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A check of mortgage REITs as the Fed looks to continue banging away at their net interest...

A check of mortgage REITs as the Fed looks to continue banging away at their net interest spread: Among the pure-agency REITs, HTS, which slashed its dividend last night, -2.3%. Also, AGNC -1.2%, but NLY +0.8%. The non-agency players mostly fare better, DX -0.1%, IVR -0.3%, EFC -0.1%.
Comments (35)
  • Would someone like to take a stab at explaining why NLY is up?
    12 Dec 2012, 01:37 PM Reply Like
  • More buyers than sellers. LOL hahaha... Sorry, :^)
    The market somehow knows in advance what is coming, and reacts accordingly. It appears that on the 8th, news came out negative for NLY and looking at the chart over the last 6 months, NLY has been trounced, to put it mildly. So, now, after the fact, it reaches a value point, and begins the slog back up. Remember, my take on all stocks is the same. Going up they are climbing a greased pole with their strength. When the strength gives out, they lose their grip, and ..... now it is beginning a long climb back, so just maybe, but for a black swan, now is prolly the time to get in and capture the highest dividend it will show for some time to come given the economic outlook of the next 6 months. Hope that helps and is true.
    Capt. Brian
    The Lost Navigator
    12 Dec 2012, 02:07 PM Reply Like
  • I love the banter on the REIT's, I am learning as I hold my breath (and my REIT's) AGNC, NLY, ARR, CYS....I bought awhile ago and would like to recoup my loss of the dip in price with the dividends. Any thoughts as to if this is possible?
    12 Dec 2012, 05:58 PM Reply Like
  • Brian, keep your posts coming. I like them.
    12 Dec 2012, 07:13 PM Reply Like
  • Two things to help you, DB. One is you bought the REIT for the dividend, correct? So, it dipped in price, and if you still hold it, you must still like it. So, you act as if you did not own it now. Would you buy it now? Yes____, No_____. If yes, then you would be averaging down your buy-in price, and your would be averaging up your yield, correct? Lowering your risk, and raising your income. Does that sound like plan. So, if you shot your wad, just stay with it, collect your coffee money, and look for black swans, and greener pastures. Always have a plan ready to change. There is always alternatives. If something bad comes along with the issue you are in, you can change between appointments or coffee shops with the flick of a mouse tail.
    Happy coupon clipping.
    Capt. Brian
    The Lost Navigator
    12 Dec 2012, 08:43 PM Reply Like
  • Hey Capt.,


    Your comments always help.


    I bought a few more shares of NLY today.
    13 Dec 2012, 05:50 PM Reply Like
  • I have always said to hold silver with the REITs and my silver PSLV is making up for what I am down on
    12 Dec 2012, 01:37 PM Reply Like
  • I noted that my CEF and SLW were up today, but I didn't make the connection with REITs until you spoke here. Thanks. I'm going to work the charts and see how the correlation runs. I did buy more AGNC today.
    12 Dec 2012, 02:59 PM Reply Like
  • Silver is a joke.
    12 Dec 2012, 01:51 PM Reply Like
  • AlbyVA
    Care to elaborate on that? And if not, could you tell me why you are negative on Ag?


    Capt. Brian
    The Lost Navigator


    PS, Ur gonna love my next article.
    PSS: Does the VA in ur name have anything to do with the Vet's Admin?
    12 Dec 2012, 02:09 PM Reply Like
  • Here is why Silver is a Joke. First and Foremost, silver is not money. The second people view it has money, their decision making will be clouded. Silver is a Commodity. It is a metal who's primary demand comes from Industry. As a result, the value of Silver will be dictated by the Demand placed on Silver from the Global Economy. If industry isn't booming, Silver will not be booming. In short, Silver's value will be moved by Global GDP than anything else.


    So anybody buying silver because the have concerns about the world ending, central bank money printing, or anything such nonsense will be disappointed. Same theory applies to Gold, except it's demand comes from the Jewelery market. About 75% of Gold mined is turned into jewelery. So if people in India and the rest of the world are broke, Gold will suffer.


