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Mortgage REIT (REM +4.1%) rallies are accelerating as the day draws to a close. Sector giants...

Mortgage REIT (REM +4.1%) rallies are accelerating as the day draws to a close. Sector giants Annaly (NLY +4.7%), American Capital Agency (AGNC +4.2%) are closing in on 5% gains, while CYS Investment (CYS +6.2%) and Western Mortgage (WMC +7.1%) are threatening 7%. Did everybody realize all at once that higher long end rates combined with ZIRP should allow mREIT managers to invest at very profitable spreads?
Comments (30)
  • Aikman
    , contributor
    Comments (122) | Send Message
     
    The market is not a smart place
    13 Jun 2013, 03:50 PM Reply Like
  • pi-muon
    , contributor
    Comments (49) | Send Message
     
    White noise in the dow curve is the representation of all of us, just look at it as demand and supply play.
    13 Jun 2013, 04:45 PM Reply Like
  • BookemDano
    , contributor
    Comments (73) | Send Message
     
    Yesterday the buzz was sell the MReits. I have been pleased with my AGNC performance and the management. Glad I didn't listen to the naysayers.
    13 Jun 2013, 03:51 PM Reply Like
  • Doyle3000
    , contributor
    Comments (1287) | Send Message
     
    Great commentary, I LOL'd at work. This is indicative of the ownership of these stocks. They are typically income seekers who are rookies at investing. If you are in these for the long haul, just sell calls when the prices get rich, sell puts when the prices look like they are bottoming, collect all the dividends and for God's sake do not sell low and buy high!

     

    You're welcome
    13 Jun 2013, 03:52 PM Reply Like
  • WmHilger1
    , contributor
    Comments (1068) | Send Message
     
    Most of them don't even know what a call or a put is! I have even met many people who don't know what a stock broker is, or where to find one. When I tell them how easy it is to open an account, they look at me amazed and possibly incredulously.
    13 Jun 2013, 07:31 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    The options premiums exceed the dividends. ( ; ^ ) }
    Today's pop was short covering more than anything.
    The clowns always overdo it. Greedy
    14 Jun 2013, 02:20 AM Reply Like
  • itscalledcommonsense
    , contributor
    Comments (524) | Send Message
     
    Nice bounce. Short covering. I was 4 days early.
    13 Jun 2013, 03:54 PM Reply Like
  • Greg NYC
    , contributor
    Comments (94) | Send Message
     
    REITs have been recently spanked b/c of the potential for Dividend decreases and lower MBS bond prices.

     

    If the Yield Curve flattens b/c of a Fed Taper, all of these entities become less profitable based on how they are leveraged. If the YC stays nice and steep, they are cash cows. But you must pay attention to the shape and levels of the YC.

     

    Given the 20-25% erosion on the price of most of these REITs, recently - you lost your entire dividend unless you bought in at a price level less than or where we are now. In those cases, you are good. If you were unfortunate to buy in the last two months, it's been pretty painful to the tune of double your dividend.

     

    I think it's best to wait until we have more color next Wednesday from the Fed on whether we go taper, qe or stay where we are.

     

    Many in the hedge fund community are betting that one or more of these REITs gets into trouble as indicated in the PUT activity. Put Volume is a great hedge on your position, but it can also mean folks are expecting big problems. Even the Fed is looking into whether some of these REITs are systemically important financial institutions that need to be regulated b/c of the assets they hold and the effects they could have on the financial system similar to the CDO/CDS crisis a few years back with AIG, Lehman, Bear, Fannie, Freddie and the Bond Ins' like MBIA and Ambac.

     

    None of us have the crystal ball to know the exact MBS positions in the REIT portfolios, but a decrease in Dividend and reported Book value will cause some further selling off as we all know well. Have firm stops in place.

     

    Best to wait until the Fed speaks next week unless you like rolling the dice. I have my current positions hedged ( for bond price erosion ), and I am waiting for the Fed signal before I add to any positions, so that I have more color on what will happen with interest rates for the rest of the year. I will buy on dips.
    13 Jun 2013, 04:15 PM Reply Like
  • PendragonY
    , contributor
    Comments (6064) | Send Message
     
    "If the Yield Curve flattens b/c of a Fed Taper, all of these entities become less profitable based on how they are leveraged. If the YC stays nice and steep, they are cash cows. But you must pay attention to the shape and levels of the YC."

