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jpmist
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Retired Atlanta dentist with a specific interest in agency mortgage REITs and leveraged Munis.
  • "Oh, The Humanity. . ." The mREIT Castastrophe 2 comments
    Aug 19, 2013 5:09 PM | about stocks: MORL

    Wow, today was quite a day. For MORL, there was 3X daily average volume and a savage drop in price just because the 10 Year Treasury spiked up once again 8 basis points.

    I have almost nothing new to say about this except that I have to wait 3 more weeks before I can buy back MORL which I have every intention of doing since at this price MORL will be paying out trailing 3 month dividends of nearly 30%

    About the only good thing that happened today is the beginning of a possible break in linkage between the mREITs and my leveraged Munis. I've been reading lately of institutional investors seeing the historically large discounts to NAV the Muni's are carrying now, so maybe those CEFs will stop going down now that they're paying after tax dividends of nearly 10%

    So let's look at Doug Short's great Yield Curve chart that he updates periodically:(click to enlarge)

    Note the yellow circles which show the current yield spread hike looking a lot like what happened starting Q4 of 2010. Wanna see how Annaly managed their dividends from that 2010 spike? Sure.

    See anything worth selling off the mREIT sector to book value discounts over 10%? Me neither.

    Finally, what really intrigues me in this current tapering mayhem of the mREIT sector is illustrated by this chart below:

    Back in the throes of the '09 financial crisis, somehow I found the stones to buy this preferred share of NRF at around $13. It pays out a steady 52¢ per quarter so I basically bought a 16% yield. I'm real happy now I did that as I have an enormous gain countering the losses I now have in my mREITs and Muni's.

    It's hard not drawing the conclusion that the same scenario is going to play out for MORL.

    Writing this the following day, I can't resist appending this graphic as the 10 year yield does an about face along with MORL and STPP. Interesting that my Muni's rallied both days, which I take as a hopeful sign of institutional bargain hunting.

    Themes: stpp, mort Stocks: MORL
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  • peteF
    , contributor
    Comments (227) | Send Message
     
    You "have to wait 3 weeks to buy back Morl " ?

     

    Because of wash sale fears?

     

    If you sold at a loss recently, it is ok buy back when you think it has bottomed...The wash sale rule is just an accounting issue, not a ban on bottom fishing after you have sold at a loss.
    17 Jan, 04:25 AM Reply Like
  • jpmist
    , contributor
    Comments (329) | Send Message
     
    Author’s reply » Thanks for that, peteF

     

    I had some capital gains last year and was looking at the red numbers in my MORL position and I figured I'd take the loss instead of hanging on to lower my cap gains for the tax year.

     

    So yes, it was in deference to the wash sale rule that I had to not hold MORL for 30 days. MORL kindly stayed around the same level when I decided to buy back in which I figured would happen. Since it was probably the worst sector in a surprisingly good year for equities, I wasn't alone in dumping shares for tax losses. However I'm reasonably certain that I'll make back my MORL loss by the 4th quarter this year.

     

    I haven't been posting here lately in deference to greater minds than I on SA, namely Scott Kennedy, who has generously shared his competence in analyzing the mREIT sector for the last couple of quarters. I've learned a lot about hedging from struggling to comprehend his articles and highly recommend everyone read his posts.

     

    I had a rough draft that I never got around to posting where I was going to declare the bottom in the mREIT sector at the end of December 2013, so I guess I just did. I base that on the fact that the yield spread has been widening considerably for the last few months as well as the blessing that the Fed has given us in finally announcing it's plans, thus giving clarity to the mREIT managers on how to best hedge for a more predictable MBS market. I'll be a little disappointed if we see dividend cuts this quarter, but if so I think that will be the last of them for the year.

     

    Thanks for reading and best of luck in your trading!
    17 Jan, 07:02 PM Reply Like
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