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Languy

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  • What's Next For Annaly? I Think A Dividend Hike [View article]
    Monthy dividends would be smaller than quarterly dividends, so the ex-dividend share price drops would be smaller for monthly dividends. This would result in smaller share price "surprises" for those folks who don't closely follow the exact ex-dividend dates. Comments?
    Apr 5 12:35 AM | Likes Like |Link to Comment
  • What's Next For Annaly? I Think A Dividend Hike [View article]
    It seems to me that, with monthly dividends, the monthly ex-dividend drop would be smaller than the quarterly ex-dividend drop, because-- obviously-- the monthly dividends would be smaller than the quarterly dividends.

    This would result in smaller share price "surprises" for those folks who don't keep track of the exact ex-dividend dates. Comments?
    Apr 5 12:28 AM | Likes Like |Link to Comment
  • Rising Mortgage Rates Makes Annaly Capital A Strong Buy [View article]
    Regarded--
    Like you, I have also learned much from the comments on this thread. I’m a retired chip design engineer-- a real numbers guy-- a spreadsheet guru. Nevertheless, there were several important aspects of MREITs that I really didn’t understand until now. Congratulations to you for a really great article, and to those contributors who have made many enlightening comments.

    Long NLY.
    Jul 11 09:39 PM | Likes Like |Link to Comment
  • Largest Move On Rates Bar None [View article]
    jzkl1234--
    Your statement below is hard to refute and is most certainly true:
    "I agree with buying the S&P and holding because that is a very diverse index and the US has been a great place for investor capital. However, any one stock poses a lot of risk and NLY is no exception."

    So it's going to be really interesting to see how this NLY movie plays out in the long term...

    I'm sure that most SA folks understand what happens to MREITs when long term rates increase/decrease, and/or when the spread increases/decreases. Obviously, the folks running these MREITs must also understand these *very basic* risks. So the real question is: How skillful are these folks with regard mitigating these basic risks? As Regarded has repeatedly pointed out, the NLY folks have done a great job in the past, in all kinds of interest rate environments. So it's probably safe to assume that NLY won't go belly up anytime soon.
    Jul 10 06:31 PM | 1 Like Like |Link to Comment
  • Largest Move On Rates Bar None [View article]
    Paulo & jzkl1234--
    Thanks for your comments. They are deeply appreciated.

    I think that when most retired folks invest capital that they probably won’t need for many years (if at all), they usually concentrate upon the stream of payments (dividends) that they receive, not upon the absolute value of their capital. In other words, they regard their income stream as spendable, whereas they treat their capital as a non-spendable “nest egg”. Of course, this “strategy” inherently assumes that their capital will not permanently erode, or --worse yet-- completely disappear!

    The above “strategy” often makes sense because, in the very long run, history has shown that capital losses can often be avoided. In other words, extreme patience is a virtue!

    Many folks on SA have reported that they have successfully employed the above investment approach. In many cases, the dividends that they have collected, over many years, have exceeded their initial capital investment. So even in the worst case “black swan scenario” where their capital completely disappears, they will not have to endure a net capital loss.

    Since I’ve already made a commitment to owning NLY, my investment strategy (if you can call it that) is close to the above. In other words, I will hang on to my NLY shares and assume that NLY will not go belly up. I will also continue to collect the dividends, and hope that they will not go ridiculously low for a long period of time. Not exactly a scientific approach!

    BTW, the average yearly long term gain of the S&P 500 is approximately 10% before inflation, and 7% after inflation. Since NLY is likely to exceed these numbers over the long run, it’s probably not a bad investment.
    Jul 9 05:41 PM | Likes Like |Link to Comment
  • Largest Move On Rates Bar None [View article]
    Paulo—
    I read your excellent article “Largest Move On Rates Bar None”, in which you make a number of excellent (and irrefutable) points. Your discussion of “extension risk” and “the hedging myth” is spot on. And as you correctly point out, owning NLY is equivalent to owning a leveraged portfolio of long duration fixed income bonds. Since it is almost certain that interest rates will substantially increase over the next 2 - 4 years, owning this type of portfolio over the long term is a really scary thought!

    As you correctly point out, we really don’t know the NAV (book value) of NLY on a daily basis, making it impossible to say whether NLY is under priced or over priced on any given day. Of course, the most important issue is the NAV trend, not any particular daily value.

    I’m still a bit confused regarding when it would be wise to purchase an MREIT. Of course, if long and short term interest rates were to remain stable for a very long time, purchasing an MREIT paying 10+ percent interest would be a no brainer. However, since short/long term rates continually change, there is always some interest rate risk and extension risk that cannot be completely arbitraged away.