     

    Nothing that the Fed will do in the short term will cause the YC to flatten and in fact just talking about what it might do has caused the YC to steepen.
    14 Jun 2013, 10:02 AM Reply Like
  • Kolya
    , contributor
    Comments (55) | Send Message
     
    I loaded the truck so Im a happy Happy man..!!
    13 Jun 2013, 04:15 PM Reply Like
  • jzkl1234
    , contributor
    Comments (79) | Send Message
     
    stop diluting yourself into thinking that mr. market cares about mreits reinvesting cash at higher rates. That is a very small consolation when rates are rising as compared to the destruction higher rates have on NAV. MREITS rallied primarily because treasury's rates are meaningful lower today and mbs outperformed the market (for example FNMA 3% were up almost 0.75% while the 7 year trsy was up ~0.625%)...period, end of story! ....secondly, the extent of the rally was driven by the fact mreits had been overpenalized for previous price action....
    13 Jun 2013, 04:16 PM Reply Like
  • pi-muon
    , contributor
    Comments (49) | Send Message
     
    Profit is margin times volume, so even if the margins will go down, reits may see increased volumes. Also deficit goes down so less treasuries need to be sold by government and Federal reserve (private organization, read the book "how Fed rules the country") does not need to buy that many treasuries. So how is this tapering going to lower the treasuries prices if the supply will be lower? Also Japan allowed their retirement funds to buy US stock. So if USD/JPY goes down expect more stock and treasuries purchases from that side of the world. This will overcompensate tapering.
    13 Jun 2013, 04:28 PM Reply Like
  • mswyman
    , contributor
    Comments (155) | Send Message
     
    When I subtract the annual yield from the recent dip, all of my mREIT's become single digit losses, which isn't enough to put me into the panic zone. Also, with the LIBOR dropping to 0.0041% I find it hard to think the yield curve is going to flatten very much. And with Europe going into double dip recession, and the Congress practicing sequestration instead of priming the pump, I think the odds of a major move up in bonds is about minus zero. I'm holding on to my mREIT's, but not increasing my position.
    13 Jun 2013, 04:30 PM Reply Like
  • Marek
    , contributor
    Comments (757) | Send Message
     
    Seems like the Yen too is in competition with dollars for trade, so raising rates here would just play into intentional yen weakness and necessary Euro weakness...hardly something the economy can really stand at the moment.

     

    Big headed boneheads at the FED are now addicted to attention, so they have to tinker with everything for no real better reason...the real economy is evidently weak still, and the attention addicts just can't stand to be stable for more than a couple weeks without losing their dopamine fix...so to avoid the boring dopamine downer they have to jawbone and jawbone and jawbone. Hollywood Ben needs another fix but if he says nothing, no one will jump. So in a month or so we will be hearing from them, between meetings of course, about how QE4 may be necessary into 2017, as the Japanese once again eventually bring down stock prices to protect the real money, the long term pension funds over there, which are in J-Bonds, while Europe continues to stall. My dog is less obvious.
    14 Jun 2013, 01:15 AM Reply Like
  • 430545
    , contributor
    Comment (1) | Send Message
     
    Could be awesome short SQEEZE coming......
    13 Jun 2013, 04:35 PM Reply Like
  • philsevile
    , contributor
    Comments (4) | Send Message
     
    Didn't one investor sell a million + short,yesterday?
    13 Jun 2013, 04:35 PM Reply Like
  • Greg NYC
    , contributor
    Comments (94) | Send Message
     
    I saw a dump close to 500,000 shares yesterday 5 minutes after the close, most likely an ETF or Fund. Activity like that told me to wait until they officially announce. That + Bernanke introduced enough uncertainty into the equation. I am waiting until the Fed makes things a bit clearer also. If rates are going up, I am not adding to my position. The price erosion since the 22nd was because of his last comments & the decrease in book value on the underlying MBS assets. I just hope Paulson and Soros are not the ones loading up on the Puts. I agree about a squeeze.
    13 Jun 2013, 07:46 PM Reply Like
  • tjsteffanci
    , contributor
    Comments (3) | Send Message
     
    The catalyst was the CYS dividend increase announcement a few days ago, then the confirmation by ARR, the dog of the group, of its current dividend. Plus the technical condition of the bond market is now setting up for a nice rally. Another supportive feature is the unlikelihood of secondary offerings given the market/book valuations, so price appreciation potential plus some daylight on dividend policy has lit this sector up IMHO.
    13 Jun 2013, 04:35 PM Reply Like
  • metal27
    , contributor
    Comments (367) | Send Message
     