    As for (VA) is stands for Virginia. :)
    13 Dec 2012, 09:12 AM Reply Like
  • AlbyVA:
    Once upon a time, a long time ago, someone needed some salt with his dinner. Even animals know, somehow, that they need salt. This is why farmers give penned creatures 'salt licks'. As humans developed from hunter gatherers, to more focused occupations like sewing, building, manufacturing wheels and stone axes, and so on, they did not have time to get their own salt. So, one of the Neanderthals decided he had gathered more salt than he needed. He wanted some shoes. He went to the shoemaker, (who had no time to gather salt) and pointed at the shoes, then at his salt. And bartering began. Now it came to pass that another fellow lived near a hole in the ground that had a shiny metal which no one else had. He took some out of the ground and wore it proudly as a sign of his personality. The fellow with the salt saw it, and asked if he wanted to trade some of his nice metal for some salt. (By using the old, pointing language they had), and he 'bought' the silver by 'trading' his salt for the silvery metal. (See how this happened?) So silver bought the salt, as some salt bought shoes. This was the first day money was used, and that money was salt. Silver, cannot be lived in, or eaten and it was so rare and likeable, folks wanted it and to get it, they would trade work or salt or other items. Silver became and still is, money. Silver may be the best insurance against your money's buying power being worth substantially less than it is now. Now if you just will not liberally, agree with me that silver is money, how about just call it an investment like a futures contract in corn or wheat or pork bellies? How about buying some, and wait until your dollars will not buy as much bread as it used to, but the same amount of silver, traded for the value in dollars of the day, will buy the same amount of bread that it did before. Gold used to trade even, a pound of salt for a pound of gold,things have changed and your thinking may need a little updating about silver....Which is up way over 150% in a few years. What else can you say that for?
    Gold, silver and dollars are worth the value two people place on it for a trade. Simple as that.
    Anyway, hope all is well forever.
    Capt. Brian
    The Lost Navigator
    14 Dec 2012, 04:55 PM Reply Like
    12 Dec 2012, 01:57 PM Reply Like
  • NLY. If you remove the dividend question, what happens to the stock value? That's right...and it reduces further value speculation.
    12 Dec 2012, 02:10 PM Reply Like
  • I am a retired banker of 37 years. I have seen markets go up and down not unlike a pendulum. It goes from one extreme to another before it reverses itself. When the DOW has moved to about 13,500 it then has gone down hill a number of times. Good stocks often go down with marginal ones. We are getting close to a sell off in my opinion. Build some liquidity and position your portfolio for buying at lower prices.
    I have been in the market for 55 years. It's the same game. Do your research, buy low and sell high ---and---pray a lot.
    12 Dec 2012, 04:31 PM Reply Like
  • Hate the hyperbole... HTS "SLASHED" its dividend. It was a modest reduction from $.80 to $.70 cents. Lets not create panic where there needs to be none.Everybody expects some dividend reductions due to the tightening of spreads.Its up to the individual to decide if they are comfortable with that.
    12 Dec 2012, 06:28 PM Reply Like
  • Dear Fellow investors, I am a 82 year old widow married for 63 years having lost my husband last January, he was 90. Since then I am responsible for my finances. My husband loved trading stocks although he was not really successful financially it was a lot of fun for him. I learned watching him and when he died I invested his $50,000 life insurance in AGNY and NLY. My account is 60% fixed income with corp. consisting of 25,000 NYS GO bond purchased as an initial public offering and 25000 NYThruway bond, also ipo and 25,000 6% Goldman Sachs ipo bond. I have 2000 CMO/prb shares paying 8% and some CMO. I hold Vanguard funds: Inflation protected, NYLong term tax ex. and Vanguard S&P etf shares.. I also have 1200 shares of ARR and finally I hold 1200MarketVectors ETF TJr Gold mines etf. I tried to cover all bases with my limited knowledge of the markets. Currently my accounts (one IRA Included) add $19,000 yearly to my limited pension, social security and small annuity. I have managed to date to earn $11,250.94 earnings on my investments. When my husband died his pension and ss went with him ($50,000) and I felt income was my primary goal. You can imagine any information received from Seeking Alpha is greatly appreciated from folks who are struggling along as I am. I think luck has played a role in my success, but don't know what the next year will bring.
    13 Dec 2012, 02:16 AM Reply Like
  • . I own MORT, REM, KBWD, which are safer than individual REITs. If the market crashes, all REITs will go down. But owning EFTs does protect one from stupid mistakes by management of one firm. Dear Joyce As lord Keynes said, God is a barbarous relic. I never have been able to bring myself to buy gold becuase lbecause it has little usefulness and thus no intrinsic value. It’s pure speculation on the bigger fool theory.


