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“I have seen many storms in my life. Most storms have caught me by surprise, so I had to learn very quickly to look further and understand that I am not capable of controlling the weather, to exercise the art of patience and to respect the fury of nature.” – Paulo Coelho

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Good morning!

A fictional President once observed that “decisions don’t get to the desk of the President unless they’re 49/51. I spend my days splitting hairs, but that’s the job I raised my hand for.” That’s a situation that could be facing the White House regarding the future of U.S. housing. As part of their quest to shrink the government and make it more efficient, President Donald Trump and Elon Musk have turned their eyes toward federal institutions that facilitate home purchases in the U.S. such as the government sponsored enterprises Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Already, Trump appointees have taken an axe to the upper ranks of these entities.

Fannie Mae and Freddie Mac were taken under government conservatorship during the Global Financial Crisis – 18 years ago. Fannie and Freddie shareholders have long argued that it is past time to release the companies from government control. Pre-pandemic, Trump considered doing just that during his first term, heeding arguments that continued conservatorship unfairly impedes potential industry rivals from emerging and thus limits consumer choice. Of late, advocates, including billionaire investor Bill Ackman, have also argued that this move would be good for the government and taxpayers as well: the Treasury department owns shares in the companies that some suggest would skyrocket in value in open trading once conservatorship ends, allowing the government to realize the gain and reduce the deficit slightly.

Critics warn that to end conservatorship and allow such key aspects of the U.S. mortgage market to resume fully private operations without the implicit government guarantees that currently back Fannie and Freddie would likely raise the perceived risk of mortgage-backed securities. This in turn would arguably make borrowing costs – and thus, homeownership – even less affordable than it already is. The privatization would also come during a time when many Americans are already falling behind on their mortgages, raising worries about the fate of these so-called government-sponsored enterprises. 

Would this effect be permanent? Free markets, like nature, tend to abhor vacuums, so that seems unlikely. “You’re talking about a temporary effect” from privatizing Fannie and Freddie, Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives told Semafor. “Maybe it’ll take a little time, but you’re going to end up with a few large players in the market again.”

But even a temporary surge in homeownership costs could impede something else on Trump’s wish list: immediate rate cuts from the Federal Reserve. As readers of our work know, housing and shelter inflation have long been stubbornly high, constituting a large share of overall inflation. Shaking up the mortgage market, even if temporarily, could slow this objective, giving this component another reason to stay high for longer.

Share your thoughts

When, if ever, do you think the government end conservatorship of Fannie Mae and Freddie Mac? Click here to send us your response.

Here’s what a reader commented

Question: What economic risks, if any, do you think reduced government funding of basic research will have on the U.S. and the world?

Answer: Low risk moving forward. Your article is stuck in the past. With AI we have crossed the Rubicon. The old arguments for funding basic research ended up sucking public dollars without accountability. They created a system of big companies dependent on public money flow. The goal of those at the top became the protection of that flow. Today research is taking off because of lower costs and millions of opportunities.  It is time for the government to simply become good at governing.

Catch up with FS Insight

Every single day since tariff “Liberation Day” has brought news events triggering market moving bouts of volatility. We still expect the US to track toward a positive outcome on trade, but we acknowledge the probabilities decay the longer this takes to resolve.

Technical

Unfortunately, Tuesday’s continuation of Monday’s rally from the lows lacked staying power, given how strongly negative momentum has gotten in the last few weeks. While markets remain extraordinarily volatile given a VIX that remains over 50, the risk/reward should be excellent with those who have at least a 2-3 month timeframe.

Crypto

Our work suggests that Bitcoin sniffed out tariff risks before equities, Meanwhile the bond market is sending important signals to us about systemic stress, and a weakening yuan might still be a tailwind for crypto.

News We’re Following

Breaking News

• China hits back by raising tariff on US goods to 84% after Trump’s ‘reciprocal’ duties take effect YF 
• 10-year Treasury yield spikes higher as Trump tariffs continue to rattle markets CNBC 

Markets and economy

• U.S. financial regulator says email hack exposed sensitive data on banks CNBC
• Why China thinks it might win a trade war with Trump ECO 
• Cal-Maine Foods cooperating with Justice Department probe into egg price increases WSJ 

Business

• Paper goods maker for Trader Joe’s, Kroger files bankruptcy BBG
• Companies stung by tariffs explore lawsuit against Trump WSJ 
• Humana and CVS stock pop on Medicare payout and Dr. Oz news QZ 
• Janus Henderson strikes deal to manage $45 billion of insurer’s assets WSJ 
• Delta CEO says Trump’s trade war is hurting bookings as airline axes 2025 flight growth plans CNBC 
• Boeing deliveries in March jump by 41% compared to a year earlier REU

Politics

• Elon Musk calls Trump adviser Navarro a ‘moron’ BBC 
• Judge says White House can’t ban Associated Press from Oval Office, Air Force One CNBC 

Overseas

• Germany’s Friedrich Merz strikes coalition deal with Social Democrats FT 
• India’s central bank cuts policy rate to 6% to boost slowing growth, signals further easing ahead CNBC 
• Dominican Republic nightclub collapse kills 113 BBC 

Of Interest 

• The FBI hijacked and ran a dark web money laundering operation called ‘ElonmuskWHM’ GIZ 
• Sick sea lions attacking beachgoers in Southern California BBC