    Ignoring black swans, which by definition are extremely rare, it seems that there are 4 “basic” cases to consider, with the following results:

    Case 1: Long term rates are increasing, short term rates are increasing
    Result: BV decreases (bad), the spread may go up (good) or down (bad).

    Case 2: Long term rates are increasing, short term rates are decreasing
    Result: BV decreases (bad), the spread goes up (good)

    Case 3: Long term rates are decreasing, short term rates are increasing
    Result: BV increases (good), the spread goes down (bad)

    Case 4: Long term rates are decreasing, short term rates are decreasing
    Result: BV increases (good), the spread may go up (good) or down (bad).

    In light of the above, would you ever advise anyone to own an MREIT under any circumstances?

    Long NLY.
    Jul 8 08:40 PM | Likes Like |Link to Comment
  • Rising Mortgage Rates Makes Annaly Capital A Strong Buy [View article]
    jzkl1234 --
    Thanks for the comment. I totally agree that mbs prices will go down when long term interest rates go up. I also agree that, when long term interest rates are rising, the value of an mbs “bond” will decrease as its expected maturity (i.e. its duration) increases. However, the real question is this: What was the expected duration BEFORE long term interest rates began to rise, and what is the expected duration NOW?

    Of course, since NLY hedges at least part of its portfolio, a “pure-duration-based” analysis would have to be “adjusted” in order to give a meaningful result.

    Long NLY.
    Jul 6 12:20 PM | Likes Like |Link to Comment
  • Rising Mortgage Rates Makes Annaly Capital A Strong Buy [View article]
    Hello Pine,
    Although I currently own quite a few shares of NLY, and (unfortunately) my average price per share is a whopping $16.60, I am still tempted to purchase a few more shares with a limit order of $11/share.

    You commented that with 7:1 leverage, a 14% loss would give NLY negative book value. Furthermore, under this condition, no one would lend them money. Although this is probably true, this assumes no hedging-- right?
    Jul 6 01:42 AM | Likes Like |Link to Comment
  • Confusion From The Fed Has Driven These mREITs Into Bargain Territory [View article]
    Hi Ka12345—
    Thanks for your reply. If I understand you correctly, I think that you are saying that NLY doesn’t "permanently own” a significant portion of its previously purchased inventory (in a sense that it was bought with non-borrowed cold hard cash). Therefore, NLY must continually borrow to “own” its book. In this case you are absolutely right— rising repo rates, margin calls and long duration could kill them. Hedging could mitigate some of the pain, but pain there will be.
    Jun 25 02:48 AM | Likes Like |Link to Comment
  • Confusion From The Fed Has Driven These mREITs Into Bargain Territory [View article]
    In order to avoid capital losses, could NLY simply choose to retain a sizeable portion of their low yielding bonds to maturity? Of course, due to rising long term interest rates, doing this will negatively effect their future income. Bernanke has said that he may choose to retain the low yielding bonds that he has already purchased. However, his job description doesn’t include a goal to maximize the Fed’s income.

    Also, because NLY’s current book value is probably less than their last “officially published” book value, the ratio of their current price to their current book value may not be as low as some people think.

    Long NLY.
    Jun 24 06:02 PM | Likes Like |Link to Comment
  • Annaly Capital Is On Sale Now [View article]
    Retired Engineer. Long NLY.
    Jun 6 03:37 AM | Likes Like |Link to Comment
  • Annaly Capital Is On Sale Now [View article]
    Thanks for your reply, Itscalledcommonsense. I'll check out Annaly's latest 10K/10Q. I totally agree with your comment that MREITs cannot hedge their whole book, else they will forgo most of their profit. Since I'm long quite a few shares of NLY, I think it's time for me to do some real homework!
    Jun 6 03:36 AM | Likes Like |Link to Comment
  • Annaly Capital Is On Sale Now [View article]
    As reported ad-infinitum on SA, MREITs make more money as the spread between long term interest rates and short term interest rates increases. Thus, if long term rates increase but short term rates do not, an MREIT’s near-term income will increase.

    Unfortunately, when long term rates increase, the value of an MREIT’s existing mortgage portfolio will decrease, decreasing the MREIT’s book value, which usually decreases its share price.

    What I’d like to know is this: How can MREITs hedge the value of their existing mortgage portfolio (at a reasonable cost) against increasing long term interest rates?
    Jun 5 06:15 PM | Likes Like |Link to Comment
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