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jpmist
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Retired Atlanta dentist with a specific interest in agency mortgage REITs and leveraged Munis.
  • Another Fine Mess You've Gotten Me Into. 0 comments
    Jul 6, 2013 11:01 PM | about stocks: MORL, STPP, NLY

    Thomas Paine - "These are the times that try men's souls."

    And try it did, Friday. Amazingly horrible day for MORL taking a breathtaking plunge at the open and managing only to trim it back by a third by the day's end.

    (click to enlarge)

    I mean, seriously, give me a freaking break. . .

    This is cliche, but it's still apt. The Kübler-Ross 5 stages of grief crossed my mind watching my portfolio tumble back into red numbers once again.

    Denial - "I feel fine."; "This can't be happening, not to me." Yep, that was me, I bought MORL all the way down in disbelief.

    Anger - "Why me? It's not fair!"; "How can this happen to me?"; '"Who is to blame?" Check again as I scrounge around for obscure explainations as to why the shares are tanking so badly. Even bought the Chinese Inventory Currency arbitrage as being to blame.

    Bargaining - "I'll do anything for a few more years."; "I will give my life savings if..." Wow that one too. I recall thinking, maybe I'll take a little loss here and lighten up when the shares move up another buck or so.

    Depression - "I'm so sad, why bother with anything?"; "I'm going to die soon so what's the point?"; "I miss my loved one, why go on?" Yeah, there were a few days there where I said the heck with it, stayed depressed all day and refused to even look at the share price during the day.

    Acceptance - "It's going to be okay."; "I can't fight it, I may as well prepare for it." And now I've finally gotten to this point. I even bought more Friday because it finally occurred to me that I don't buy MORL for share appreciation. I buy it for income and for as long as I think that the dividends are stable then buying is a prudent course of action even if the shares are tanking.

    Now to qualify that word "stable" I'm fully aware that the MBS volitility is going to catch these mREIT managers leaning the wrong way on their swaps, options, TBAs, hedges and whatever the heck else, but I'm good with that. That'll be a one time glitch which they'll wargame better for the next time it happens.

    A week or so ago I reviewed Annaly's chart versus the 10 year and wrote in a comment: "A case in point is Annaly's experience in Q4 2010 when the 10 year spiked down then up 127 bp. That quarter NLY reported 64¢, then paid 62¢, and 65¢ the following quarters. So this was a needed reminder that hedging for long rate volitility is what these guys do. Annaly has survived rate spikes in the past and there is no reason to think they won't again.

    And last, but not least. As the 10 year yield rises, so does the net interest spread.

    (click to enlarge)

    So, what caused MORLs 6% plunge for the day was the employment report revealing that almost 200,000 jobs were created and the unemployment rate stayed at 7.5%. As if the market needed to be reminded that, yes the Fed is going to withdraw purchases and the date being bandied around is as soon as September. We'll see, but in any event that non-news spiked the 10 year yield quite a bit.

    (click to enlarge)

    As it happened I did add more STPP to my holdings earlier in the week and was really happy I did.

    (click to enlarge)

    Not to brag, but I'm up over 21% in 6 weeks time and the Fed hasn't even started tapering yet. And I have every intention of adding more. So don't cry for me Kübler-Ross. I'll be fine. . .

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