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"Our goose is cooked," writes a mortgage trader, imagining a conversation at the trading desk of...

"Our goose is cooked," writes a mortgage trader, imagining a conversation at the trading desk of a pure GSE mREIT like Annaly (NLY). With MBS prices bid to all-time highs (thank you Fed) and refinances on the way up, mREITs face an ugly combination of lower yields and higher prepays. One solution: Unload their MBS at these high prices - tell the staff to take a long vacation - and wait for Bernanke to exit.
Comments (68)
  • Good PSA: sell overbought funds/mREITs. You can always buy them back at lower levels.
    10 Oct 2012, 04:08 PM Reply Like
  • Just bailed out of NLY and ANH after holding for five quarters. The recently fading share prices didn't help much, but the overall return on NLY in that period was 13.66%. Even though their yield has taken a dip, I'm sure going to look for a place to re-enter.
    10 Oct 2012, 05:19 PM Reply Like
  • I think the goose is actually burnt at this point, with portions of it now unedible...
    10 Oct 2012, 04:15 PM Reply Like
  • AGNC fundamentals, still intact.
    10 Oct 2012, 04:19 PM Reply Like
  • It would be more profitable for the rest of us if you expand on that one liner comment.


    24 Oct 2012, 04:19 PM Reply Like
  • this is true for most mREITS... but not CMO. the fed wont be buying the type of stuff CMO has
    10 Oct 2012, 04:20 PM Reply Like
  • Hmmm....I wonder if there could be any more negative news or panicked selling than we are currently seeing last few days?
    10 Oct 2012, 04:26 PM Reply Like
  • There could be more, as always, who knows, Star? But I'm begginning to take a look at a few buying prospects. Already bgt CLF.


    The best, AD
    10 Oct 2012, 06:35 PM Reply Like
  • Invested in the hybrid MREITs
    10 Oct 2012, 04:26 PM Reply Like
  • It wouldn't be the first time MREITs have had a major pullback. I have some quibbles with the imagined conversation. I doubt that anyone in the industry is blaming the pullback on Bernanke; Fed policies have provided a bonanza for them. And CIM is far from being a disaster: with low leverage and rising book value, it could be the biggest winner of all, once the accounting is straightened out.
    10 Oct 2012, 04:27 PM Reply Like
  • I have equity in all these (AGNC, IVR, MFA) and the dividends have only accelerated the break even. I will ride until they substantially reduce dividends.
    10 Oct 2012, 04:28 PM Reply Like
  • The more negative a shmanalyst is - the more headlines these clueless get.


    Watch the news, it's 90% negative, while life is 90% positive (most days).


    For every traffic accident there are a 100 new-borns.
    and.. on tv, you'll be watching the accident.
    10 Oct 2012, 04:33 PM Reply Like
  • For every hundred million parents tucking their children in safely at night there is one that is cruel. Guess which story makes the news.
    24 Oct 2012, 04:21 PM Reply Like
  • 30yr mortgages have only dropped 30-50 basis points. Not really a firestorm to begin unloading anything. Plus, AGNC can always sell its paper at these crazy high prices.


    If you sell, good luck finding better returns.
    10 Oct 2012, 04:34 PM Reply Like
  • This is very true. I believe most who could refinance have done so already and are not willing to incur additional closing costs,etc to shave 50 points off their mortgage. Those who have not, may still not be able to even under HARP if they stopped making payments. Again, panic selling becoming a self-fulfilled prophesy.
    10 Oct 2012, 09:18 PM Reply Like
  • As I mentioned in my comments of a month or so ago, AGNC sellling at a premium of 15%+ over NBV is not sustainable.
    10 Oct 2012, 04:52 PM Reply Like
  • Why not? A lot of high-yield bond funds have much higher premiums, look at PGP and such.
    10 Oct 2012, 04:56 PM Reply Like
  • moishep............


    Agree, its not sustainable. Look at market action today, beginning of reverting to the mean.