    Sometimes I think about the speculators who buy gold as an “inflation hedge.” There is no inflation in sight for years to come. Someday it will return. At that time, do they intend to take a gold coin to the local food store and use it to buy Froot Loops? If so, they will be severely disappointed when the grocer refuses to accept it because he won’t know how many boxes of Froot Loops it’s worth.


    There are two left-wing “progressive” raido talkers whom I despise for selling advertising for gold buillion to their listeners. They are supposed to be for the little guy, and here they are raping the little guy.
    13 Dec 2012, 11:06 AM Reply Like
  • Blondie-this what we all do; but, its hard to find admission.
    13 Dec 2012, 02:37 PM Reply Like
  • Is the book value numbers on these stocks leveraged as well or is the current book value number reflective of all leverage unwound?
    14 Dec 2012, 03:27 AM Reply Like
  • ka12345-


    There are 2 unknowns right now - the 2 most important for making mReit investment decisions. At this point, we only know what the book value and the spreads were for the 3rd quarter. I sold all of my AGNC when the premium to book value rose to 18%, and I felt that was not sustainable. Many on this thread disagreed, but it was not, in fact, sustainable, and it's now selling below 3rd quarter book value. Right now, there is no "current" book value available to investors - we'll have to wait until January or possibly early February, when AGNC and others announce book and spreads. So, for now, we don't know if AGNC (and others) is selling at book, below book, or above book. As of today, AGNC looks like a bargain, since it's selling below 3rd quarter book. But, book might have declined since, and it could actually be selling above book. Again, the other unknown is what the spreads have done since Q3, and my bet is that they're lower. To the point, I'm waiting for more information before I jump back in, although as it declines, I might begin to build a position, but no more than 5% at a time.
    14 Dec 2012, 12:24 PM Reply Like
  • So we are always going to be one quarter behind on knowledge of the true book value?


    And... when the Fed stops or reduces their buying of MBS the book value will drop.


    And... it looks to me that AGNC, in the last quarter, only earned approx $2.85 per share but paid out $5.00. They are doing this out of accumulated cash on hand?
    14 Dec 2012, 04:10 PM Reply Like
  • Obama gave it to them, no problem, he likes to help the needy.
    Capt. Brian
    The Lost Navigator
    14 Dec 2012, 04:58 PM Reply Like
  • moishep, andka12345,
    I don't have time to look for it right now but Agency securities are traded on the open market every day. It shouldn't be too hard to find pricing information and see generally which way they are trending.
    15 Dec 2012, 12:30 PM Reply Like
  • Hate the hyperbole... HTS "modest reduction". The dividend was "slashed" 12-1/2 %. We deal in % (yields), a reduction from $.80 to $.70 cents is not modest. I don't know why "Everybody" should expect some dividend reductions due to the tightening of spreads. Its up to the REITS to move on, if their investment over the past (days, mos or yrs starts to "Tank". Is that a better hyperbole?) Where do "THEY" go, maybe non-agency "backed" mortgages? Not "Everybody" thinks so, but its a start to protect an investment that yields % (dividends)
    14 Dec 2012, 08:13 PM Reply Like
  • It should be noted that any slashing of dividends by MREITS aren't the result of arbitrary actions by the board. They are actions dictated by the marketplace, given the fact that MREITS have to payout 90% of their profits in dividends. So if the dividend falls, it's because less profit is flowing into the MREIT, which means the market in which it makes money is taking a hit. In short, the Fed is putting the squeeze on.


