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"Rates go down you get killed, rates go up you get killed," says hedge fund manager Brad...

"Rates go down you get killed, rates go up you get killed," says hedge fund manager Brad Golding, summing up the situation for mortgage REITs. The days of double-digit yields are over - at least at Annaly (NLY) - where new co-CEO Wellington Denahan-Norris calls it "fantasy" to think the company can just jack up leverage to replicate the returns of the past.
Comments (68)
  • Shorts keep out. How do you say.....
    agenda ! ! !
    16 Oct 2012, 11:01 AM Reply Like
  • so the CEO is shorthing her own company? Brilliant comment.
    16 Oct 2012, 11:16 AM Reply Like
  • theguy,
    you are right, those shorties are in deep trouble.
    that's why they keep slamming the Reits.
    Look, these Reits have been in business for years,
    they are good, and divi never stops, maybe more or less divi, but never stops.
    These Reits beats almost any other stocks in terms of DIVIDENDS, anytime. That's for Sure.


    16 Oct 2012, 04:43 PM Reply Like
  • Thank is brillint !
    18 Oct 2012, 10:12 AM Reply Like
  • Brilliant that is !
    19 Oct 2012, 10:54 AM Reply Like
  • Return percentage is a function of price. But I must say I like to hear NLY is not panicing and will slow play things.
    16 Oct 2012, 11:07 AM Reply Like
  • agreed. Stick to the tried and tested formula. The worst dividends in NLY's chart were in 2006. Still not a bad yield on the current share price IMO
    16 Oct 2012, 11:27 AM Reply Like
  • The rates will be moving very slowly so even if rates are up let say to 1% is being doing in a "real economy way", so "market" reactions of -10% in price against a "possible incremental rate" is just hysteric.


    16 Oct 2012, 11:07 AM Reply Like
  • Even with lesser dividend it is far better then any savingsaccount or bigstockdividend , so you wil be a thief of your own money if you don't have them.
    16 Oct 2012, 11:19 AM Reply Like
  • I agree with you Paul that the returns are better than a savings account even if they go down. But, be careful. If you have $10k in and the price goes down 10% because the return goes down things are getting compounded but the upfront numbers don't reflect it. Ex:
    return goes down 10% from say a return of 10%. So your now getting 9% on your money but its actually only $9k now so you don't get 9% of 10k you get 9% of 9k. This happens a few times and the return will quickly start to move from the original 1k return on your 10k to something more like 500 on your 6k or something like that. So now you get 500 bucks to offset the 4000 you lost in principle. The savings account might be lookiing better.
    16 Oct 2012, 02:52 PM Reply Like
  • The share price has had a fairly stable range over the last several years. With a long enough holding period, I don't see that as being an issue, especially if you reinvest the divvy.
    16 Oct 2012, 03:09 PM Reply Like
  • paul,
    you are 100% right about that.
    I have Reits for many years, got all my investments back already.
    With divi-reinvestment, get back all money fast.
    16 Oct 2012, 04:47 PM Reply Like
  • Trongod2000,
    You are talking about short term, not long term investment.
    Most of these REITs give out good divi, even in bad years.
    I have all my original investment back already after about 5 years with divi-reinvestment, real cool.
    Like Buffett siad: "Always invest for the Long Term."
    He is quite right about that.
    16 Oct 2012, 04:51 PM Reply Like
  • I'm a bit confused. Forgive me, I'm not well trained in this stuff.
    IF you have reinvested your dividends, you have not gotten anything back YET. It's on paper but not in your pocket, so to speak. IF my original investment was 1000 shares @$10 ea or 10K and through reinvestment it is now 2000 shares or $20k what happens? IF the price of the stock goes down 10% it would be a loss of 1k without reinvestment and 2k lost with reinvestment. Looking at it another way, the return translates into 2000 shares @$9 ea you could cash in for $18k but if you had pocketed the dividends you would cash out for $19k. (your 10k original minus the 10% decrease in price + 10k in dividends) Have I made a mistake in my math? I tried to keep it simple. I didn't account for any interest on the dividends in the bank or whatever and I left the share price level except for the 10% drop before actually selling everything.
    19 Oct 2012, 09:35 PM Reply Like
  • But if the stock pays you a 12% return in dividends, by cashing out you may find it hard to replace that yield. That's how you got an extra 1000 shares of stock to begin with.


    If you had pocketed the dividends all along the way, you would have had to find another investment to pay you 12 to 15% return to equal the 2,000 shares.


