10-Year Treasuries Telling A Much Scarier Story Than Stocks [View article]
Yes, Treasuries can be mispriced without equities having an equivalent mispricing.
Buying Treasuries (for foreign buyers) involves interest rate risk (which can be through hedges, or just by holding to maturity) and forex risk (which can also be mitigated through hedging, or the buyers may find owning a dollar denominated asset acceptable. It has a fixed return, in that you know when the bond matures, what you'll be getting in return.
You don't get that when you buy nat gas or fertilizer or anything else. You can buy nat gas at a generational low, but what if it goes lower? It's an investment, not equivalent to cash. Sure the return might be greater, but this is cash - it's not search for return. I mean, is your own checking account balance zero, with all your liquidity tied up in fertilizer, which you sell off when bills are due?
This isn't just big European banks making buys. It may not be the middle class who don't have much in the way of savings, but it's the upper classes, shuffling their cash to safer places (just as no matter how rocky the bank situation was here, people with balances below the FDIC limit had nothing to worry about, but people with balances above that had to take on a different attitude with respect to their cash balances - opening accounts at different institutions, buying Tbills, etc).
I'll say it again, they're not looking for returns, they're looking for safety.
If people have overlooked the risk of moves in the long term rates, shame on them. It is the decline in long term rates that have pushed up AGNC's book value, which has had the effect of pushing up it's share price. And when long rates go up, it will cause a turn around in those fortunes. You're right, it's a much bigger risk than fluctuations in short term rates, which is all most anyone looks at.
I watch both long term treasury rates and mortgage rates to try to have a sense of what could be happening to AGNC's portfolio, and for now, things seem good. I'm betting that book will have increased a nice amount since 3/31.
MREITs are my favorite sector at the moment, and have been for sometime. But i never bought in thinking it was free money, which too many people seem to think it is. People should learn more about what interest rates do to fixed income securities before buying in and patting themselves on the backs, though. We've had a 30 year fixed income bull market, and companies like AGNC have only come into being in the last few years enjoying the best rate environment that a leveraged entity that buys fixed incomes could hope for.
I'm still long - AGNC, MTGE, ARR and NCT make up a large part of my portfolio. And i expect that they will continue to for some time. But if rates start moving up, I've said before and I'll say now, it'll be time to reconsider those positions.
Gain Harvesting Before 2013 Tax Changes May Be A Good Idea [View article]
Congressman George Millier put the issue of 401(k)'s under discussion, and one person not affiliated with the government (Teresa Ghilarducci) put forward the idea of getting rid of tax breaks for 401(k) contributions and offering a government investment program with a minimum guaranteed return, to which Jim McDermott said that was intriguing and should be part of the discussion. That's far from a proposal by elected officials. She also suggested allowing workers a one time option of swapping retirement assets for access to the gov't retirement program. And that was back in 2008.
By any leap of the imagination, there would be no confiscating going on. A new plan, perhaps, but not confiscating what you've already put into your plan.
And again, that's 2008. I'm finding no references to them saying anything since then.
A Classic Comeback Story: The Bullish Case For General Motors [View article]
And the amount that the pension needs will plummet when interest rates go up. Sure it won't be this year and likely not even next year, but when the time comes, the horrifying sizes off off tese long term obligations wil fall a lot. And gm seems positioned strongly to be able to make it to that timeframe. My opinion.
The Good News About Failure With Blue Chip Investing [View article]
Not for nothing but the results aren't exactly anything to boast about - you invested, in total, $100,000 (on, say 1/1/1980) and 32 year later (say, 6/1/2012) have $592,000 - an annual rate of return of 5.6%. The S&P 500 returned 8% annually over that same period. Yes, JNJ had a great run over that period, but not enough to offset the 9 losers.
I know the likelyhood of picking 1 winner and then 9 companies that go belly up isn't that great, and this was a theoretical discussion, but you can't fixate on the returns of one company alone and overlook the other positions in your portfolio. Thats survivorship bias.
JPMorgan Loss Estimates Reach $9 Billion; The Real Risk Remains In Play [View article]
If JP Morgan was standing to report a $9 billion quarterly loss, then that would indeed be something to worry about. But that's not the case. You're looking at a single entry in the long list of numbers that will comprise their P&L. Most people expect that JPM will turn in a profit at the end of the quarter despite this loss.
