Fannie Mae (FNMA)

[kthomp19]

are my eyes deceiving me, or are jps down 30% YOY versus Common up 5%? What's up with that?

Fluctuations. Acting as if these price movements are indicative at all of what the prices will be when capital is finally raised (the end state at which returns on the juniors and commons can be measured against each other) is foolishness.

There have been many times in the last 12+ years that the commons have had such outperformance against the juniors, and many times that the opposite has been true. Clearly none of them gave a clear indication of the future direction of the ratio.

For example, here is a 5-year chart of FNMAS:FNMA, though note that I grabbed it in early January:



Right now the graph is trending down. Does that mean it will keep trending down, stay the same, or reverse and go higher? There is no way to tell.

Take a look at when the ratio went from under 2:1 in late 2017 to over 4:1 in early 2018. Was that a repudiation of the common investment thesis? If not, then recent junior versus common price movements are not a repudiation of the junior pref investment thesis. If so, common shareholders should sell their shares when the graph starts moving higher. You can't have it both ways.