in 2027.
Burry sold his Fannie Mae and Freddie Mac common shares and shifted into junior preferred shares, which now make up about 8%-10% of his portfolio.
He sees potential four-to-fivefold upside in the preferreds if the government resolves its senior claims and reinstates dividends.
"The Big Short" investor Michael Burry sees a possible "bull trap" in stocks at new highs but is holding back on adding shorts, while his 8%-10% portfolio bet on Fannie Mae and Freddie Mac preferred shares depends on a government resolution.
His warning came after a mixed Monday session: the SPDR S&P 500 ETF Trust (SPY) slipped 0.06%, the Invesco QQQ Trust (QQQ) fell 0.7%, and the SPDR Dow Jones Industrial Average ETF Trust (DIA) gained 0.35%, while the S&P 500 hovered near its record high set the previous week.
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"The market is not so conducive right now," Burry said in a Substack chat. "Lots of these stocks, you have to respect the new highs. Might be a bull trap, and a number of big bear markets have started that way." His challenge, he said, is staying positioned until his view plays out: "I just know where this will be in a few years. The trick is to get there."
Burry added that Puts account for about 10% of his portfolio. Long positions and LEAPS make up most of the rest, with minimal cash. "If the market crashes hard, I think I'll do ok," he said, adding that he expects his long holdings to perform over three to five years. "A year is nothing."
Burry's reluctance to add shorts does not mean he has dropped his bearish bets. In his most recent Substack post, he said almost all his short exposure was expressed through puts on the Nasdaq-100 and semiconductor stocks. The options expire in 2027 and were 20% out of the money. He put his window for a significant market top at zero to nine months.
Burry sold his Fannie and Freddie common shares and added them to junior preferred stock (JPS). When asked how he moved from Fannie common into Freddie common and then out of both, he replied: "Almost as soon as I dumped the Fannie into Freddie, I was not comfortable with my risk position and started moving all and then some into the JPS."
The preferred shares rank above common stock in the capital structure. Burry's thesis is that they could benefit if the government resolves its senior claims and reinstates preferred dividends. He said the junior preferreds could trade well above par depending on interest rates, adding that the potential return "from current levels" could reach four to five times.
The main risk is the Treasury's senior preferred stock liquidation preference, which Burry puts at about $388 billion, about twice the companies' combined book value. If the claims were converted into common shares, existing common shareholders could face severe dilution. Burry sees the junior preferreds as better positioned in that scenario.
He is optimistic that a resolution favorable to both common and preferred shareholders could come within two years. But he said on chat that the delay had made him "antsy," citing a "quickly deteriorating" multifamily housing situation.
Meanwhile, Burry sees the Trump administration as a key factor. He doubts that a lengthy IPO process fits the president's appetite: "He wants big wins," Burry said. "He clearly is bored easily and does not tolerate too many details shoved in his face." He called Trump "almost incompatible" with the IPO process.
But Burry argued that resolving the senior preferred stock and its liquidation preference does not depend on an IPO. "The easiest thing in the world to do would be to cancel the SPS and the Liquidation Preference," he said. "And they have not done it. That says something."
Government warrants expire before the 2028 election, Burry said, which could force action, though they could also be extended. "Treasury/FHFA holds all the cards here," he said, adding that some action is needed before the end of Trump's term. When asked about Treasury Secretary Scott Bessent, Burry replied: "He's toeing a line a lot more than I thought he would."
Both FNMA and FMCC have fallen for seven straight weeks and are on track for their worst annual run since 2010. Recently, Mizuho downgraded both stocks and cut their price targets. The firm estimated the odds of fast privatization by 2028 at 18% for Fannie and 9% for Freddie.
Economist Peter Schiff was more bearish, calling a Fannie-Freddie IPO "always a pipe dream" and its rally as "just a pump-and-dump scheme." He noted that the stocks were down nearly 80% from their September 2025 highs.
FNMA and FMCC are down 68% and 69% year-to-date, respectively.
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Deepti Sri has no position in any of the stocks mentioned in this article. StockTwits' news team content is for informational purposes only and is not intended as investment advice. For more, see our editorial policy. This article was originally published on StockTwits.
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