This event is like you looking at only the worst investment in my portfolio (which happens to be PWE hahaha :) and then and then trying to draw a conclusion about the rest of my portfolio, without even looking at what else is in there. Sure, there's a position that's dragging everything else down, but you're fixating on that and not even thinking about what else I happen to be holding, what the allocation to that one company is, etc.
I had been considering starting a small investment in one of the big banks some time ago and had narrowed my choices down to C, GS or JPM. After all the hubbub about this one loss, I've decided to begin building a position in the bank. Their dividend is still healthy and as Chris pointed out, their market cap has been punished far beyond what this loss will amount to be, and, again, that's not considering all their other sources of income. Seemed like the timing was right. Don't know what the stock will do next week or next month, but it feels like I was just handed an opportunity to get into one of the strongest banks at a discount.
Apple And Google: Investment For A Century [View article]
As i wrote you separately, the amount of the coupon is meaningless. It becomes meaningless the second the bond is sold into the market. It yields 4.3% and that's the only number you should be concerned with. If you found another bond that was issued today with an identical rating and maturity, you would see that its coupon is 4.3%. And that makes it no more and no less appealing that the bond with a 7.25% coupon, as the yields (the return on dollars invested) is identical.
The gist of the article, going by the introduction, seemed to be to hold a sizable allocation to these bonds and using the interest payments to diversify slowly. Now we're talking about having a million dollar portfolio, with a 1% allocation to these bonds and using that as a way to ease into google or apple shares meaning that those shares after one year would represent 0.05% of the value of the portfolio. Hardly what the intro line sees to imply when it reads "This is a strategy to use AAA rated university income, generated by near term Stanford 4.75% bonds, MIT 7.25% century bonds and Zero Coupon US Treasuries, to build up a small position in Apple and Google stock over many years."
I mean, again, at the portfolio size you're now talking about, and again, assuming no appreciation whatsoever, it would take more than 20 years to build up a 1% allocation to Google or Apple.
Please buy the book I suggested, or take up on my offer of buying it for you! :)
Apple And Google: Investment For A Century [View article]
"You are welcome to ignore that or offer a different security you think would work better. Please notice that given the low percentage of the overall investments, if there is a worst case scenario; the integrity of the portfolio will not be too adversely affected. "
The integrity of the portfolio stands to be greatly affected. As I indicated in our private messages, buying the MIT bond now locks in a payment stream at a yield of 4.25%. The bond you're suggesting currently trades at a HUGE premium to its par value ($167.50 market compared to $100 face), and that premium is only there because of the fall in long term rates since it was first issued.
If we go 4 years out, and the yield (with an 80 year maturity at that point) goes up by 100 basis points,you're looking at a $312 (18+%) loss per bond. If it goes up by 200 basis points, the loss becomes $525 per (31+%). And if it goes up by 400 basis points, the loss is $802 per bond (47+%).
There is no way you can not buy these bonds and think that they preserve the integrity of your portfolio. The interest rate risk is real and it's HUGE and there is no way to understate this. The logic of going 80 years out to pick up a couple extra points in yield is just baffling. Chasing yield. It's what's causing people to buy 30 year treasuries that yield less than what inflation is projected to be.
I can not reiterate enough how high risk this bond is. I don't know why it popped onto your radar screen. You seem to be fixated on the AAA rating and deeming it to be safe, which ignores the very real threat of interest rate risk, which is far more a threat with something of that maturity than anything else.
Besides which, setting out to build up an equity position strictly from using coupon payments is going to be a long, arduous process.
Why Are U.S. Stock Pricing Conventions So Sticky? [View article]
At the end of the day, widening spreads does one thing and one thing only: enriches the brokers and market makers. That is the only guaranteed outcome - they can say all they want about providing research and what not, but really, it's not their job to do so. The main part of their job is to facilitate transactions.
Besides which, what benefit does it actually provide the investor to rely on their broker for research reports? The broker has no fiduciary duty to the investor. In what other industry would you ask the sales person for their honest opinion about what they're selling? None that I can think of.
To me, it's smoke and mirrors. They can chime in about these supposed benefits, but at the end of the day, they're pushing to change the spread from a penny or two for most liquid stocks to a dime? Think that's not going to have a material effect on their bottom lines?
