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Patrick Harden

 
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  • The Fed Has Ended QE, Should We Dump Annaly? [View article]
    The Fed will continue to have an effect on the agency MBS market for some time still:

    "The FOMC also directed the Desk to maintain the existing policy of reinvesting principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in agency MBS and of rolling over maturing Treasury securities at auction...Reinvestments in agency MBS will continue to be concentrated in newly-issued agency MBS in the To-Be-Announced (TBA) market."

    Where I think Annaly differs from its peers is that Annaly is not availing itself of the financing advantage available on TBA pools. That financing advantage will continue as long as the Fed reinvests runoff into TBA pools. Annaly prefers to buy specific pools that provide prepayment protection. I disagree with this approach, as I believe we will experience a gradual increase in long-term rates that will naturally dampen prepayment speeds in 2015, making TBA pools more attractive to specific pools.

    If I were selecting an agency mortgage REIT for my portfolio, given my views, I'd pick AGNC over NLY.
    Oct 30, 2014. 01:28 PM | 1 Like Like |Link to Comment
  • Prospect Capital: What Comes Next? Part 4 [View article]
    I noticed this sentence buried in the Business section of the 10-K: "On June 26, 2014, we received a private letter ruling from the Internal Revenue Service (the "IRS") permitting us to pay up to 80% of our required dividends in stock for the tax years ending August 31, 2014 and August 31, 2015. Any dividends paid in stock will be taxable to the shareholder as if the dividend had been paid in cash and we will receive a dividend paid deduction for such distribution."

    I think Prospect's inability to access the capital markets, coupled with the increase in non-cash taxable income from the consolidation of certain blocker companies, is straining their liquidity. I wouldn't be surprised if they decide to pay out some of calendar year 2015 dividends in stock.
    Aug 26, 2014. 10:18 AM | 9 Likes Like |Link to Comment
  • GSV Capital Remains Undervalued With Shares At 50% Of NAV And Upcoming Catalysts [View article]
    I think an additional near-term catalyst for GSV Capital could be if the Company receives an exemption from the SEC that would allow it to meet the diversification requirements to be categorized as a Regulated Investment Company (NYSEMKT:RIC) for tax purposes. GSV is seeking to achieve RIC status for the tax year ended December 31, 2013, so the Company needs the issue resolved by the time the 2013 tax return is due in mid-September 2014.

