Annaly Mortgage Management Inc. (NLY)
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NLY Forum Topics
- All Comments on NLY
- General Discussion on NLY
- Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
- Fannie and Freddie Are Largely Responsible for the Housing Bubble [view article]
- Soup Target; Cramer's Mad Money (7/22/08) [view article]
- Thursday Options Update: FRE, LEH, NLY, XLF, GE, EWH, XLP, SGR [view article]
- Seven REIT's Yielding Over 10% [view article]
- Stocks That May Take a Hit When (If) Oil Hits $150 [view article]
- Passing on Annaly - Cramer's Lightning Round Picks (6/6/08) [view article]
- Valuable Ideas from the West Coast Value Investing Conference [view article]
- Annaly Capital Management, Inc. Q1 2008 Earnings Call Transcript [view article]
- Annaly Capital Clicking on All Cylinders [view article]
- Annaly Capital Management: More Than One Way To Milk a Cash Cow [view article]
loading ...Recent NLY Articles
- Annaly Capital Management: Epitome of Low Risk, High Reward
- Fannie and Freddie Are Largely Responsible for the Housing Bubble
- Thursday Options Update: FRE, LEH, NLY, XLF, GE, EWH, XLP, SGR
- Stocks That May Take a Hit When (If) Oil Hits $150
- Seven REIT's Yielding Over 10%
- Valuable Ideas from the West Coast Value Investing Conference
- Annaly Capital Clicking on All Cylinders
- Annaly Capital Management: More Than One Way To Milk a Cash Cow
- Annaly Capital Management Selloff Overdone
- How Are REITs Holding Up in the Credit Crunch?
- Full List of Articles »
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Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
As near as I can tell, statements by the Fed are an explicit guarantee of the Agency Debt.Anybody who thinks that the US Gov can walk away from the GSE debt without 100% repayment is crazy. Yes, the people who are leveraged into the GSE will get bailed out. Deal with it. Nothing's been 'fair' so far, why expect the system to become 'fair' all of a sudden?
But, the bail out of leveraged investors will only be on the tail coats of the bigger objective which is to keep foreign entities financing our current account deficit. If the Fed paid back even only 99c on the dollar, the credibility would be ruined and interest rates on treasuries would shoot up dramatically as all the foreign countries (and sovereign wealth funds) would start to question the concept of "the risk free rate of return". If you undermine the notion of a 'risk-free-rate of return', you seriously damage the entire notion of modern finance. Then all bets are off, and you really are talking about the 'financial apocalypse'
So yes, your bridges won't get built, health care will continue to suck, the infrastructure will continue to crumble, because in the end it will be far worse for the country to default on debt that was 'implicit', then made 'explicit' than to worry a building new bridges.
Another words, the US Gov in meeting its larger economic and strategic objectives will also have the nice side benefit of 'bailing' out the leveraged GSE buyers as well.
It seems like the risk to NLY is really the shape of the yield curve and the fact that in the future, the spread won't be as much as in the past if Agency Debt starts trading at the same rate as treasuries. Reply
Fannie and Freddie Are Largely Responsible for the Housing Bubble [view article]
Fannie and Freddie (GSE's) guaranteed mortgage backed securities (MBS) are held to maturity - so day to day market prices of the the MBS's should not matter, unless they are traded. You using day to day prices coming out of a nervous market to calculate leverage.Given that the MBS's are now rock solid - (the "implicit" govt. backing) this leverage should not matter.
Reply
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
How about TMA Thourbung Mortg, any chance that they can come to play again or are they done? ReplyAnnaly Capital Management: Epitome of Low Risk, High Reward [view article]
Not sure since I have not done a detailed analysis of their financials. Would depend on what proportion of the Antworth and Capstead portfolio is in GSE debt, what level of leverage they have in place and their cash position.On Aug 10 04:00 PM Stuart, Atlanta, Ga wrote:
> Would these observations apply equally to Anworth and Capstead? Reply
Atlanta, Ga
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
Would these observations apply equally to Anworth and Capstead? ReplyGeneral Discussion on NLY
As I have said before, the soundness of a guarantee can only be assessed when it is is tested and in this case the government has demonstrated by action that it is squarely behind GSE debt - this to me is as explicit as it gets.Regarding Annaly's portfolio my analysis is based on data available in the public domain and some assumptions regarding how I believe the market will eventually reprice GSE debt in relation to treasuries. In my view finding good investments opportunities is all about combining incomplete data with assumptions to predict outcomes. It goes without saying that my assumptions, like all assumptions could be wrong, only time will tell.
Also, as outlined in my analysis the 10% markup is not essential to establishing the investment potential of NLY and even a 5% markup will result in very healthy returns.
In any case, rather than take somebody's word for it, I will wait until we have the benefit of hindsight to determine whether my contribution was additive or subtractive to the sum of human knowledge - and more importantly whether or not an investment in NLY at these levels turns out to be additive or subtractive to the net worth of those making the investment. Reply
Bottle
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
10% increase in the value strikes me as too agressive; if they had gone down by that much NLY would have been obliterated.Basic bond math tells you that change in value of portfolio approximates change in yield times duration of the portfolio.
It seems that you are overestimating the upside and underestimating the downside, given that (i) the entire agrument for the upside rests on this and you do not have enough information (and perhaps knowledge) to ascertain it with any precision, and (ii) you incorrectly stated that the government has provided an explicit guarantee on the agency debt.
The artcile subtracts from the sum of human knowledge, I suggest you do the right thing and ask to remove it as itis technically incorrect on key aspects. Reply
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
With respect to the REIT structure, consider too, especially in 2011 when the old tax rates return (39.6% for divs and cap gains):The nature of the distribution could include:
Return of Capital - lowers your basis
Interest - personal tax rates
Dividends - Right now, 5-15%; in 2 years 39.6%
Cap gain - Same as above.