Institutions that buy longer dated treasuries are generally matching them up against cash flows. Yes, a REIT or equity will likely return more over a longer period of time, but if you need a guaranteed X dollars on Y date, then buying a bond of that maturity can be the most appropriate thing to do.
That's mostly for insurance companies, pension plans and the like... All the mom and pop investors who have piled into treasuries (or, worse, treasury funds) are doing so bsased on past performance and no real idea what risk they're exposed to if rates work against them
Can American Capital Agency Maintain Its Big Dividend As Rates Increase? [View article]
Yes, and what's happened to long term interest rates during any of those time periods? They've fallen. Which increases the value of fixed income securities, including those which AGNC uses to calculate its book value. And now, we look at the 30 year at 2.75% and a 30 yr fixed mortgage at 3.62%. There simply isn't much more room for them to go down, and though the Fed's actions and global uncertainty have proven beneficial to owners of fixed income securities, there's only so low they can go... And after they hit their bottom, there'll be only one other way for them to go. If it happens slowly, most of the MREITS, the better run ones at least, should be able to manage it. If they go up quickly, it's going to be painful to the book value of their currently held securities.
Looking at MREIT's over the time that they've existed gives a skewed picture, one where interest rates have generally been very accommodative. When and if that environment changes, it'd be best to understand the ramifications.
Not knocking them - MREIT's make up a huge part of my portfolio, but I hold them and I know that the likelihood of me holding them 5 or 10 years from now is slim to none. Of course, I'm banking on the recovery accelerating and solidifying at some point during that time frame... And when that happens, Uncle Ben won't be there keeping borrowing rates as low as possible and the appetitive for fixed income securities will likely wane as retail investors exit bonds and enter the stock market again.
I hold them and keep careful tabs on the interest rate environment. I'd worry about someone that doesn't have that same set of worries. That's all I'm saying.
Can American Capital Agency Maintain Its Big Dividend As Rates Increase? [View article]
I'm a fan of the mREIT's, and the word time bomb might be a bit extreme. But when the rate situation changes, you'll definitely want to be paying attention to see how the companies handle it. Some poorly managed ones might suffer a huge impairment, others will feel the effect more slightly. But these are not buy and forget type stocks like JNJ, PM, MO and the like.
I feel like i should disclaim this first to stem off any potential attacks: I am a happy owner of Apple products AND am long Apple stock.
That said, it's only the periphery that has such high expectations for apple - if the bigger market players thought that way, it would surely command a higher P/E ratio. Thankfully, though, most of the market participants are a lot more level headed.
An apple TV might be a welcome innovation, but before chomping at the bit and proclaiming it a game changer, all of us ought to wait to see if such a thing is even announced and/or released. All this hope does no good, and only sets you up for disappointment.
Apple's future does not at all hinge on whether or not they release a branded TV - their future is almost assured to be full of huge amounts of cash flow simply from rolling out successive generations of the iPhone and iPad and selling them to customers who are at the end of their contracts. That they have a computer business is at this point a side note. And a TV is ultimately going to be an asterisk.
I'm sure you can point to the state of phones before the iPhone and after, but i'll go on record saying that I doubt an Apple TV will be a game changer in how we consume tv content. It likely won't contain an LED or LCD display, because asking people to get on the upgrade treadmill with a TV is asking a lot more than for a phone, especially that the carriers subsidize a huge portion of the cost for consumers.
Whereas with a phone or pad or computer, there are tasks we can do on the device, a TV is a different user experience. We hardly interact with the TV, using it's features only for brief instances so that we can tune in to what we want to watch. Sure, an Apple TV will likely be several steps ahead of their own Apple TV device, and ahead of the Roku and comparable boxes. But at the end of the day, the TV watching experience is a very passive activity. There aren't any game changers needed. Maybe better ways to access content, but that's almost periphery.
So, sure, if they announce a TV, I'll be eager to find out more about it. But i don't want any of their core team diverted from their franchise type businesses. Point is, if they've got it, they'll release it when its ready, but until then, no one should hold their breathe for it - they are an immensely profitable company with or without a TV, and frankly, I doubt that they can change the game enough to meaningfully add to their bottom line.