    But in the grand scheme of things, MREIT's money making assets are not junk. They are valuable and backed up by the Government. And although yields might decline, they aren't declining because the business is going bellyup. It's because the Fed keeps tightening the screws. All that said, MREIT yields still exceed any other safe investment by a factor of 3-5x. Which would you rather hold? AGNC paying 16% or a 10yr Treasury Note paying 1.5%?
    15 Dec 2012, 11:44 AM Reply Like
  • Considering that some dividends have been cut 50%, 75%, 90%, or even 100% I stand by my position that 12-1/2% is a modest reduction. By "Everybody", which seems to upset you so, I mean everybody who has authored an article or offered an opinion in this forum has consistently said they expect dividend reductions in the future. By "They" I mean the individual investor who must decide if they are comfortable with the reduced "%" yield that results. I wasn't and sold half my AGNC at $36.42 and all my HTS at $28.98. I am happy, happy!!!
    15 Dec 2012, 12:13 PM Reply Like
  • I don't understand why very few people here take into account loss of capital on mreits and not just loss of dividend. perhaps folks could start posting what there average buy in price was so the rest of us can view their comments in some sort of perspective?
    15 Dec 2012, 10:19 PM Reply Like
  • I first bought AGNC at $16.85. I bought 5 more times up to $26.49. As I said sold half at $36.42. Am sorry I didn't sell all and buy back later. May buy tomorrow. See what the price is.
    16 Dec 2012, 11:47 AM Reply Like
  • PS I am also happy to see that, as I predicted in this space, AGNC did not cut it's distribution (correct term of which I too am guilty of using) for the 4thQ.
    15 Dec 2012, 12:27 PM Reply Like
  • Sorry ignore dist/divvy comment. Having a MLP brain far*.
    15 Dec 2012, 12:42 PM Reply Like
  • Re being one quarter behind in book value:
    AGNC's book value, on average, mostly bracketed around the 5% premium range. So, normally, book value was not something that one needed to be that concerned about, since it was almost always the same. It's only been "aberrant" since late September, when it spiked up to an 18% premium that BV became a concern to me. Up until then, my answer to you as to whether one is always a quarter behind would have been "no", since it was almost always about the same. At that point, I was able to look into a rear view mirror, see that the premium was way above normal, and decide to sell. My crystal ball, however, is not nearly as effective as my rear view mirror, and we'll have to see if book values for some of these mReits stabilize again for a reasonable period of time. At this point, however, there are so many moving parts involved in determining the valuation of this group, that there are going to be many more things impacting the group than as been the case for the last couple of years. They are, among others, the wide swings in BV, the decreasing spreads (at least for now, but maybe that trend is now stable), the repayment rate, which has been excellent, on balance, for AGNC, the Fed's ongoing purchases of agency paper, and the dividend tax issue, which does not really apply to mReits, but the pubic perception is that a dividend is a dividend, even though distributions from mReits are actually quite different. Hope this helps.
    15 Dec 2012, 03:54 PM Reply Like
  • Pablomike
    mReits are, indeed, traded every day, but net book value (and spread) is only made available to the public by each company once every quarter.
    15 Dec 2012, 03:56 PM Reply Like
  • Moishep,
    I was referring to ABS, Asset Backed Securities. They are traded in the open market. If you read AGNCs earning report you will see that they had $210M net realized gain on the sale of securities. They also reported $1.2B unrealized gain on the value of securities held. Thus the gain in book value. I was suggesting that following the market price of these securities would give you a direction as to the Book Value of AGNC.
    16 Dec 2012, 11:32 AM Reply Like
  • I agree, Pablomike. The only issue here is that between quarters, you don't know exactly what securities they're holding and what there value is. We only learn that quarterly.
    16 Dec 2012, 12:07 PM Reply Like
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