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  • Mortgage REITs continue to get repriced for lower yields going forward with earnings reports from JPMorgan and Wells Fargo not bringing good news. Both banks reported sliding net interest margins and booming mortgage business (some, if not most of which is refinancing) - an ugly combination for leveraged owners of MBS. [View news story]
    While the comments about continuing to own MReits due to their superior yield makes sense, why hold onto the ones that are selling at historically unsustainable price/book ratios, such as AGNC? Wouldn't one be better off waiting for these names to reprice and then move back in? When distributions are lowered, you'll have a much higher yield if you buy in at the more sustainable value than if you simply hang onto your current holdings, likely bought at the inflated price/book values. My guess is that AGNC will drop into a range that reflects a price/book of between zero and 5%. What's unknown at this point, of course, is "what is the current book value?" I would think that it's increased, but even if you factor that in, AGNC still has a couple of points to lose.
    Oct 12, 2012. 03:32 PM | 4 Likes Like |Link to Comment
  • Beaten Down American Capital Agency Corp. Is A Buy With Its 16.43% Dividend [View article]
    Thanks for that, David. I agree that the stock has typically sold above BV. I took a look at the history of price/BV a couple of months ago. The premium had averaged around 5%, but it was trading at a premium of around 15%-18% at that time. I felt that this premium was unsustainable, and I sold all of my mReits at that time. I think that the problem now is that with all of the drama in this market, nobody really knows (a) what the spread is likely to be over the next couple of quarters, and (b) nobody knows what the BV will be. That has always been true, but one could at least reasonably project a trend. So, too many unknowns, and as always, neither the broader market nor we mReit holders (or ex holders in my case) like this much uncertainty. The distributions on many of the most popular mReits don't happen until January anyway, so for me, there's no hurry to jump back in until we have a modicum of clarity.
    Nov 14, 2012. 12:07 AM | 3 Likes Like |Link to Comment
  • American Capital Agency (AGNC -3.3%) experiences a flash crash, plummeting 11% in the opening seconds of trade on volume of 5.7M shares (normally trades about 100K in the first 2 minutes). One wonders if any stops got triggered. [View news story]
    We discussed the historically high and unsustainable premium over book value for AGNC last week, with a lot of disagreement, saying that the excessive amount of the premium notwithstanding, people are still looking for alternative sources of high yield. It was our opinion that this would not be the case for long, since prices of MReits have much more correlation to company fundamentals (net book value, in this case) than almost any other equity security.

    Here it is.
    Aug 7, 2012. 11:05 AM | 3 Likes Like |Link to Comment
  • The Future Price Of American Capital Agency [View article]
    Thanks for this, James. There is one important metric, however, that I think could have been considered, and that is the market price premium over book value. AGNC's price/book had been running from zero to 5% until April, when it reached 12%. It is now at 17%, a record.for as far back as I looked. In comparison, MTGE's price/book is 9% (still also way above historic premiums), and HTGS is at a 6% premium. It seems to me that yield-chasers have driven the price of AGNC well above historic price/book levels, and that this very fundamental and important relationship is significantly unbalanced. Therefore, whereas up until recently, one had been purchasing shares of a company with a good business model that was priced at a number that had a reasonable relationship to that company's most fundamental value metric, one is now purchasing the stock strictly on the theory that yield chasers will continue to push the price higher, or even maintain the current price. In other words, we're out of fair value territory and into speculative territory on this name. Your thoughts, please.
    Jul 31, 2012. 10:32 AM | 3 Likes Like |Link to Comment
  • AT&T (T -5.4%) gets slammed as 3 downgrades arrive in response to its Q1 revenue miss, the result of soft wireless subscriber adds and declining wireline revenue. There might also be concerns about whether lowering 2014/2015 capex targets (to fuel more buybacks?) is a bright idea in light of flagging growth. AT&T's 296K Q1 postpaid net adds (boosted by tablets) and 184K prepaid net losses are easily worse than Verizon's respective net adds of 677K and 43K. On the earnings call, AT&T mostly blamed wireline weakness on macro and government issues, rather than legacy voice service declines. VZ -1.9%. CTL -4%. WIN -2.2%. FTR -1.1%[View news story]
    These downgrades almost always provide great buying opportunities. I've wanted to add to my T position, but I've been waiting for a market selloff. Not waiting any longer.
    Apr 24, 2013. 11:40 AM | 2 Likes Like |Link to Comment
  • Beaten Down American Capital Agency Corp. Is A Buy With Its 16.43% Dividend [View article]
    I'm having a hard time understanding how the increase in book value has added to the investment value of AGNC. Like most other investments, the basis is the return. In the case of AGNC, with the squeeze on spreads and the decrease in leverage, I can't imagine that the dividend is not going to be cut. At the very least, it is certainly suspect, so purchasing the stock at this point becomes speculation rather than a solid investment play. Book value, shmook value - if it doesn't result in an increase in the price of the stock or an increase in return, it's academic.
    Nov 13, 2012. 10:41 PM | 2 Likes Like |Link to Comment
  • "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. [View news story]
    As I mentioned in my comments of a month or so ago, AGNC sellling at a premium of 15%+ over NBV is not sustainable.
