Fannie Mae-No Politics (FNMA)

[kthomp19]

I still think you should hedge at least 10% of your junior with common so you will have two horses in the race going forward...

I can see the juniors as being a hedge for a common position, like Ackman did. His exact words on that were "it hedges our risk of a restructuring that disproportionately benefits the preferred versus the common shares". I believe he is around 21% prefs at the moment, according to Pershing Square's most recent annual report.

I don't see how the commons can hedge a junior pref position, though. If the commons are worth anything at all in a post-SPS world then the juniors have to be worth at least par. Hedges are generally about protecting against downside risks, and a 100% junior/0% common position is as hedged as one can get in that respect in the GSE trade.