They're not inventing a new market such as they did with the iPhone or iPad, so they can't release a product and be the clear leader until someone catches up - they'll be releasing it into a crowded market where they're already just one of many names.
Newcastle Investment: A REIT That Can't Be Beat [View article]
I'm in agreement with you here.... I thought you were implying that the SPO's were being made in order to pay off current investors. Again, source of confusion was this line:
"Those mREITS are highly leveraged and the only way they can hold onto profits that they pay the lofty divvies on is to continuously issue secondaries"
Newcastle Investment: A REIT That Can't Be Beat [View article]
First paragraph misses the point on MREITS completely.
When you say "Those mREITS are highly leveraged and the only way they can hold onto profits that they pay the lofty divvies on is to continuously issue secondaries ", you make it sound like the purpose of the secondaries is to pay dividends to the current shareholders - that would be a ponzi scheme, plain and simple, and if their executives and board weren't in prison already, they'ed be on their way very soon
SPO's provide them with more capital so that they can average into new securities and even out the changes in interest rates. The SPO's they've done so far more benefits management, who gets to increase their own profits by having more assets under management. In the future, though, as rates begin to rise, the SPO's will be used to raise capital and purchase higher yielding securities in order to bolster their balance sheets as the value of their current portfolio declines due to rising yields. So long as yields rise slowly and gracefully, they should be able to mitigate the effects of rising yields, though the future isn't at all clear.
But yes, the MSR investment strategy is a new step that should set them apart from other MREITd, proving another source of cashflow apart from playing the interest rate spread. Again, I'm interested to see how much this new strategy benefits investors who were in the company prior to the SPO and acquisition of MSR's.
10-Year Treasuries Telling A Much Scarier Story Than Stocks [View article]
Buying Treasuries (for foreign buyers) involves interest rate risk (which can be through hedges, or just by holding to maturity) and forex risk (which can also be mitigated through hedging, or the buyers may find owning a dollar denominated asset acceptable. It has a fixed return, in that you know when the bond matures, what you'll be getting in return.
You don't get that when you buy nat gas or fertilizer or anything else. You can buy nat gas at a generational low, but what if it goes lower? It's an investment, not equivalent to cash. Sure the return might be greater, but this is cash - it's not search for return. I mean, is your own checking account balance zero, with all your liquidity tied up in fertilizer, which you sell off when bills are due?
This isn't just big European banks making buys. It may not be the middle class who don't have much in the way of savings, but it's the upper classes, shuffling their cash to safer places (just as no matter how rocky the bank situation was here, people with balances below the FDIC limit had nothing to worry about, but people with balances above that had to take on a different attitude with respect to their cash balances - opening accounts at different institutions, buying Tbills, etc).
I'll say it again, they're not looking for returns, they're looking for safety.
The Less Obvious Risk mREITs Face [View article]
I watch both long term treasury rates and mortgage rates to try to have a sense of what could be happening to AGNC's portfolio, and for now, things seem good. I'm betting that book will have increased a nice amount since 3/31.
MREITs are my favorite sector at the moment, and have been for sometime. But i never bought in thinking it was free money, which too many people seem to think it is. People should learn more about what interest rates do to fixed income securities before buying in and patting themselves on the backs, though. We've had a 30 year fixed income bull market, and companies like AGNC have only come into being in the last few years enjoying the best rate environment that a leveraged entity that buys fixed incomes could hope for.
I'm still long - AGNC, MTGE, ARR and NCT make up a large part of my portfolio. And i expect that they will continue to for some time. But if rates start moving up, I've said before and I'll say now, it'll be time to reconsider those positions.
Gain Harvesting Before 2013 Tax Changes May Be A Good Idea [View article]
By any leap of the imagination, there would be no confiscating going on. A new plan, perhaps, but not confiscating what you've already put into your plan.
And again, that's 2008. I'm finding no references to them saying anything since then.
Wall Street Journal link:
http://on.wsj.com/Nabc7M
Fact Check dot org link:
http://bit.ly/Nab9c6
Please show us anything to show that this is not just hyperbole. Because that's all that I've ever understood this subject to be.
A Classic Comeback Story: The Bullish Case For General Motors [View article]
The Good News About Failure With Blue Chip Investing [View article]
I know the likelyhood of picking 1 winner and then 9 companies that go belly up isn't that great, and this was a theoretical discussion, but you can't fixate on the returns of one company alone and overlook the other positions in your portfolio. Thats survivorship bias.