You have little control over the classification of these streams when you get your K-1 document. So consider too that stocks like this and other high distribution stocks should or could be liquidated perhaps as soon as November 3rd, depending on who wins the elections, but since the tax changes in 2010 will require proactive legislation, it makes the older Clinton era rates pretty much a lock.
Best to all.
Reply
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
Charlie, it is hard to figure out the average duration on the long side of the NLY portfolio, based on publicly available data. However, during the last earnings call the CEO emphasized, multiple times, that they are in much shorter duration on the long side than is usual for them. Based on this, I have taken a simplistic view and have assumed that over the next 4-8 quarters the cumulative markup will be in the order of 10% which at current GSE pricing assumes an average narrowing of the spread (to treasuries of similar maturity) by 50-60 basis points. Do you think this is off the mark based on any publicly available data you have seen on the NLY portfolio?On Aug 04 05:05 PM Charlie_Bott le wrote:
> JAZ, what about my question on the relationship between the yield
> and the mark to market of the assets? What are your assumptions
> on the duration or the portfolio? Reply
General Discussion on NLY
Charlie, it is hard to figure out the average duration on the long side of the NLY portfolio, based on publicly available data. However, during the last earnings call the CEO emphasized, multiple times, that they are in much shorter duration on the long side than is usual for them. Based on this, I have taken a simplistic view and have assumed that over the next 4-8 quarters the cumulative markup will be in the order of 10% which at current GSE pricing assumes an average narrowing of the spread (to treasuries of similar maturity) by 50-60 basis points. Do you think this is off the mark based on any publicly available data you have seen on the NLY portfolio? ReplyBottle
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
JAZ, what about my question on the relationship between the yield and the mark to market of the assets? What are your assumptions on the duration or the portfolio? ReplyGeneral Discussion on NLY
Enter Annaly Capital Management (NYSE:NLY) with a business model that is stupid-simple:Having held NLY for over ten years and made money and not being a as smart as those who post here, the statment above is the core reason for my continued investment Reply
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
So how would the 92 or 94 cent value be more explicitly guaranteed by the US treasury? However they achieve it on paper, only a second test would reveal the strength of the second guarantee and if the treasury has reneged on (or negotiated) the original guarantee when it was tested for the first time how would it make the second guarantee more believable? Any move in the direction of negotiating (or arbitrarily fixing at a value below par) the value of Agency MBS would completely undermine the credibility of the US treasury and by extension undermine the entire US financial system. The government cannot and will not allow this to happen. Yes, there will be harsh consequences all around but such is the nature of our government's fiscal policy.On Aug 04 11:53 AM Greg Weston wrote:
> Of course it would be a huge shock to the financial system if GSE
> debt were suddenly worth 0 and there is not way the gov will let
> that happen, but that is not the question here.
>
> But a forced trade of current GSE debt for explicitly guaranteed
> debt at 92 or 94 cents on the dollar would only cause major pain
> to _leveraged_ holders of GSE debt. Like NLY.
>
> You guys think the 14% div on NLY is a free lunch. You are sorely
> wrong. Repairing bridges, health care for the uninsured, repairing
> the military after Iraq, or free money for the mostly rich and/or
> foreign GSE bondholders? No way, not in this political environment.
>
>
> By the way, the housing bill allows the GSEs to continue to fritter
> away their money in dividends. That is cash that won't be available
> for bondholders later on. There was a proposal to stop the GSE dividends,
> but it was killed.
>
> Also, we are looking at a deficit next year well north of $600 billion,
> and higher if the FDIC needs a capital infusion. It had $48 billion
> when the year started, and IndyMac's failure alone is going to wipe
> out $4 to $10 billion of that. WaMu's impending failure will be several
> times larger.
>
> NLY is a trip to a casino, and the substantial odds of a 100% loss
> on the stock in the next 12-18 months just don't justify the extra
> 11% dividend you get above CD rates. If you want to gamble, there
> are plenty of bets with much better risk/reward than this.
>
> Not to mention the other concerns raised here about an increase in
> short-term rates. Reply
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
Of course it would be a huge shock to the financial system if GSE debt were suddenly worth 0 and there is not way the gov will let that happen, but that is not the question here.But a forced trade of current GSE debt for explicitly guaranteed debt at 92 or 94 cents on the dollar would only cause major pain to _leveraged_ holders of GSE debt. Like NLY.
You guys think the 14% div on NLY is a free lunch. You are sorely wrong. Repairing bridges, health care for the uninsured, repairing the military after Iraq, or free money for the mostly rich and/or foreign GSE bondholders? No way, not in this political environment.
By the way, the housing bill allows the GSEs to continue to fritter away their money in dividends. That is cash that won't be available for bondholders later on. There was a proposal to stop the GSE dividends, but it was killed.
Also, we are looking at a deficit next year well north of $600 billion, and higher if the FDIC needs a capital infusion. It had $48 billion when the year started, and IndyMac's failure alone is going to wipe out $4 to $10 billion of that. WaMu's impending failure will be several times larger.
NLY is a trip to a casino, and the substantial odds of a 100% loss on the stock in the next 12-18 months just don't justify the extra 11% dividend you get above CD rates. If you want to gamble, there are plenty of bets with much better risk/reward than this.
Not to mention the other concerns raised here about an increase in short-term rates. Reply
Annaly Capital Management: Epitome of Low Risk, High Reward [view article]
CHARLIE-BOTT...Try SUBSTANTIALLY longer. Watch your spellng so as not to detract from your credibility. Reply