    Many of these posts remind me of the "buy the dip" discussions & recommendations that went on during 2001 & '02 regarding tech & telecom company stock. The worse it got the more they insisted "this time its different"!
    10 Oct 2012, 08:34 PM Reply Like
  • As I mentioned in my comment of around a month ago, AGNC selling at a 15%+ premium to NBV is not sustainable.
    10 Oct 2012, 04:54 PM Reply Like
  • If you want to sell it, do it, no one knows better than
    you how much stress its worth.
    If you want to hang in there, maybe a nice price will
    be available, so you can add.
    10 Oct 2012, 05:05 PM Reply Like
  • Drivel based on an imaginary conversation. So what?
    10 Oct 2012, 05:09 PM Reply Like
  • So the long awaited Sept Correction is underway and the Negative Nellies are out and about in force. The rate of return is still better than the blue chips and any of the MMs, CDs and US Treasuries. So Panic if you must, Those with Cash On Hand will profit.


    Lastly, ask yourselves how much of this is or could be due to maqrket manipulation by the Big Boys, the market makers who have had a Piss Poor Year and are looking to get into Reits and other high yielders so they can improve their overall ROR before the EOY, in order to do so they need lower prices. Your Panic sales will certainly help them out and allow them to claim better returns than they actually managed to pull off so they can justify their higher management fees from their sucker clientèle. This is kind of like that "imaginary Conversation that start this thread.
    10 Oct 2012, 05:10 PM Reply Like
  • Follow-up, Those pesky mReits are going back up today? How is that Possible? OH! those Market Makers got their full and dividend season for them is upon us so all is OK now, back to business as usual.
    11 Oct 2012, 10:45 AM Reply Like
  • Many of us are waiting for Bernanke to exit...the sooner the better.
    10 Oct 2012, 05:14 PM Reply Like
  • I do not believe Ben Bernanke is going anywhere for quite awhile.
    10 Oct 2012, 05:49 PM Reply Like
  • Depends on the Presidential election. If elected, Romney has said the first thing he's going to do is fire Uncle Ben.
    12 Oct 2012, 11:43 AM Reply Like
  • A Seeking Alpha story with no accreditation. No disclaimers. It could have been written by Karl Rove or the Koch brothers. What was its purpose? Where details or facts presented??


    Shame on SA, not near the standards we expect.
    10 Oct 2012, 05:15 PM Reply Like
  • larrysocie........."wr... by Karl Rove....."


    SA puts out these news bites all the time for the equities you are supposedly tracking. So whats the problem? The site is not articles all the time.


    And what has this got to do with politics? Its about the Fed buying $40 billion of MBS monthly & the clear effect on mReits profits! That's it!
    10 Oct 2012, 08:44 PM Reply Like
  • Even if they drop the dividend a huge 25%, it'll still yield around 10.5%. A great long term holding for those of us who are not rapid traders.
    10 Oct 2012, 05:15 PM Reply Like
  • They all bounced off their lows unlike the last few trading days. Most of them will be announcing earnings in 3 weeks or so. It will be interesting to see whether any of them lower guidance.
    10 Oct 2012, 05:15 PM Reply Like
  • I am trying to hang on until october 27th, after i earn my dividends...
    then it will be sold ! I think I am going to sell all my stocks end this month...& save alot of money ! Maybe next spring i'll buy stocks again...what do you think ??
    10 Oct 2012, 05:16 PM Reply Like
  • Pacman I think you'll miss out on some nice dividend money and the opportunity to buy in at lower prices and thus up your gains overall.
    10 Oct 2012, 05:37 PM Reply Like
  • That is exactly my thinking for the last two months, but when it comes to pulling the trigger...I keep hanging on. Selling is always harder than buying.
    10 Oct 2012, 09:18 PM Reply Like
  • spring is a bad time to get in...the old timers always said "sell in May and go away"
    10 Oct 2012, 09:50 PM Reply Like
  • You can sell your stock today and could have for the last couple weeks and you will still get your dividend on 10/27 as long as you held the stock on the x dividend date.
    10 Oct 2012, 09:51 PM Reply Like
  • I'll hold HTS, thanks. And if the price hits $24.50 or so,...I may buy a bit more.
    10 Oct 2012, 06:01 PM Reply Like
  • Has book value or any relevant metric dropped on the mReits outside of price?


