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A double-take is necessary to believe some of the handles in the mREIT sector, undergoing...
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Wednesday, November 14, 2012, 2:30 PM ETA double-take is necessary to believe some of the handles in the mREIT sector, undergoing another savage selloff as the Fed hints at even more QE. The pure-agency REITs - in direct competition with the Fed for paper - are hit hardest. AGNC -3.4%, ARR -8.1%, CMO -4.9%, WMC -7.1%, to name a few.
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Bush Tax cuts or something very similar will be continued or re-started quickly under new compromise for people earning <$250k i.e. 98% of the population.
A significant amount of these stocks are held in IRA's and the dividend tax increase is irrelevant.
The Fed is out of bullets. Fiscal Policy by Congress is going to have to step in because the Monetary Policy is saturated.
If you have a while on our horizon, buy AGNC, WMC & ARR
Not sure I get the argument by Doyle3000; that IRA idea is wearing thin. Why are GE and XOM and the whole S&P tanking? I have those in my IRA.
In the most simple of explanations, since the start of QE3 the Fed is now buying the same paper that the mReits buy, hence the competition.
The dollar's decline continues, Gold looks to rise and the world's economy already in a dither will only sink further into the morass if America can't recover and under today's current scenarios the Leaders of Industry and Investment have voted with their Money and Americans, their 401Ks, IRAs, Roths, Pensions etc. are all paying a massive price for it.
http://bit.ly/UyuSSL
you mean "I."
"We have gone from ... to 'Gimme!!!!!' Maybe you should try to understand the "gimme" mentality of Big Business subsidies and how many corporations don't pay anything because of loopholes the size of Jupiter!
Continue watching Fox & Limberger for your distorted (mis-)understanding of alternative asylum reality!
Retail guy? Sounds more like Corporate guy.
Tracphone pays for the phone (owns Safelinks and other brands) and minutes in the hopes the owner adds more minutes and only uses the Government to verify one's income. The government does not pay for the phone nor the minutes. BTW - my last job in NYC was for a Wall Street firm (I did financial graphics) that sheltered the Uber rich - each account had ten to hundred's of millions in it - all off shore and tax (almost 100%) sheltered.
Some people abuse our systems "safety net" but more so corporations some of which pay no corporate taxes and individuals with vast wealth. The firms would not do "business" with anyone that was not very wealthy - and with no taxes easier to stay and become wealthy. Our lawyer was always having meetings with some Congressperson???
My IRA has lost about 8% since Obama got re-elected.
I have mREITS, BDC's and Oil and Gas related stocks.
The good news was paying about 8% dividends overall.
Just about lost all capital gains for the year.
Wish I was not retired, would add to some of these positions.
I invested in my diversified portfolio of REIT's (AGNC, NLY, CYS, ARR, TWO) because of the high return and don't really lose until I decide to bail. Not gonna do that. The yield just keeps going up as the price drops and, if dividends aren't cut, I'm still making the same return on the money I invested to begin with. Makes me a little less nervous but it's still not easy to swallow a market panic which causes a stock to tank to below asset value. The market will notice the higher yields and come back in next year.
Secondary offering usually knock stocks down, expect this might help find the floor and bolster the price.
On the idea that this has anything to do with Obama is ridiculous, as the problems in the economy started a long time ago and have been watered by both parties on the path to today.
Agreed, even better prices likely available for those who wait.
People are worried about bogeymen when it comes to MREITs. Let me know when there is a Nuclear War, Doomsday Asteroid, or Super Volcano Eruption in Yellowstone. That's about when I'll be selling my MREITs payout 90% of their profits to me while holding Government Backed Paper. Watching people cry about nothing makes for a soap opera.
Lots of panic and uncertainty out there. Lots of buying opportunities for those with cash on hand. The rest of us will just have to suffer through this crap all over again.
When you own stock or bond in an IRA or a 402-K the dividends and interest that those investments earn are not taxed for income tax purposes. When you withdraw funds from your IRA or from your 401-K you report the amount to your withdrawal as ordinary income and you pay taxes based upon your total income in that year. So it does not matter if the tax rate on dividends stays at 15% or if it goes to 20% or even to 42% your IRA or your 401-K will not pay any taxes on the dividends received until you take the money out.
Now for the rest of you, this sell off is a panic sell off and not warranted by the FED involvement in the mortgage backed securities market nor is it warranted by the recent earnings reports issued by any of the mREITs. Most if not all reported slightly lower spreads and higher CPR but they all still reported nice income returns and most are still paying significantly greater returns than one can get on any other investment at this time. To those of you who sold out their positions in the past 4 weeks, now might be a very good time to try to get back in. The book Values of these company's are above their current market value, some by as much as $3.00 or more. Historically these stocks sell at or above book value, buy at a discount while you can. If any of these company's should decide that they cannot compete with the FED and they decided to go out of business, the liquidation value of their common stock is currently greater than the market value. Shareholders would get more than they would if they were to sell their shares.
Still holding all of my Reits and BDCs the economy can't recover without them. Unfortunately many are of the conviction that Obama really doesn't want things to get better esp. in a hurry. You can't demagogue prosperity or race bait successful minorities.
the 16th seems to be signing that a floor has been reached (at least for now) and these nice yielders are beginning to recover from that week's worth of abuse. Have a Happy Thanksgiving too!
