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Annaly Capital Mgmet, NLY, Up 390% Today Or Pretty Much No Change?

Tim Worstall
Tim Worstall trader
Updated 26 Sep 2022

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Key points:

  • Annaly Capital is up 390% rhia morning in nominal terms
  • In real terms that’s about level and even
  • Why such a difference?

Annaly Capital Management (NYSE: NLY) stock is up some 390% this morning. Or as we can also say, pretty much unchanged, maybe a percentage point or so down. That we can have two such wildly divergent differences in what should be a sure and certain thing – the market price – tells us that we must be dealing with, in fact, different things. Which we are – one is a purely nominal price change, the other is the real price change. We should be paying attention to the real price rise for that’s the one that makes a difference to our pocketbooks.

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As to why this difference here it’s fashion, purely fashion. Perhaps fashion that has hardened into a culture but that’s still the reason all the same. The action that led to this nominal price change really isn’t based upon anything other than how that NLY stock price looks. Well, you know, humans can be strange at times. Or as economists like to put it, we humans are subject to the price illusion.

As to what Annaly Capital does it’s essentially a specialised investment house. It runs portfolios of mortgage bonds and middle market lending into corporates. It’s a finance house that is. It’s also structured as a REIT so that near all of the profit is paid out as the dividend, this freeing that income flow from the corporate income tax. A good explanation for Annaly being high on lists of dividend stocks. That it is a finance house almost certainly explains quite how slavishly it is following that fashion mentioned above.

Annaly Capital Management stock price
Annaly Capital Management stock price from IG

Also Read: The Best Monthly Dividend Stocks Under $10

The fashion thing is just that the New York markets regard the “right” price range for a good and sensible, sound even, stock to be in the $10 to $100 range. That this is purely fashion is shown by how London thinks it’s £1 to £10. Which is why ADRs of London stocks are so often 10 shares – to be in that right range in both markets.

But even if this is purely fashion we humans are indeed subject to the price illusion. This is why prices in stores end in 99 cents, or are $99.99. We all do know that saving a penny doesn’t matter but it changes our behaviour anyway.

Even if it is just that fashion it does have an effect though. And it has that effect in spades for financial stocks. Who wants to invest in a financial if the price range makes it look like something other than solid, dependable and sound? So, given that Annaly is outside that $10 to $100 range, and has been for the past year, something should be done. Something was done too – there was a 4 for 1 reverse stock split – a consolidation to Brits.

The total value of Annaly hasn’t changed directly as a result, nor has the value of any particular stockholding. The result will be subtle if it even exists at all – now that NLY is in the $10 to $100 range people might think it’s more solid and thus more worth investing in. Which is why we’ve an extreme nominal price change up 390% at pixel time, but the real price change seems to be roughly level.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.