    That's all that matters to me.
    10 Oct 2012, 06:53 PM Reply Like
  • yes mbs prices are getting killed this week so book value is falling at the same time yields are falling (because spreads are coming in so much), a toxic combo for sure
    11 Oct 2012, 10:36 AM Reply Like
  • TWO has announced a increase in book value in the past month to above 11$. Also there portfolio is designed to avoid prepayment risk. It does not seem like the time to sell when the book value is increasing.
    10 Oct 2012, 07:17 PM Reply Like
  • Panic always means opportunity. Do your own research and don't follow the crowd. I have been invested in AGNC, MTGE, CYS, and ANH at various times over the last 30 months. Two weeks ago I sold my pure play MBS agency mREITs for hybrid mREITs. if anyone thinks that there is a better way to obtain a higher yield please let us know. If one is in close to BVPS enjoy the ride.
    10 Oct 2012, 07:41 PM Reply Like
  • This imaginary thread sucks! Try to induce panic selling more for no apparent reason right as an institution drops all of its mreit holdings. Maybe you'll take out some stop losses before the price gets bid back up? Some mreits are doing superb in this environment. AMTG just raised their dividend for example.
    10 Oct 2012, 08:47 PM Reply Like
  • SHHHHHHHHHHHHHHHHHHHHH... Don't tell anyone, the suckers are selling and I might start buying tomorrow.
    10 Oct 2012, 09:05 PM Reply Like
  • Sold half of my holdings in AGNC last wondering when to buy back at lower cost.
    10 Oct 2012, 08:50 PM Reply Like
  • What about ARR? Your input would be appreciated.
    10 Oct 2012, 09:14 PM Reply Like
  • AGNC today. Shorted till about noon; then buying (or covering) the rest of the day (probably programmed). See the chart. Wonder what tomorrow brings? I'm o'k' till it get's down to about $22. Think I'll stay in.
    10 Oct 2012, 09:25 PM Reply Like
  • Panicked selling at this point would only be at the loss of the seller as the price will soon go up again, and then consideration for buying will be at a much more inflated price that will be to the detriment of the person who previously sold in panic.
    10 Oct 2012, 09:27 PM Reply Like
  • what about ARR? Anyone's input would be appreciated.
    10 Oct 2012, 09:27 PM Reply Like
  • Grey ARR went ex-div today and is up relevent to the div drop in pps.
    ARR is a solid stock and I am not selling my shares anytime soon.
    11 Oct 2012, 10:48 AM Reply Like
  • I'm an individual investor, and I spent a little time in a PhD program at a good business school a few decades ago.
    10 Oct 2012, 09:39 PM Reply Like
  • Actually, it's starting to look like the Fed has basically become another agency mREIT! After all, they buy agency mortgages, and to fund this they sometimes sell short term notes (just like NLY and AGNC do with repo's), or they "print money" (technically they give the seller a credit in their fed account), which is basically borrowing at 0%.


    This gives them somewhat of an advantage over the mREITs they have a 3 1/2% spread), so maybe NLY and AGNC should just sell out to the Fed at a premium. It looks like they have about $150 billion in agency paper between them, so that should just take a few months.


