Kinabalu

AmREITs on Fire: Prelude or Crescendo?

Nice to note the advantage over the S&P 500 since June, 2009 (total return for AGNC of 34%). These companies have been great bets for far longer than that however. I've been telling everyone I know about this great sector since last September, 2008, and in that time period AGNC is up about 90%, with dividends in cash not DRIP.

Will We See Inflation or Deflation?

The inverted yield curve would definitely be a problem for NLY & AGNC, but the hazard Smarty Pants describes ("If foreigners holding US debt start selling in earnest") has other complicated results. It will increase long term rates as well as short term rates thus driving down the value of the in-place portfolio of GSE securities at both those companies. That decrease would be particularly negative for the value of the collateral behind the short term repos used by both to finance their leveraged assets. Margin calls on those repos could be a much more severe problem than just reduced net interest margin.

Inverted yield curves happen for lots of reasons but are not likely right now. Sovereign Wealth Funds selling US securities...maybe more likely.


On Dec 04 01:18 PM america_f_yeah wrote:

> Smarty Pants,
> What you’re referring to is interest rate risk, credit risk is generally
> thought of as the risk of default. Certainly if the yield curve inverts
> (short term rates higher than long term rates) NLY and AGNC would
> not do well but the thesis in this article is based on the yield
> curve remaining steep.

American Capital Agency: Making Money the Old-Fashioned Way

The reason this company did so well in the stub period is that it put its entire portfolio in place when GSE spreads are at their highest levels in history. They completed their IPO in May and immediately put all the money to work at an 8X leverage. It was the best of all possible worlds to start in. The spreads won't be so good after the just completed FNM/FRE bailout. They will do well until the portfolio runoff catches up with them. But after that they will have to prove their worth.