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Mortgage REITs continue to slide

  • A nice backup in rates (the 10-year Treasury yield is off 4 bps to 2.75%) is of no help to the mortgage REITs (REM -0.3%), with sector kingpins Annaly (NLY -1.4%) and American Capital Agency (AGNC -1.2%) both hunkered down (NLY earnings call, AGNC earnings call) for the Fed taper, and both hitting 52-week lows today.
  • Earlier this week, AGNC and MTGE CIO Gary Kain took his case all the way to Asia at the Citi financial services conference in Hong Kong (transcript). Yes, book value has been hit by higher rates, but also by how much the market is willing to pay for it. Whereas AGNC traded at an average of 110%-120% of book over the past 4-5 years, it's now at sub-90%.
  • Discounts can last for awhile, he admits, but also reminds this isn't some opaque bank balance sheet, but instead an easily valued, highly liquid portfolio of assets trading at $0.85-$0.90 on the dollar. As long as it persists, American Capital will continue selling MBS for $1 and buying back stock at a discount.
  • Previous: Kain makes a similar case
  • Related ETFs: MORT, MORL
  • Other sector stocks: Armour (ARR), Two Harbors (TWO -0.8%), CYS (CYS +0.1%), AG Mortgage (MITT -0.5%)
Comments (12)
  • Bingy77
    , contributor
    Comments (139) | Send Message
     
    At current prices agnc is trading at a 20% discount to book. Yes, last quarter was ugly but they got real defensive so that any future increase in rates would not impact book value significantly. They will continue to buyback stock
    22 Nov 2013, 03:26 PM Reply Like
  • murray555
    , contributor
    Comments (218) | Send Message
     
    I'm a buyer at these levels.
    22 Nov 2013, 04:27 PM Reply Like
  • speedipusrex
    , contributor
    Comments (24) | Send Message
     
    why not take the quarterly premium and buy the stock at less than 20% book value? over a few years with compounding this investment will grow. any opinions out there?
    22 Nov 2013, 10:01 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8132) | Send Message
     
    mREIT bears and shorts are in for a reaming when it becomes obvious to all that no taper is coming.

     

    I, in fact, expect an increase to QE.

     

    Yellen is more likely to start dating Justin Bieber than to become hawkish during a desperate labor market.
    23 Nov 2013, 02:15 PM Reply Like
  • Tao Jaxx
    , contributor
    Comments (1273) | Send Message
     
    That's a good one!
    I disagree with your market view (I think JY is quite different from what Mr.Market thinks right now) but that's a good one I admit.
    23 Nov 2013, 09:42 PM Reply Like
  • hawk007
    , contributor
    Comments (48) | Send Message
     
    how wrong you are!
    19 Dec 2013, 09:16 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8132) | Send Message
     
    Yellen shocked me.

     

    I didn't think she had the gonads to taper but now what is she going to do?

     

    While the short end is stapled to the basement floor the long end is rising steadily since institutions know that the demand will be shrinking from the Fed by @ least $10 billion EVERY MONTH.

     

    The Fed is stuck with assets levered up like mad that are now decreasing in value.

     

    Oh well, at least the banks will have a profit windfall now.

     

    Glad I own shares....
    20 Dec 2013, 07:13 PM Reply Like
  • Tao Jaxx
    , contributor
    Comments (1273) | Send Message
     
    DLV,
    Next thing we know, she starts dating Justin Bieber lol!

     

    Told ya, by the way, Chairman Ben and Ms.JY are very different from what Mr.Market was thinking.
    And now they have Stan Fisher as #2. Lots of brains running the show, I'm telling you.
    20 Dec 2013, 08:11 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8132) | Send Message
     
    Where were those brains in 2006 when they saw no danger in mortgage bonds?

     

    What exact date did they acquire their amazing economic policy analysis powers?
    21 Dec 2013, 12:08 PM Reply Like
  • 395308
    , contributor
    Comments (35) | Send Message
     
    You can tell us what the fed is going to do... but can you tell us how the management is going to hedge ? I will stay away from these rat traps for now.Book value will keep dropping I expect some to fail in the near future.
    23 Nov 2013, 03:52 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8132) | Send Message
     
    QE stays in place.

     

    Hedges become cheaper.

     

    Book values rise (marked to market).

     

    Shares stabilize then more can be issued.

     

    No problem.
    23 Nov 2013, 04:30 PM Reply Like
  • Leroy Jackson
    , contributor
    Comments (83) | Send Message
     
    Nobody knows for sure what that Government will do. That includes the government.

     

    The drop in the REITS has come with QE in place. QE can be in place for the next 20 years but the REITS will still suffer as long as the removal of QE is a weekly, if not daily topic.

     

    24 Nov 2013, 03:11 PM Reply Like
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