Yesterday, truly, was an exhilarating, glorious, eye-opening and heartfelt-goose bump mREIT celebration day. I eagerly awaited Fed Chairman Ben Bernanke's speech. The tension was high. One could sense the tension in their bones. I did. And I was not alone.
The outcome is now told. Agency-mREIT shareholders have made out like bandits.
The rules are clear: agency-mREITs are an obvious winner for the next 2 years as the facts are clear and ring true. Your investment actions should reflect yesterday's revelations. In all sincerity, the rules have been displayed to investors. I advise one to act accordingly.
Fed Chairman Ben Bernanke stated, (click to enlarge):
The U.S. economy is in such shambles that the Federal Reserve Chairman is providing banks with 2 years of essentially 0% Fed Fund rates. Banks can once again borrow at zero and invest in anything with a yield. Guaranteed profits to the banks. Clearly, there is such a thing as a free lunch.
Here are the facts:
- If you dare downgrade the U.S. debt, your company shall be ridiculed by a 3rd party. Treasury Secretary Tim Geithner said S&P showed "terrible judgement" and "stunning lack of knowledge".
- Even the Treasury pointed out Standard & Poor's lack of knowledge.
- Warren Buffett says the U.S. Debt "merits a quadruple rating" if one existed.
- Government Sponsored Entities (GSE) shall be considered, per Annaly's (NYSE:NLY) Michael Farrell, good paper to hold by agency-mREITs.
- The U.S. Debt, currently at $14.5-trillion, is viewed as AAA by all U.S. Governmental officials. Naysayers shall be ignored.
- The Federal Funds rate shall remain zero or close to zero for at least 2 years.
- Federal banking authorities are advising, per the FDIC website, to disregard the S&P downgrade, click to enlarge:
My Humble Reaction to the Facts
I was a naive fool to think the game was fair. The U.S. Government won. I shall play by their rules. I believe banks win big time after Ben's speech yesterdday. For two years they can borrow at the Fed Funds rate of 0% and invest and, again, recapitalize as needed.
For commoners, like myself, it's clear that agency-mREITs will win big time. This is obvious and, in my opinion, one should pay heed. The only requirement is the agency-mREIT yield spread must remain profitable. I don't see any other risks that concern me. It's now a game where we know who wins, the U.S. Government. I am truly ashamed to have brought my interpretation of logic into the equation.
My Actions Post-Speech
Promptly upon hearing Ben's speech, I aggressively bought additional shares of the 4-pure play agency-mREITs I want to own: American Capital Agency Corp. (NASDAQ:AGNC), Cypress Sharpridge Investments (NYSE:CYS), Hatteras Financial Corp (NYSE:HTS), Annaly (NLY).
This was ensuring I heard Ben correctly, and pinching myself to make sure this wasn't an mREIT dream! You know the kind of dream. The dream where you win the lottery. You soon wake up and realize the lottery winnings disappeared when you awoke.
I knew it would have been have a dream if James Carville said "Todd, you fool, the U.S. Debt is indeed AAA!" But James wasn't in my dream, only modern government experts spoke with the blessings of their esteemed government agencies.
Purchases and Dates to Watch
The game is afoot. We shall remain long agency-mREITs for likely 2 years. Here is updated information on the mREITs and a couple of dates to be aware of: I have highlighted the estimated date for release of dividend information, estimated ex-dividend date, and estimated dividend amount. The dates approach rapidly. The dividend vulchers will soon be amongst us, so please consider your self forewarned.
mREIT Valuation Metrics - June 30th, 2011
Sources: sec.gov and Company Websites
|Symbol ||Price||BVPS||Price BVPS || Yield ||Lev.||Est. News Date||Approx |
|AGNC ||$29.77 || $26.76 || 1.11x || 19.70% ||7.5x||09/12||09/21||1.40|
|ANH || $7.20 || $7.06 || 1.02x || 14.30% ||7.0x||09/30||10/11||.25|
|CIM || $3.16 || $3.35 || .94x || 16.70% ||1.9x||09/20||09/28||.13|
|CMO ||$12.86 || $12.46 || 1.03x || 14.70% ||8.05x||09/14||09/28||.48|
|IVR ||$18.69 || $19.34 || .97x || 19.70% ||5.2x||09/09||09/13||.97|
|MFA || $7.53 || $7.84 || .96x || 12.80% ||3.0x||09/30||10/12||.25|
|NLY ||$17.86 || $16.45 || 1.09x || 14.50% ||5.7x||09/20||09/28||.65|
|HTS ||$27.56 || $26.72 || 1.03x || 13.90% ||7.4x||09/15||09/23||1.00|
|TWO || $9.75 || $9.89 || .96x || 16.00% ||2.4x||09/14||09/22||.40|
mREIT Insider Purchases
- MFA Financial (NYSE:MFA) : 8,000 shares at $7.23 / Date: 08/09/11
- Annaly (NLY): 50,000 shares at $17.13 / Date: 08/08/11
- Two Harbors Investment Corp. (NYSE:TWO): 2,000 shares at $8.83 / Date: 08/09/11