JPMorgan Loss Estimates Reach $9 Billion; The Real Risk Remains In Play [View article]
This event is like you looking at only the worst investment in my portfolio (which happens to be PWE hahaha :) and then and then trying to draw a conclusion about the rest of my portfolio, without even looking at what else is in there. Sure, there's a position that's dragging everything else down, but you're fixating on that and not even thinking about what else I happen to be holding, what the allocation to that one company is, etc.
I had been considering starting a small investment in one of the big banks some time ago and had narrowed my choices down to C, GS or JPM. After all the hubbub about this one loss, I've decided to begin building a position in the bank. Their dividend is still healthy and as Chris pointed out, their market cap has been punished far beyond what this loss will amount to be, and, again, that's not considering all their other sources of income. Seemed like the timing was right. Don't know what the stock will do next week or next month, but it feels like I was just handed an opportunity to get into one of the strongest banks at a discount.
Long JPM.
Apple And Google: Investment For A Century [View article]
The gist of the article, going by the introduction, seemed to be to hold a sizable allocation to these bonds and using the interest payments to diversify slowly. Now we're talking about having a million dollar portfolio, with a 1% allocation to these bonds and using that as a way to ease into google or apple shares meaning that those shares after one year would represent 0.05% of the value of the portfolio. Hardly what the intro line sees to imply when it reads "This is a strategy to use AAA rated university income, generated by near term Stanford 4.75% bonds, MIT 7.25% century bonds and Zero Coupon US Treasuries, to build up a small position in Apple and Google stock over many years."
I mean, again, at the portfolio size you're now talking about, and again, assuming no appreciation whatsoever, it would take more than 20 years to build up a 1% allocation to Google or Apple.
Please buy the book I suggested, or take up on my offer of buying it for you! :)
Apple And Google: Investment For A Century [View article]
The integrity of the portfolio stands to be greatly affected. As I indicated in our private messages, buying the MIT bond now locks in a payment stream at a yield of 4.25%. The bond you're suggesting currently trades at a HUGE premium to its par value ($167.50 market compared to $100 face), and that premium is only there because of the fall in long term rates since it was first issued.
If we go 4 years out, and the yield (with an 80 year maturity at that point) goes up by 100 basis points,you're looking at a $312 (18+%) loss per bond. If it goes up by 200 basis points, the loss becomes $525 per (31+%). And if it goes up by 400 basis points, the loss is $802 per bond (47+%).
There is no way you can not buy these bonds and think that they preserve the integrity of your portfolio. The interest rate risk is real and it's HUGE and there is no way to understate this. The logic of going 80 years out to pick up a couple extra points in yield is just baffling. Chasing yield. It's what's causing people to buy 30 year treasuries that yield less than what inflation is projected to be.
I can not reiterate enough how high risk this bond is. I don't know why it popped onto your radar screen. You seem to be fixated on the AAA rating and deeming it to be safe, which ignores the very real threat of interest rate risk, which is far more a threat with something of that maturity than anything else.
Besides which, setting out to build up an equity position strictly from using coupon payments is going to be a long, arduous process.
Stay away.
Why Are U.S. Stock Pricing Conventions So Sticky? [View article]
Besides which, what benefit does it actually provide the investor to rely on their broker for research reports? The broker has no fiduciary duty to the investor. In what other industry would you ask the sales person for their honest opinion about what they're selling? None that I can think of.
To me, it's smoke and mirrors. They can chime in about these supposed benefits, but at the end of the day, they're pushing to change the spread from a penny or two for most liquid stocks to a dime? Think that's not going to have a material effect on their bottom lines?
The Bernanke Put For Treasuries [View article]
Institutions that buy longer dated treasuries are generally matching them up against cash flows. Yes, a REIT or equity will likely return more over a longer period of time, but if you need a guaranteed X dollars on Y date, then buying a bond of that maturity can be the most appropriate thing to do.
That's mostly for insurance companies, pension plans and the like... All the mom and pop investors who have piled into treasuries (or, worse, treasury funds) are doing so bsased on past performance and no real idea what risk they're exposed to if rates work against them
Can American Capital Agency Maintain Its Big Dividend As Rates Increase? [View article]
Looking at MREIT's over the time that they've existed gives a skewed picture, one where interest rates have generally been very accommodative. When and if that environment changes, it'd be best to understand the ramifications.