    Oct 10, 2012. 04:52 PM | 2 Likes Like |Link to Comment
  • American Capital Agency (AGNC -3.3%) experiences a flash crash, plummeting 11% in the opening seconds of trade on volume of 5.7M shares (normally trades about 100K in the first 2 minutes). One wonders if any stops got triggered. [View news story]
    I agree. Little reason to buy, especially 12% above book, already down from the 17% at such time that we shared our concern with everybody only a couple of weeks ago.There is probably truth to the idea that if there was any time that these names should attract a premium, it would be now, with the paucity of reasonable options. Nevertheless, AGNC has never proven that it can sustainably attract premiums that we're seeing at current levels. AGNC et al are very attractive investments, and market timing rarely works. Still, at this point, AGNC is so grossly overvalued in relation to any past performance that the risk/reward ratio is too strongly skewed to the downside. I sold out of all of my positions in AGNC, MTGE and HTS right at the top (50% smart and 90% luck). I have since begun to add back a small percentage as the prices correct, and I'm now at about 25% of where I want my total investment in this space to be. I'll continue to be a buyer if these stocks decline, and I will jump back into AGNC all the way if its premium declines to a more sustainable 5% or so.
    Aug 11, 2012. 01:09 PM | 1 Like Like |Link to Comment
  • "Our biggest competitor for assets is the Fed," says CYS Investments (CYS) CEO Kevin Grant on the earnings conference call, describing what may be becoming a frothy mREIT sector as yield-starved investors elbow out not only each other, but the central bank.  [View news story]
    II have been a long-time holder of AGNC, MTGE, and HTS. I've done very well, both via appreciation and distributions. I think, however, that the risk/reward ratio for these stocks is too heavily weighted toward risk at this point in time, with the possible exception of HTS. The reason is that the premiums to book value are historically extremely high. AGNC and MTGE might have gotten way ahead of themselves. For example, for the last 5 quarters, here are the premiums over NAV for AGNC as I calculate them - 0%, 5%, 1.5%, 4%, 12%, 17%. The last 3 quarters for MTGE are: negative price to NAV, 4%, 9%. The price/NAV for HTS is high, but not nearly as extreme. As one of the commenters noted, the retail buyer might still clamor for these high yields, but the fact that the premiums to NAV are so high means, for me, that holding these stocks now is more a matter of "playing the market" than buying an investment whose stock is well-priced fundamentally..
    Jul 19, 2012. 03:39 PM | 1 Like Like |Link to Comment
  • The mortgage REIT sector ticks down on news the Fed is reloading to flatten the yield curve even more. The mREITs make their living off of a steep curve, levering up to borrow short and lend long. Two popular ones:  AGNC -1.1%, NLY flat (but both lower than before the announcement).  [View news story]
    In my view, the MReits are acting very well today (I follow AGNC, MTGE, and HTS).
    1. On ex-div dates, these stocks normally decline by more than the amount of the dividend. Yesterday, AGNC's price decline was less than the amount of the dividend.
    2. The entire market is down, and as we know, correlation is high right now, so it's not surprising at all that the MReits are down, and they're not down that much in relation to the rest of the market.
    3. It looks to me that these stocks are not reacting much at all to the Fed's announcement today, simply that they're declining along with everything else. If they were reacting, one would expect a much greater decline. AGNC, for example, is about where you'd expect it to be, having now declined lower than the amount of the dividend (as expected), and then being lower in concert with the rest of the market.
    Jun 20, 2012. 03:21 PM | 1 Like Like |Link to Comment
  • Waste Management: 1 Solid Long Term Buy [View article]

    Why will you like WM better when competing income-generators become more competitive?
    Oct 10, 2013. 01:19 PM | Likes Like |Link to Comment
  • Continued panicky action grips the mortgage REIT sector (REM -3.5%) at the open as the global stock selloff as yet offers no relief on interest rates. Adding to the fear is an opening print of -25% on the Market Vectors Mortgage REIT ETF (MORT -3.7%). American Capital (AGNC -4.5%), (MTGE -2.6%), Annaly (NLY -2.8%), Armour (ARR -4.8%), Invesco (IVR -4.4%), Hatteras (HTS -3.9%), CYS Investments (CYS -3.6%). Set for release from embargo tomorrow is SA Pro's REIT Analyst arguing the selloff in AGNC has left the price about 20% below book value. [View news story]
    A few months ago, when exuberance over AGNC was rampant, I suggested that being 18% above book value was unsustainable. Being 15%+ under book value is also unsustainable.
    Jun 24, 2013. 02:34 PM | Likes Like |Link to Comment
  • American Capital Agency (AGNC -0.7%) is getting no pressure from its lenders to reduce leverage in light of the decline in mortgage prices, says CIO Gary Kain, responding to a question at the Morgan Stanley conference (webcast) (slides). If anything, he says, AGNC has room to take up leverage to an even higher level (it averaged 8.2x in Q1). Previous: The presentation discloses book value loss in Q2 through June 7 is similar to that of Q1. [View news story]
    Amen, Illola. Way too many unknowns make this a crapshoot.
    Jun 13, 2013. 06:22 PM | Likes Like |Link to Comment
  • MLPs are staging a bit of a recovery today after several days of losses amid rising interest rates, with key drivers Enterprise Products Partners (EPD +1.9%) and Kinder Morgan Partners (KMP +1.8%) showing the way. But as the move in longer yields was only about 60 basis points, 24/7's Jon Ogg shudders to think what could happen to MLP pricing if rates rose 150 or 250 bps. [View news story]
    The rollover in MLP's did not correlate directly with the move in yields. The move has had more to do with fear of the Fed "tapering".
    Jun 6, 2013. 02:54 PM | Likes Like |Link to Comment
  • 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%[View news story]
    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.
    Dec 16, 2012. 12:07 PM | Likes Like |Link to Comment