    One nice thing, as a taxpayer, is that the Fed will actually make a lot of nice income for the taxpayers, just like any other mREIT ;-)
    10 Oct 2012, 09:39 PM Reply Like
  • Too bad the Fed doesn't pay 15% dividends.
    11 Oct 2012, 08:42 AM Reply Like
  • I am thinking about getting into REM ( REIT ETF)and AMTG that they are at a nice entry level....And even if they cut dividends it s still quite attractive Any thought ?
    10 Oct 2012, 09:43 PM Reply Like
  • Federal Reserve Chairmen along with their 'policies' have been major problem causers to my portfolio since Volker left. After retiring, Greenspan admitted discovering that he had not grasped the complexities of our economy as it related to his policies, and Bernanke will surely have the same realization after he has applied all of his "Rube Goldberg' mechanizations. Gives me frequent heartburn! And politicians are worse because they have abdicated their responsibilities by adding mandates to the Fed's plate rather than stepping up to the plate.
    10 Oct 2012, 09:46 PM Reply Like
  • It's ok... In my imagination I'm already rich and not really concerned about pre-payments. But then reality sets in, and I realize with current policy no one can afford to pre-pay early unless they're already rich, and thus the wheel turns.
    10 Oct 2012, 09:47 PM Reply Like
  • CYS is golden. Its trading at book value that was reported for Q2!!!! Which means book is probably closer to $14 right now. Buy for capital appreciation. The sell off will not last. This is headed to $15-$16 over the next 60 days.
    10 Oct 2012, 09:48 PM Reply Like
  • It may be worthwhile to recall the Keynsian "beauty contest": what you think a stock is going to do tomorrow isn't important, what is important is what you think the crowd thinks a stock is going to do tomorrow. I sold all my AGNC at $35 the day after the record date for the latest dividend, and I'm waiting for the crowd to finish trading it down (due to the well-publicized collapse of the spread and the expected reduction in dividends) and then I'll try to buy it back when the crowd figures out that a 10 - 11% return is still better than they can get anywhere else, and begins bidding it back up again. I see AGNC today postponed its earnings announcement by a week from 10/22 to 10/29: I expect that the Q3 financials will demonstrate a sustainable (if reduced) dividend, and that the company will lower the dividend to that level in December.
    10 Oct 2012, 09:50 PM Reply Like
  • I respect your discipline. I failed to sell when I was at the top and knew I should. I'm in AMTG. Last BV $19.65 current almost certainly higher. Target price $23.50 or so. I'm disappointed I lost the cap gain but confident this sell-off is short lived especially for a stock as fundimentally sound as AMTG. I've done very well with it since April and have been in and out several times.
    10 Oct 2012, 10:50 PM Reply Like
  • I really don't comprehend all this!! Could someone put this in a simpler language? I own a lot of CIM, is it in trouble? Should I unload it?
    11 Oct 2012, 03:31 AM Reply Like
  • Chat that depends on your costs. CIM still pays a decent dividend. Where is your Cost + Div break even point? I own some Shares of CIM in two different portfolios, in one I bought low and have a clear profit plus dividends. in the other the current PPS is still lagging my cost, but I am well ahead when dividends are taken into account. So I am holding onto both positions at this time. I hope that the current acct'g mess will be straightened out and provide a boost to the PPS in the coming month or Dec. if not I may sell off and await the announcements from CIM management.


    You need to carefully weigh your many options and make the decision that is best for you. Do you trade in a retirement acct? if so losses won't be offset by gains, but in a regular acct you do have tax advantages. Good Luck.
    11 Oct 2012, 10:56 AM Reply Like
  • Chatterwind..............


    CIM is a spinoff from NLY to hold its non-agency MBS. First the don'ts.. I don't, & wouldn't hold this stock, I don't follow it & don't know if anything is changed regarding its holdings.


    To your question....."is it in trouble?" Look at a chart, lower lows & highs! Can it go lower? They can always go lower! Its now trading 5x lowered earnings & its traded as low as 2x. Owning this should be with your riverboat gambling money, & you say you own a lot?
    I suggest if you want to play in the MBS game get into quality names holding agency backed securities. My favorite is NLY although I've been out of it for a year now because I didn't like the Refi impact on future earnings. Their earnings estimate is now down 29% Y/Y. I also like TWO, & AGNC & have owned both in the past. I believe they are now too expensive.
    All said, I suggest get into quality names & diversify. And if you are going to invest here, learn what you are investing in. These securities live & die by the spread in interest rates, & are highly sensitive to interest rates.