Not knocking them - MREIT's make up a huge part of my portfolio, but I hold them and I know that the likelihood of me holding them 5 or 10 years from now is slim to none. Of course, I'm banking on the recovery accelerating and solidifying at some point during that time frame... And when that happens, Uncle Ben won't be there keeping borrowing rates as low as possible and the appetitive for fixed income securities will likely wane as retail investors exit bonds and enter the stock market again.
I hold them and keep careful tabs on the interest rate environment. I'd worry about someone that doesn't have that same set of worries. That's all I'm saying.
:-)
Can American Capital Agency Maintain Its Big Dividend As Rates Increase? [View article]
Apple TV: To Infinity And Beyond [View article]
That said, it's only the periphery that has such high expectations for apple - if the bigger market players thought that way, it would surely command a higher P/E ratio. Thankfully, though, most of the market participants are a lot more level headed.
An apple TV might be a welcome innovation, but before chomping at the bit and proclaiming it a game changer, all of us ought to wait to see if such a thing is even announced and/or released. All this hope does no good, and only sets you up for disappointment.
Apple's future does not at all hinge on whether or not they release a branded TV - their future is almost assured to be full of huge amounts of cash flow simply from rolling out successive generations of the iPhone and iPad and selling them to customers who are at the end of their contracts. That they have a computer business is at this point a side note. And a TV is ultimately going to be an asterisk.
I'm sure you can point to the state of phones before the iPhone and after, but i'll go on record saying that I doubt an Apple TV will be a game changer in how we consume tv content. It likely won't contain an LED or LCD display, because asking people to get on the upgrade treadmill with a TV is asking a lot more than for a phone, especially that the carriers subsidize a huge portion of the cost for consumers.
Whereas with a phone or pad or computer, there are tasks we can do on the device, a TV is a different user experience. We hardly interact with the TV, using it's features only for brief instances so that we can tune in to what we want to watch. Sure, an Apple TV will likely be several steps ahead of their own Apple TV device, and ahead of the Roku and comparable boxes. But at the end of the day, the TV watching experience is a very passive activity. There aren't any game changers needed. Maybe better ways to access content, but that's almost periphery.
So, sure, if they announce a TV, I'll be eager to find out more about it. But i don't want any of their core team diverted from their franchise type businesses. Point is, if they've got it, they'll release it when its ready, but until then, no one should hold their breathe for it - they are an immensely profitable company with or without a TV, and frankly, I doubt that they can change the game enough to meaningfully add to their bottom line.
They're not inventing a new market such as they did with the iPhone or iPad, so they can't release a product and be the clear leader until someone catches up - they'll be releasing it into a crowded market where they're already just one of many names.
Again: long AAPL here... be easy on me! :)
Newcastle Investment: A REIT That Can't Be Beat [View article]
"Those mREITS are highly leveraged and the only way they can hold onto profits that they pay the lofty divvies on is to continuously issue secondaries"
I'm long AGNC, MTGE and NCT.
Newcastle Investment: A REIT That Can't Be Beat [View article]
When you say "Those mREITS are highly leveraged and the only way they can hold onto profits that they pay the lofty divvies on is to continuously issue secondaries ", you make it sound like the purpose of the secondaries is to pay dividends to the current shareholders - that would be a ponzi scheme, plain and simple, and if their executives and board weren't in prison already, they'ed be on their way very soon
SPO's provide them with more capital so that they can average into new securities and even out the changes in interest rates. The SPO's they've done so far more benefits management, who gets to increase their own profits by having more assets under management. In the future, though, as rates begin to rise, the SPO's will be used to raise capital and purchase higher yielding securities in order to bolster their balance sheets as the value of their current portfolio declines due to rising yields. So long as yields rise slowly and gracefully, they should be able to mitigate the effects of rising yields, though the future isn't at all clear.
But yes, the MSR investment strategy is a new step that should set them apart from other MREITd, proving another source of cashflow apart from playing the interest rate spread. Again, I'm interested to see how much this new strategy benefits investors who were in the company prior to the SPO and acquisition of MSR's.
No insights as to the exclusivity or not.