    If you look at NLY since its beginning, in 1997, you will find it's paid a great rate of return over its life. What's going on now, hopefully, is short term (a couple of years perhaps).


    Long NLY and staying long and perhaps picking up more if the price drops enough. Dividends paid from 2001 to 2011, 11 years has been $20.71 per share. That's better than a 100% return no matter how you slice it over that time period.
    20 Oct 2012, 05:54 PM Reply Like
  • If the election goes the way I hope it does, the fed cred will diminish significantly along with QE Eternity. That should help the Reits.
    16 Oct 2012, 11:37 AM Reply Like
  • Over the last 60 years the stock market has done significantly worse under Republican presidents. Significantly worse. Google: political parties and stock market.
    16 Oct 2012, 05:56 PM Reply Like
  • But better under republican Congress....look it up;)
    16 Oct 2012, 10:12 PM Reply Like
  • Never forget the past or your doomed to repeat it.
    So we repeat it alot.
    Election years ending in 2 in odd decades, for some reason, have statistically less impact on the market than other election years. So since this is 2012 the election will most likely not cause the market trend to change directions. IF it's headed down now the election won't turn it around and vice versa.
    Sounds like witch craft right? If you check all election years and what the market did in them you will find what happened is either random or not. But it is a fact that elections in 1892,1912,32,52,72 and 92 did NOT effect the market direction while 1902, 22, 42, 82 did have an effect. pretty strong coincident? Love to hear someones reasoning on why this has been happening for a century.
    19 Oct 2012, 10:00 PM Reply Like
  • "Morgan Stanley also sees the recent declines in mortgage REITs as overdone, driven by retail investors that are basing their decisions on “negative newsflow rather than new data points,” analysts at the bank wrote in a report today.


    The 26 percent contraction in dividends and earnings priced into the stocks is ”overly bearish,” Cheryl Pate and Vincent Caintic wrote. Their base case forecasts a 4 percent dividend cut for REITs that buy agency debt in 2013 and a 15 percent increase for the so-called hybrids that purchase both types. These will benefit from higher asset prices for non-agency debt and quicker prepayments on debt bought below par."


    From Bloomberg: Investors Abandon Home Loan REITs Under Fed Assault: Mortgages
    16 Oct 2012, 11:39 AM Reply Like
  • Think about what it means: quicker prepayments on debt bought below par
    16 Oct 2012, 11:42 AM Reply Like
  • This quote intrigues me: according to Cheryl Pate and Vincent Caintic, they expect "... a 4 percent dividend cut for REITs that buy agency debt in 2013 and a 15 percent increase for the so-called hybrids that purchase both types. These will benefit from higher asset prices for non-agency debt and quicker prepayments on debt bought below par."


    As a holder of American Capital Mortgage (MTGE), I appear to be a beneficiary of the good fortune predicted for hybrids. Goody! Goody! Can someone give me a better idea of why this should be so, thereby providing a reason not to dump this stock in favor of, say, PSEC?
    16 Oct 2012, 05:06 PM Reply Like
  • Again, I am shortening sails, storm warnings, and simple common sense. Something is in the wind, and I ain't gonna get caught in a blow.


    I'm seeking shelter, on the lee side of the mess. When the dust settles, I will sneak out. If you don't HAVE to have dividends to survive, consider hiding for a month or two.


    Capt. Brian
    The Lost Navigtor
    16 Oct 2012, 11:40 AM Reply Like
  • Don't go down with the ship. Keep it afloat!
    16 Oct 2012, 02:06 PM Reply Like
  • Couldn't agree more...
    16 Oct 2012, 05:42 PM Reply Like
  • Only down 200 today, not bad...
    19 Oct 2012, 08:48 PM Reply Like
  • A lot of market maker manipulation of late lots of programmed trading and above average volume. many of these stocks show the same spike last year about this time. Why is that. Could it be that Failed investment strategies by the big boys necessitates the need to drive down high yield prices so they can buy in at reduced prices so they can have good Stats for their EOY stats and Customer reports? Makes their bottom-line look a little better and they know they have no fear that the Fed/SEC will do anything to them for their gamesmanship.
    16 Oct 2012, 12:12 PM Reply Like
  • Kingdad,
    agree with you.
    Those Market-Makers are very greedy.
    But, with SEC Hearing going on now,
    those greedy ones will be caught and punished BIGTIME, just watch. Election coming, you know.
    16 Oct 2012, 04:56 PM Reply Like
  • I agree much better then a super savins account. Plan on holding long term. NLY and TWO.
    16 Oct 2012, 12:48 PM Reply Like
  • Right on!
    16 Oct 2012, 12:49 PM Reply Like
  • I find it funny that most of the articles talked about REIT's positioning themselves against higher interest rates and that the spreads were smaller but till will yeild good returns.