    Qualifying as a RIC for tax purposes will enable GSV to immediately reverse its existing deferred tax liability, adding ~$0.40/share to NAV. Furthermore, it will allow GSV to begin making tax-efficient capital gains distributions to its shareholders. GSV would like to achieve RIC status before it sells its Twitter shares to keep from being taxed as a C-Corp on those gains.
    Aug 12, 2014. 12:54 PM | 3 Likes Like |Link to Comment
  • Annaly Capital: The Road To Higher Dividends Begins Now [View article]
    Most of the difference is that gains and losses on the mortgage-backed securities directly impact shareholders' equity without going through the income statement, whereas the hedges are treated as derivatives and the gains and losses on these instruments does go through the income statement. Economically, they should offset each other - when the MBS become more valuable, the hedges lose value. In that case, the loss on the hedges will create a GAAP loss, but the overall book value should nevertheless increase. When the MBS lose value, the hedges become more valuable. The gain on the hedges produces GAAP income, but the overall book value will decrease.
    Aug 8, 2014. 05:28 PM | 1 Like Like |Link to Comment
  • Annaly Capital: The Road To Higher Dividends Begins Now [View article]
    I don't think Annaly can materially increase dividends without boosting leverage. There really aren't any more levers for them to pull now that they ditched the short-term hedges (unless they wanted to exploit what's left of the dollar roll game next quarter).
    Aug 8, 2014. 05:25 PM | 1 Like Like |Link to Comment
  • GSV reports $14.86/share NAV, in no rush to sell Twitter shares [View news story]
    They're also in no rush to sell Twitter shares because they can't yet distribute the gains in a tax-efficient manner. Even though they are a BDC, they are still a C-corp for tax purposes, not a RIC like most BDCs.
    Aug 8, 2014. 01:13 PM | 1 Like Like |Link to Comment
  • A Diversification Dissertation For Income Investors [View article]
    I think for many income investors, the challenge to diversification is finding equities outside the Big 3 sectors (REITs, BDCs, and MLPs) that yield greater than 7%. Bonds and preferreds are also options, but REITs and bonds are often highly correlated (particularly mortgage REITs, which are basically closed-end levered bond funds).
    Jul 30, 2014. 04:47 PM | Likes Like |Link to Comment
  • American Capital +1.3% after reporting a big Q2 [View news story]
    AGNC is wisely taking advantage of the capital gains tax treatment for tax purposes to use up an otherwise worthless net capital loss carryforward. AGNC may (and I think it will) continue distributing at the current level of $0.65/share for the rest of 2014. The earnings release noted that a portion of 2014 dividends are likely to be characterized as a return of capital.
    Jul 28, 2014. 10:18 PM | Likes Like |Link to Comment
  • Manhattan Bridge jumps on offering postponement [View news story]
    They still have to complete the offering eventually or they won't be able to make a REIT election. Not to mention they need the capital.
    Jul 25, 2014. 10:29 AM | Likes Like |Link to Comment
  • Altisource Residential Corporation: 'Mark To Model' Earnings [View article]
    I think you can look at the PennyMac REIT (PMT) for another example of this business model & accounting. PMT also derives a large portion of its GAAP income from unrealized gains on its distressed loan inventory. I've commented before that I'm not a fan of this practice, as you can't be sure that the model inputs reflect reality. That said, PMT does break out its realized gains from sales so there is some additional transparency there. Of course, PMT could be cherry picking the best NPL to sell. Regardless, the accounting does create a risk in that it requires the booking of estimated fair value gains upfront rather than at the time they are realized. I do have one nagging concern about the accretion income being booked by RESI. ASC 310-30-35-3 states that "If the loan is acquired primarily for the rewards of ownership of the underlying collateral, accrual of income is appropriate. Such rewards of ownership would include the use of the collateral in operations of the entity or improving the collateral for resale." On the surface, I would question why they are accruing any income on these NPLs since the business model is "loan-to-own".
    Dec 13, 2013. 08:58 AM | 1 Like Like |Link to Comment
  • What Happened? Discussing Annaly's Third Quarter, The Bizarre Call And Its Future [View article]
    The conference calls used to be even more rambling and vague when Mike Farrell was still alive. I've decided that NLY has pretty much taken an "it is what it is" approach and they have stopped trying to actively manage the portfolio. They take leverage up in the good times and down in the bad times. I think they are content to be a passive carry trade and go on about their business. The strategy has some merit; for example, everyone loved AGNC's active management style until they got burnt two quarters in a row. And here we are with everyone now trading at a 15 - 20% discount to book, except that NLY has barely broken a sweat during the ride.
    Nov 11, 2013. 08:21 AM | 4 Likes Like |Link to Comment
  • Annaly management laments Fed's actions [View news story]
    Every Annaly conference call is rambling. When Mike Farrell was still alive, they barely even touched on the quarterly results. Annaly is so big and bulky that it really can't do much of anything to react to market developments except take leverage up or down.
    Nov 7, 2013. 12:59 PM | Likes Like |Link to Comment
  • More on the Sandler downgrade of AGNC and ARR [View news story]
    Vague, vague, and more vague. What if $10T in MBS fell from the sky? Those points don't feel very specific, especially when the market has already priced in a 25% tapering to begin this week.
    Sep 16, 2013. 01:34 PM | 3 Likes Like |Link to Comment
  • Is It Safe? Mortgage REITs Offer Deep Value And 15% Yields [View article]
    Another excellent, well-reasoned post on the current state of affairs in the mREIT universe. Please keep contributing!

    (I am also long AGNC, MFA, and TWO.)
    Sep 11, 2013. 08:51 AM | 4 Likes Like |Link to Comment
  • Capstead Mortgage (CMO): Q2 EPS of $0.27 misses by $0.05. (PR[View news story]
    Capstead's portfolio held up much better than did Hatteras' portfolio, so hopefully the market will stop punishing all the mREITs.
    Jul 24, 2013. 05:15 PM | 1 Like Like |Link to Comment
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