I am still rah, rah, did you read what Kain had to say, he did say there was concern, but also he was confident AGNC was positioned well and would still have a good return. Not, his exact words, but you get the drift.
He also stated, people might not understand/know the dividend of AGNC in taxable accounts are currently taxed as ordinary income (not qualified), so any increase in dividend tax for AGNC in taxable accounts will not make a big difference. Maybe, you or the CPA could expand on the details of this.
I am surprised you and the CPA above did not mention this. Maybe, you guys did not want others to know yet? Eventually, most will figure this out.
I am going to increase my AGNC position soon. I will hold the majority of my AGNC in a ROTH account. I can sell a little of PM and buy AGNC. I am going to consider it, not sure, but I will definetely HOLD my AGNC.
I will NOT sell PM. I will have to wait till 2013 (to fund my Roth accounts) to buy AGNC.
I do not want to own it in a brokerage account at this time, unless, I can get it really cheap. I put in an order to buy at $26.10, good till cancel, if it does not fill, no sweat.
I didn't have you personally in mind in the "rah, rah," crowd, if it's any consolation.
Anyone selling mreits because they don't understand the tax rules shouldn't be running their own money, let alone buying mreits. Dividends from mreits are and always have been fully taxable. That's the reason why reits exist, and they have to pay out 90% of taxable earnings.
Hey, it's great that Gary Kain is out there telling people to stay the course. He's a smart guy, and you can learn a lot from him. That being said, I stare at the same mbs quotes he stares at every day, as do most of the institutional investors in mreits, and so I don't think his revelation that the wheels weren't in fact coming off the bond market came as any surprise, much as it might have reassured some folks on seeking alpha. But also, what else is he supposed to say? Even if they were against the wall, would he (or any CEO) come out and say anything other than hold? Watch what they do, not what they say. He's got a big chunk of change in MTGE.
Good for you in holding your AGNC. It's a lot more desirable now at a discount than it was 6 months ago at a premium. I've been nibbling here and there as well, picking up some WMC and MTGE at ridiculous prices, though the sell-off in mortgage related CEFs is what's really piquing my interest...
panic and are selling ,,,,,,,All these that are selling to day in January
2013 will double in value......Buy . BUY ! Buy !
Andrew Biondo
QE3 turning out as we described in Q1, but a very manageable environment if you have the right positions. You can design a portfolio that will continue to perform well despite the challenges of QE3.
Menendez-Boxer Bill – as written, only 3% of our portfolio is exposed in any way, shape or form to that Bill – little effect if enacted. Only affects loans originated before June 2009 ---we have little, if any exposure there.
On Ed Demarco – has done a great job (in coordination with Obama’s HUD and Treasury departments). FHA, on its own without Demarco, came up with the same June 2009 date Ed Demarco recommended. Idiosyncratic policy risk is at an all time low.
No change in MREIT space regarding dividends
We try to be as agnostic around interest rates as we can be – we use our expertise to position to a range of possible scenarios.
Repo market –we’ve seen no changes seen on the repo side. Our repo agreements have no ties to market cap or stock price – realistically, no changes in terms, nor have we any concerns.
Stock buybacks – we use real-time looks at book value to buyback stock. It’s a way to build book value.
The tax rate on dividends has no effect on mREITs as their dividends are now and have always been taxed at ordinary income tax rates not at the 15% Dividend Tax Rate. If you hold these mREITs in an IRA or in a 401-K then tax rates have absolutely no effect on the dividends since IRA's and 401-K's are both tax exempt entities.
The difficulty is that most retail investors can't do this, or more specifically, don't know how to do this. So they get spooked. They read a lurid story somewhere, see red, and panic sell. This triggers stop losses, which triggers more panic, and so forth. I think that's a big part of what's gone on. That's the unnatural and irrational part of the process, the "animal spirits," if you will.
That being said, everything in the market is in the process of re-pricing, particularly risk assets which have been way overbid, and I think premiums to book and mbs prices more generally had gotten complacent. It was obvious that those investor expectations about yields and premia to book weren't sustainable given the current shape of the yield curve. So the re-rack we've seen is actually a really messy (and scary) but entirely *rational* transition to a different price point that makes more sense in the face of the headwinds and uncertainty moving forward.
I think that you have summed up the problem very succinctly. It amazes me how so many investors fail to put in the effort to fully understand the business model of the stocks they buy, and this is particularly evident in the mReit space. A lot of investors make the decision to buy based on the enticing 12% or 14% dividend yield, but have no idea how that yield is actually generated and the risks/reward equation involved in that process. So the herd mentality kicks in as soon as some negative pronouncement is made by an analyst (who most likely also has little understanding mReits) and everyone hits the sell button. In my opinion, for what it's worth, this selloff is a total overreaction based on a misunderstanding of how mReits function in the real world of actively managing their MBS portfolios. Yes there will be a reduction of the dividend yield for most of the mReits going forward, but the likely scenario for spreads is still going to allow for reasonably high yeild in an otherwise very low-yield universe of investment options. So the caveat for anyone interested in buying shares of mReits for high yield is to learn as much as possible about the business before you invest...that may lessen some of the crazy volatility in the future.