    Then in on day AGNC saw 42,000,000 shares trading on one day when the avg. is only about 8,000,000......Someone knew something for the big share holders to sell off so quick.....


    Why was the average investor not privilage to the same information that cause these big fund companies to sell off...??????????
    16 Oct 2012, 12:54 PM Reply Like
  • While some of that does occur, you just have to do your own research. I was heavily invested in NLY and others until the spread compressed, MBS prices rose, etc. and then an article by RegardedSolutions and a few others confirmed my concerns. When I saw those, I reduced my positions markedly and when REITs first began to struggle mightely I sold the rest of my position. On the aggregate, I got out within 10 cents or so of the recently highs. Did I have inside information? No. I just paid attention and did my homework. It's not impossible, it's just hard and takes an investment of more than mere money.


    In regards to the AGNC pop in volume, many institutional investors probably put 2 and 2 together as some of us did and liquidated their positions. Also, some of that is probably the fidelitys and Merryl Lynches of the world who got flooded with calls saying sell sell sell when customers saw their "stable low risk" mREIT take a 4% hit in one morning.
    16 Oct 2012, 01:07 PM Reply Like
  • The stock bounced back very well after that early day 8% loss. Those selling at the volume spike lost money yesterday, they did not make it.
    16 Oct 2012, 03:43 PM Reply Like
  • jerry,
    in this business world, it's never equal.
    Shareholders need to write to the SEC & the US Congress and ask them to enforce the rules.
    That's why now the SEC Hearing is going on.
    Check it out, and push them for more straight & tougher Rules.
    But ask those Congressmen to check on the enforcement side because the Congress wrote and passed those Rules & Laws.
    If we don't care, who else will ??
    16 Oct 2012, 05:02 PM Reply Like
  • mike,
    there are always some weak-hands who got scared out of their shares easy.
    Those greedy crooks know that.
    Always beware of "Tree Shaking."
    Never use the "STOP LOSS" feature, a trap to be used by those greedy crooks.
    16 Oct 2012, 05:04 PM Reply Like
  • Its not so much that 'someone knew something' its more that AGNC has the highest volume of $$ watching it compared to the other mREITs and has been one of the hardest hit (all the mREITs had huge volume spikes yesterday). If you look at where the huge volume spikes were it was mostly around the 10:30 mini-crash.


    More indicative of a day trading artifact than large investors running before the noise traders
    16 Oct 2012, 06:07 PM Reply Like
  • Thanks for your reply......I investigated several different sites and charts and other investment firms and no one said there should be a sell off of this the opposite.....there were buy signals out .......


    So if you don't mind, let me know the site(s) you go to that presented information indicating there were problems and you may want to consider selling ....


    I would appreciate your input......because this site never indicated a problem large enough that a 42,000,000 share sell off is possible....One third of the total outstanding shares..


    Please I would really like the site information you used to prompt you to sell and also how you knew how much to sell...


    18 Oct 2012, 11:24 AM Reply Like
  • I agree and have......a sell off of 42,000,000 shares in a day when the average volume is only 5,000,000 - someone hand is the cookie jar......especially when this site and many others indicated buy signals and price target of $37.00.


    I would like to know where "JLesinski" (above) got his information to sell when he did and why he choose the amount to sell...
    18 Oct 2012, 11:29 AM Reply Like
  • I was suckered into selling, but only half.
    19 Oct 2012, 06:35 PM Reply Like
  • I have been reading these comments and unloaded 250,000 worth of reit stocks and now biting my own tounge .bottom Line DO NOT PANIC