    More good info in your comment than in many SA articles--thanks!
    13 Jun 2013, 05:00 PM Reply Like
  • BOSS_302
    , contributor
    Comments (5) | Send Message
     
    Who would have thunk?
    13 Jun 2013, 04:36 PM Reply Like
  • deashnia
    , contributor
    Comments (2) | Send Message
     
    The market is volatile. All the daily gain may be next days loss.
    So don't be too jumpy.
    13 Jun 2013, 05:23 PM Reply Like
  • Rickthegeek
    , contributor
    Comments (118) | Send Message
     
    I have one finger on the buy button the other is on the sell button. Just recently I have had to start monitoring this market to closely. Would rather not.
    13 Jun 2013, 06:03 PM Reply Like
  • jmacjohn
    , contributor
    Comments (32) | Send Message
     
    Trying to decipher this is futile. How about market manipulation by the robber barons on wall street?
    13 Jun 2013, 08:39 PM Reply Like
  • Marek
    , contributor
    Comments (757) | Send Message
     
    It also seems that if there are really that many short sells out there, with options expiring next week, we are looking at an upmove, in order to deal with the max pain phenomenon...the market makers always shift a seriously unbalanced options market in the other direction...like bookies, they can't have a market that is too far unbalanced...

     

    Well I was one of those long term buyers who topped off late, so I'm in it now even with the loss...but long term does not worry when every flip discounts out to end dates in one swell foop...when the dividend comes, I'll just reinvest at whatever price...
    14 Jun 2013, 01:23 AM Reply Like
  • pfifla1
    , contributor
    Comments (499) | Send Message
     
    It all depends if you believe in the managment to time the market properly and make prudent investments, Gary Kain is one of the best... these mREITs fluctuate A LOT historically, i did a model of NLY over the past 8 years before invested, the stock has not had much appreciation but you DRIP the DIVS you kill the S&P on return. i am at a small loss (3%) in AGNC but i don't panic like most, i think the stock will be up and down but as long as its more up than down we are all good! as long as the share price doesn't erode badly, i am not greedy, give me anything north of 8% and I am a happy camper.
    14 Jun 2013, 07:51 AM Reply Like
  • NATESR
    , contributor
    Comments (7) | Send Message
     
    Wait for the bounce on today's AGNC price after ex-dividend date!!
    14 Jun 2013, 02:37 AM Reply Like
  • pfifla1
    , contributor
    Comments (499) | Send Message
     
    Lets hope so... i have been patiently waiting to see what they plan to do with the DIV, if they keep it the same and provide guidance of the same for Q3, the stock will trade back up to BV. (my opinion)
    14 Jun 2013, 05:45 AM Reply Like
  • richbar
    , contributor
    Comments (747) | Send Message
     
    I make my living by doing my own analysis on everything I invest in and thereby exploiting the superficial and improper analysis of both professionals and amateurs. In AGNC's case, it was clear that although book value was going to continue to take a short term hit, spread income would be higher down the line, and that notwithstanding a modest short term dividend cut, the stock was ultimately going to trade higher based on its dividend yield. I expect that the dividend will be in the $4.00-$5.50 range over the next 2 years and that it presents a solid floor to declines below the mid-20's.
    14 Jun 2013, 09:35 AM Reply Like
  • FinalAnalysis
    , contributor
    Comments (198) | Send Message
     
    Looking for a return to BV when the smoke clears. Long AGNC.
    15 Jun 2013, 01:01 PM Reply Like
  • bill d
    , contributor
    Comments (1885) | Send Message
     
    @MAREK
    Doesn't look that bad to me?.
    6-15-13
    Annaly Capital Management Incorporated $ 13.65
    NLY -0.08
    Short Interest (Shares Short) 38,380,700
    Days To Cover (Short Interest Ratio) 2.5
    Short Percent of Float 4.06 %
    Short Interest - Prior 32,256,300
    Short % Increase / Decrease 18.99
    Shares Float 944,510,000
    % Owned by Insiders 0.47%
    % Owned by Institutions 44.80%
    Market Cap. $ 12,930,000,000
    15 Jun 2013, 02:05 PM Reply Like
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