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Greg Merrill

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  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    "What we have now is effectively price compression in anticipation of yield compression "

    DING! Give that man a prize.
    Mar 18 08:49 PM | Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    That's a tough one. Analyzing the stock market is tough enough. Analyzing the mind of politicians??? I'd rather not :)

    Right now the Fed has the same securities on their balance sheet as NLY does. This provides quite a bit of 'political risk protection'

    I agree with you the way mortgages are sourced and held in America needs some serious work and less government involvement. There is a structure called 'covered bonds' in Europe that has appeared to work well but that is for another very long discussion.

    Hopefully after this housing mess finally resolves itself over the next several years we will learn from our mistakes.
    Mar 18 08:46 PM | 6 Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    The repo system NLY uses is very similiar to what the FED is going to do. Same securities and very likely to the same people. The repo markets have changed as people won't be able to repo crap to others. When repo rates when ballistic 16 months ago NLY was still able to repo their MBS.

    You keep alluding to how the repo market is going to be very different, please cite sources as to how this 'change' will affect NLY's business.

    There should be a spread to treasuries due to the prepayment risk and negative convexity. When spreads widen between the 10 year and MBS as the Fed MBS purchase program ends you will see a drop in the value of NLY's assets but that will provide an opportunity for NLY to lever up their portfolio with higher yielding MBS if they so choose.

    As for the supply and demand math of GNMA vs GNMA/Freddie, what do you think would happen if they wound down GNMA/Freddie? Would MBS cease to be? NLY would still have their wad of mortgages paying them interest and we can jump off that bridge when we come to it and decide if we want to own NLY stock.

    There IS RISK in NLY. IT IS NOT RISK FREE! Rising interest rates are a primary risk and my point is interest rates aren't rising anytime soon.

    It is my contention short rates will not go up until after money supply and lending stop going down.
    Mar 18 08:40 PM | 1 Like Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    Thanks Patrick.
    Mar 18 08:28 PM | Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    +1
    Thanks for describing the difference
    Mar 18 08:26 PM | Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    I think that is why price / book is still hovering around one. Investors are anticipating short rates rising within 6 months. I'm not of that opinion.
    Mar 17 04:33 PM | 1 Like Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    NLY's repo agreements/securities are kept at a trust bank. As an example, when Refco trading failed a few years back Annaly was able to get their collateral within 7 days (I spoke to Annaly about this during the panic as I was investigating the company)

    The US government backstopped Fannie and Freddie with more cash on Dec 24,2009:
    www.washingtonpost.com...

    Even if Fannie and Freddie are wound down or converted into mutual companies owned by the banks that send mortgages to them there will always be Ginne Mae securities which are completely backed by the US government so NLY would have other MBS to purchase (and not end their business model)

    I'm not trying to claim the mortgage markets are fine or home prices are going to rebound and there's sunshine and skittles at the end of the rainbow. America is in for a tough haul over the next couple of years and if I'm going to buy a financial company I want it to hold what the Federal Reserve is holding.

    Check out Annaly's blog:
    www.annaly.com/blog/
    They are aware its going to be tough sledding for America. I'm sure this is one reason their leverage ratios are still low.
    Mar 17 04:21 PM | 3 Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    LEH was attempting to hide the fact their leverage ratio was ridiculous. Annaly has slowly reduced their leverage ratio voluntarily and their leverage is much lower now than a few years ago.
    Mar 17 04:08 PM | 1 Like Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    I agree the mortgage market is a mess but the granular comment was directed at over examining their current portfolio structure, swaps, and fixed versus adjustable mortgages. I didn't want to lose people talking about their fixed for adjustable swaps and how they can adjust their duration risk via these (even having negative duration risk if they so choose).
    Mar 17 04:05 PM | 1 Like Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    Yes Stimpy, the investment in CIM and Crexus is one factor in NLY that I am not too enthused about. However if you look at their total exposure to CIM it is less than 5% of book value. If CIM completely vaporized it would harm the company but not kill it.

    I spoke to Annaly about the CIM repo transactions many months ago and while I don't like it it is not enough of a negative for me to not own the stock.
    Mar 17 04:03 PM | Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    I have no opinion about the equity value of CIM. I am aware of NLY's involvement with CIM and will address that when I get back to the office later today.
    Mar 17 11:52 AM | Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    Correct. When I think short term rates are going up I'll sell this stock. Until then I'll sit on the beach and earn 20% (Name the movie folks!)
    Mar 17 11:39 AM | 2 Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    I'm very leery of non government backed residental MBS. I have faith in Annaly's management but until I see some stability in the housing market (which is NOT NOW) I will not do any homework on CIM. As such I have no opinion of CIM.
    Mar 17 11:26 AM | Likes Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    The stock price would be lower but it would not collapse as book value would provide a buffer. Leverage ratios were created from 10k and 10q's.
    Mar 17 11:12 AM | 1 Like Like |Link to Comment
  • High Conviction: An Attractive Residential Mortgage REIT (Yes, You Read That Right) [View article]
    Higher mortgage rates would be a positive for NLY as it would increase their spreads and thus their dividend yield. Higher long term rates would also discourage a housing recovery and extend the zero interest rate period, another benefit to NLY.

    Regarding how long short term rates will remain near zero; look at the graphs in my piece again and check out my blog. Money supply growth is negative, lending growth is negative. The US cannot lever up anymore and is now going through a debt destruction period. Until loan growth is positive it is my contention fed fund rates will be near zero.
    Mar 17 11:01 AM | 9 Likes Like |Link to Comment
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