    16 Oct 2012, 01:08 PM Reply Like
  • Wow. You are rich!
    16 Oct 2012, 05:57 PM Reply Like
  • You are either a "trader" or an "investor" I am an investor and I know the market moves up and down in cycles. I believe the market is fixed to a degree by the high rollers. Although JLesinski insists that all of us could find out when the sentiment changes by just doing are homework I find that highly unlikely unless we are 100% into market happenings and research. He must make his living at this and has equipment most of us do not have. But he is right we do get advance warnings from people from Seeking Alpha but some of these people try to get you to sell as well as buy for their own reasons. I find it better to just make sure you buy good companies with good management and good cash floor and make sure they are making a profit. Then don't panic at the first sign of trouble. Remember you have to pay something to get out of the stock and another $$ to get back in. That is how investment houses make money: they make money when you sell and buy all the time. It is better, I think to do your homework and buy good solid companies and hold them until you actually need the money or they do something that might cause them to go bankrupt.
    16 Oct 2012, 01:33 PM Reply Like
  • I too would consider myself an investor, not a trader, and I assure you that I do not make my living in the financial sector. I'm a college student with a job which keeps me tied up almost consistently from 8-6 during the weeks. You have to make time every week to do homework on your holdings. I don't suggest the blind buy and forget strategy like Tomami, although I do favor buying high quality companies. I do put a heck of a lot more time monitoring my riskier holdings, like NLY and speculative positions than I do my positions like Coke. That doesn't mean that I don't take time every week to reseach KO, I just spend considerably less time doing it.
    16 Oct 2012, 01:42 PM Reply Like
  • JLesinski, I do my homework on a company before I buy them and I do monitor them daily and do a chart analysis etc on weekends. But I know I have good companies with good management (as far as I can tell from what I can read), I do not buy stocks with high P/Es. I want stocks that have good margins, good dividends, and plenty of free cash. But I figure after I have done my research and I believe the company is on sound principals and a solid all around company that has ample market shares or a niche, I buy it and will give it some time. I do not buy to sell; I buy to hold so I can take advantage of compounding. I own several REITs and I will keep them (such as AGNC, NLY, MTGE etc). I like good solid companies like PM, MO, MCD, KMB, PG, KO, T, TAL etc. I own very little tech stock because it may go up quickly, but it can go down even faster. Most tech stocks have very short durations for success; too much competition for market shares. Apple is a great stock but it will not be as strong in the future as it is now. I believe some people who have good gains in that stock should be very watchful because it could slide quickly and they would lose all their gains. I believe if you are heavy into technology you better be on top of it daily. My biggest holding is INTC and I am in it for the long ride. One thing INTC has in its favor is it has a lot of cash and it pays a good dividend. I enjoy talking about these things. I am a learner all the way.
    17 Oct 2012, 01:49 PM Reply Like
  • You were very smart to get out and sell off....Just would like to know where you got your information that prompted you to sell your shares and how determined how many shares to sell...


    I want to be tied into the sites you used for your information...
    18 Oct 2012, 11:37 AM Reply Like
  • This article in Bloomberg summed it up perfectly:


    “Investors’ appetite for even a reduced dividend is still pretty high,” Wunderlich’s Ross said. “Where else are you going to get that? Greek debt?”


    Morgan Stanley also sees the recent declines in mortgage REITs as overdone, driven by retail investors that are basing their decisions on “negative newsflow rather than new data points,” analysts at the bank wrote in a report today.

    16 Oct 2012, 02:22 PM Reply Like
  • Curious, why when there is so much misinformation spread in the market, especially about REIT's, would you make a decision before earnings are released by the company?
    16 Oct 2012, 02:45 PM Reply Like
  • holydawn,
    those misinformations are from the Greedy Crooks.
    That's why we all need to check on the SEC and make sure they don't do favor for the Greedy by keeping a blind-eye on those who broke the rules and get away with it.
    Keep writing to the Congress and ask them to check on the SEC, make sure no political favors.
    It is hard, but at least it help a bit.
    16 Oct 2012, 05:18 PM Reply Like
  • I still have not seen any quantified argument that would prove to me that the loss in spread for agency mREITs will be more negative that the increase in book value, accounting for hedges.
    16 Oct 2012, 02:50 PM Reply Like
  • And until these companies begin to report earnings, you likely will not see anything concrete from anyone. The question is what happens to the premium to book value if the dividend gets cut because the business looks less profitable over the long term? There seems to me a lot of noise around the space, but little facts, and a good deal of panic. At the end of the month, after the conference calls, we should know how everyone's books are holding up.
    16 Oct 2012, 03:46 PM Reply Like
  • Last I checked, dividends and the future of MREITs are dictated by the macro economics of the economy. As such, the long term future is outside of the control of any MREIT Board.
    17 Oct 2012, 09:35 AM Reply Like
  • Agree with kingdad comment 100%!
    16 Oct 2012, 03:07 PM Reply Like
  • jmacjohn,
    me too, agree with Kingdad's comment 100%.
    16 Oct 2012, 05:22 PM Reply Like
  • Are NLY, ARR, AGNC, MTGE, TWO...and so on, "bad" deals at 50% of the current dividend when HYD, HYG, PFF and the like average ~ 6%? I don't think so...I also don't expect a 50% cut is mREIT dividends...I've been long mREITS for a long time. I bought more yday. I'm buying today... I reserve the right to change my mind.
    16 Oct 2012, 04:00 PM Reply Like
  • If their stock price falls 50% also, then maybe so (bad deal). Still in NLY, have been for a year and a half, but the amount I've made from the dividend after the price drop is only 3% for that period. That's 2% on an annual basis. If the price doesn't go below today's close, $15.72, then at the next divi payment on 10-29, I'll have made 5.8% overall which is an annual 3.9%. If it goes down further, the yields get worse. So, the yield isn't everything. As dividends are cut, in this environment of QE3, the share price is dropping very significantly, to the point of making the total yield (dividend and change in share price) look paltry. Staying in for now.