    Hope this is of some help
    11 Oct 2012, 11:37 AM Reply Like
  • relax people... and just buy CMO, its the safest, least risky of all of them. and its trading at .75 for a dollar, that far below book value.
    11 Oct 2012, 08:28 AM Reply Like
  • AGNC, ARR, or the rest aren't collapsing. Rates remain pretty much unchanged and the profits are still rolling into MREITS. And since MREITS have to pay out 90% of their profits in dividends, the only thing that will impact those dividends will be Macro Economic changes in the either the Bond Market, Fed Funds Rates, or some massive wave of homeowners refi'ing their homes. Which I see is very unlikely because (a) the savings on a few basis points is negated by the closing cost fees, (b) many of those who want to refi have homes which are underwater or flat, and (c) bank lending requirements are so tight that only a fraction of homeowners can even qualify to refi at super low rates.


    So until the macro economics in the economy change, chances are MREITS will still be raking in the cash and payout 90% to shareholders. NO FEAR, companies like AGNC and ARR are goldmines.
    11 Oct 2012, 08:49 AM Reply Like
  • People are way over reacting to the FED QE3, basically playing it safe till this QE3 makes a drop in the bucket, MBS Agency trades 400 billion a day, the FEDS 40billion dollar buying program is monthly, not even weekly, this is more of a psychological effect to help the market recover, and help some very small amount of sector to refinance into a better position. Bring on the QE3, I will be long silver, and mREIT and Hybrid REIT, no buddy is bigger than the market, and people in America are always going get a Mortgage to buy a overpriced home, (especially since America is being de industrialized) the MBS industry is only going to get bigger and bigger.
    11 Oct 2012, 01:41 PM Reply Like
  • Remeber, CMO holds mostly Agency Adjustible Mortgages. They can go with the flow. ...Comments?
    11 Oct 2012, 08:54 PM Reply Like
  • Lets also not forget the demographics in America. 70/million baby boomers are turning Age 65 at the rate of 10,000/per day. And that rate will be sustained until 2031.


    Where do you think boomers with their massive nest eggs will be putting their money? Treasury Bonds yielding 1.5%? Or mREITS yielding 15%? Least we forget, 15% dividends will double your money every 6/years.
    12 Oct 2012, 09:23 AM Reply Like
  • Five years, actually, since it is compounded.
    12 Oct 2012, 11:09 AM Reply Like
  • AlbyVA..............."... with their massive nest eggs"


    After the multiple crashes of '01, '02, '08 & '09 it is a small percent with "massive nest eggs" left to them. That however makes their returns all the more important. I hope seniors are obtaining good advise on investing what they have left. I believe it would be a big mistake for most self managed IRA or investment accounts to have big positions in mReits. Its a simple concept; big returns, big risk! I get it, they're yield hungry. But, this is not a place folks who don't know what they are doing.


    Some of these 'all in' posts scare me. Its the same people who wil be trying to sue someone tomorrow!!
    12 Oct 2012, 07:54 PM Reply Like
  • As a holder of 100% REITs in my portfolio since 2007, I have never failed to outperform DJ, NASDAQ, and S&P. The market rises and falls but the REITs always come back. I have tried selling and buying back but it has never worked out. You can get lucky every now and then but not often. I have dumped (NLY and CIM) and reduced holdings in AGNC to buy more of others (I hold 17 REITs) to insure I have no more than 10% in one stock. I believe we are going to see an average dividend of 12% in 2013. AGNC is sure to drop to $1.00 or so. Don't worry about the value of the shares. The dividends will flow. If the stock drops in price, use the dividends to buy more. With REIT's, it is not about share price but how many shares you own. If you are going to sell, wait until after the election. No telling how the market will react to the outcome.
    24 Oct 2012, 12:37 PM Reply Like
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