Market Currents
A check of mortgage REITs as the Fed looks to continue banging away at their net interest...
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Wednesday, December 12, 2012, 1:09 PM ETA check of mortgage REITs as the Fed looks to continue banging away at their net interest spread: Among the pure-agency REITs, HTS, which slashed its dividend last night, -2.3%. Also, AGNC -1.2%, but NLY +0.8%. The non-agency players mostly fare better, DX -0.1%, IVR -0.3%, EFC -0.1%.
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The market somehow knows in advance what is coming, and reacts accordingly. It appears that on the 8th, news came out negative for NLY and looking at the chart over the last 6 months, NLY has been trounced, to put it mildly. So, now, after the fact, it reaches a value point, and begins the slog back up. Remember, my take on all stocks is the same. Going up they are climbing a greased pole with their strength. When the strength gives out, they lose their grip, and ..... now it is beginning a long climb back, so just maybe, but for a black swan, now is prolly the time to get in and capture the highest dividend it will show for some time to come given the economic outlook of the next 6 months. Hope that helps and is true.
Capt. Brian
The Lost Navigator
Happy coupon clipping.
Capt. Brian
The Lost Navigator
Your comments always help.
I bought a few more shares of NLY today.
Care to elaborate on that? And if not, could you tell me why you are negative on Ag?
Capt. Brian
The Lost Navigator
PS, Ur gonna love my next article.
PSS: Does the VA in ur name have anything to do with the Vet's Admin?
Here is why Silver is a Joke. First and Foremost, silver is not money. The second people view it has money, their decision making will be clouded. Silver is a Commodity. It is a metal who's primary demand comes from Industry. As a result, the value of Silver will be dictated by the Demand placed on Silver from the Global Economy. If industry isn't booming, Silver will not be booming. In short, Silver's value will be moved by Global GDP than anything else.
So anybody buying silver because the have concerns about the world ending, central bank money printing, or anything such nonsense will be disappointed. Same theory applies to Gold, except it's demand comes from the Jewelery market. About 75% of Gold mined is turned into jewelery. So if people in India and the rest of the world are broke, Gold will suffer.
As for (VA) is stands for Virginia. :)
Once upon a time, a long time ago, someone needed some salt with his dinner. Even animals know, somehow, that they need salt. This is why farmers give penned creatures 'salt licks'. As humans developed from hunter gatherers, to more focused occupations like sewing, building, manufacturing wheels and stone axes, and so on, they did not have time to get their own salt. So, one of the Neanderthals decided he had gathered more salt than he needed. He wanted some shoes. He went to the shoemaker, (who had no time to gather salt) and pointed at the shoes, then at his salt. And bartering began. Now it came to pass that another fellow lived near a hole in the ground that had a shiny metal which no one else had. He took some out of the ground and wore it proudly as a sign of his personality. The fellow with the salt saw it, and asked if he wanted to trade some of his nice metal for some salt. (By using the old, pointing language they had), and he 'bought' the silver by 'trading' his salt for the silvery metal. (See how this happened?) So silver bought the salt, as some salt bought shoes. This was the first day money was used, and that money was salt. Silver, cannot be lived in, or eaten and it was so rare and likeable, folks wanted it and to get it, they would trade work or salt or other items. Silver became and still is, money. Silver may be the best insurance against your money's buying power being worth substantially less than it is now. Now if you just will not liberally, agree with me that silver is money, how about just call it an investment like a futures contract in corn or wheat or pork bellies? How about buying some, and wait until your dollars will not buy as much bread as it used to, but the same amount of silver, traded for the value in dollars of the day, will buy the same amount of bread that it did before. Gold used to trade even, a pound of salt for a pound of gold,things have changed and your thinking may need a little updating about silver....Which is up way over 150% in a few years. What else can you say that for?
Gold, silver and dollars are worth the value two people place on it for a trade. Simple as that.
Anyway, hope all is well forever.
Capt. Brian
The Lost Navigator
I have been in the market for 55 years. It's the same game. Do your research, buy low and sell high ---and---pray a lot.
Sometimes I think about the speculators who buy gold as an “inflation hedge.” There is no inflation in sight for years to come. Someday it will return. At that time, do they intend to take a gold coin to the local food store and use it to buy Froot Loops? If so, they will be severely disappointed when the grocer refuses to accept it because he won’t know how many boxes of Froot Loops it’s worth.
There are two left-wing “progressive” raido talkers whom I despise for selling advertising for gold buillion to their listeners. They are supposed to be for the little guy, and here they are raping the little guy.
There are 2 unknowns right now - the 2 most important for making mReit investment decisions. At this point, we only know what the book value and the spreads were for the 3rd quarter. I sold all of my AGNC when the premium to book value rose to 18%, and I felt that was not sustainable. Many on this thread disagreed, but it was not, in fact, sustainable, and it's now selling below 3rd quarter book value. Right now, there is no "current" book value available to investors - we'll have to wait until January or possibly early February, when AGNC and others announce book and spreads. So, for now, we don't know if AGNC (and others) is selling at book, below book, or above book. As of today, AGNC looks like a bargain, since it's selling below 3rd quarter book. But, book might have declined since, and it could actually be selling above book. Again, the other unknown is what the spreads have done since Q3, and my bet is that they're lower. To the point, I'm waiting for more information before I jump back in, although as it declines, I might begin to build a position, but no more than 5% at a time.
And... when the Fed stops or reduces their buying of MBS the book value will drop.
And... it looks to me that AGNC, in the last quarter, only earned approx $2.85 per share but paid out $5.00. They are doing this out of accumulated cash on hand?
Capt. Brian
The Lost Navigator
I don't have time to look for it right now but Agency securities are traded on the open market every day. It shouldn't be too hard to find pricing information and see generally which way they are trending.
But in the grand scheme of things, MREIT's money making assets are not junk. They are valuable and backed up by the Government. And although yields might decline, they aren't declining because the business is going bellyup. It's because the Fed keeps tightening the screws. All that said, MREIT yields still exceed any other safe investment by a factor of 3-5x. Which would you rather hold? AGNC paying 16% or a 10yr Treasury Note paying 1.5%?
AGNC's book value, on average, mostly bracketed around the 5% premium range. So, normally, book value was not something that one needed to be that concerned about, since it was almost always the same. It's only been "aberrant" since late September, when it spiked up to an 18% premium that BV became a concern to me. Up until then, my answer to you as to whether one is always a quarter behind would have been "no", since it was almost always about the same. At that point, I was able to look into a rear view mirror, see that the premium was way above normal, and decide to sell. My crystal ball, however, is not nearly as effective as my rear view mirror, and we'll have to see if book values for some of these mReits stabilize again for a reasonable period of time. At this point, however, there are so many moving parts involved in determining the valuation of this group, that there are going to be many more things impacting the group than as been the case for the last couple of years. They are, among others, the wide swings in BV, the decreasing spreads (at least for now, but maybe that trend is now stable), the repayment rate, which has been excellent, on balance, for AGNC, the Fed's ongoing purchases of agency paper, and the dividend tax issue, which does not really apply to mReits, but the pubic perception is that a dividend is a dividend, even though distributions from mReits are actually quite different. Hope this helps.
mReits are, indeed, traded every day, but net book value (and spread) is only made available to the public by each company once every quarter.
I was referring to ABS, Asset Backed Securities. They are traded in the open market. If you read AGNCs earning report you will see that they had $210M net realized gain on the sale of securities. They also reported $1.2B unrealized gain on the value of securities held. Thus the gain in book value. I was suggesting that following the market price of these securities would give you a direction as to the Book Value of AGNC.