    If the yield continues to decline into the 8% range, I would guess the share price would be single or close to single digits at that time? Doesn't sound like you would make money to me. Not with what I am experiencing.


    If NLY continues to cut its dividend, I'd anticipate to continue to see it's share price decline. Not sure what today's announcement of a share buyback program would mean. If it stabilizes the price, then fantastic. But it'll take me a year to make back some of what I've lost with the share price drop. At the current dividend level and current price, another year's dividends would get me back to a 6.75% return annually, unless I buy more, which would help a bit. Not great, but a lot better than my current return.


    But, if the price continues to drop with each dividend cut back like it has recently, I'll just have to fold and sell all of it.
    16 Oct 2012, 05:17 PM Reply Like
  • immfunds,
    I bought more today & yesterday too.
    Thanks to those weak-hands who got scared out of their shares.
    Quote from Peter Lynch : "DON"T GET SCARED OUT OF YOUR SHARES."
    16 Oct 2012, 05:26 PM Reply Like
  • Of course the yield on mREITs are on a slow, downward trajectory. Does this really surprise anyone? Riding the yield curve downward is still going to be a rewarding experience. Even if yields slowly drop into 5% - 8% range, where else can you get yields this good on agency-backed securities?
    16 Oct 2012, 04:01 PM Reply Like
    you are right.
    If Reits drop their yeilds to 5% - 8%, all other stocks will drop their yields also.
    16 Oct 2012, 05:28 PM Reply Like
  • If yields drop to 5-8% that would mean a significant drop in share price would it not? Riding the yield curve downward with NLY for me has resulted in a paltry 2% annual return, to date, for a year and a half of being invested. I don't call that rewarding.
    16 Oct 2012, 05:43 PM Reply Like
  • Anyone here know how to hedge agains reits?
    16 Oct 2012, 04:14 PM Reply Like
  • Buy puts or sell calls?
    16 Oct 2012, 04:17 PM Reply Like
  • I have a feeling that if we haven't bought any mREIT shares in the last day or two, we may have missed an opportunity.
    16 Oct 2012, 04:18 PM Reply Like
  • Well, if that is the case, I hope someone writes an article making the case for buying some. From my vantage point, owning NLY, it doesn't look good at all. If the share price stabilizes, then that would make me feel better. But the anticipation of dividends cuts due to QE3 suggest more share price declines, unless the currently announced share buyback can stabilize it.


    Currently feel like an idiot for not selling, but hanging in to learn from the experience. Thinking of forgetting of investing in individual stocks and putting it all in mutual funds and letting the "professionals" manage it.
    16 Oct 2012, 05:26 PM Reply Like
  • Vartu,
    Thanks to those who got Scared out their shares.
    16 Oct 2012, 05:30 PM Reply Like
  • mREITs forever!


    Long MTGE and TWO, for the 10% plus dividends.
    16 Oct 2012, 05:58 PM Reply Like
  • So maybe you sold a little or maybe you sold alot.
    Hopefully if you did sell it was right at the beginning
    of the latest 'Bear scare', because if you waited for
    a stock like MTGE to go under 23 to sell you're probably
    looking at todays bounce and sayin' 'what was I thinking?'.
    Yeah, the spread is thinner, but these Mreits, still have
    money to spend on dividends, soooo... be careful, but
    please don't get caught up in panic selling, it just ain't putting
    bread on the table.
    17 Oct 2012, 10:23 AM Reply Like
  • Up on my recent long-term purchase of NLY at $15.4X Thanks for the sale!
    19 Oct 2012, 10:59 AM Reply Like
  • NYMT is also on sale today trading at or near $6.60 and paying 16% div. I got to say I'm loading up, got 3k out of my 4k orders.
    19 Oct 2012, 01:57 PM Reply Like
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