Don't Get Suckered By This Popular High-Yield Investment [View article]
"Interest-rate risk is at the fore. A sudden spike in interest rates would simultaneously lower the value of the MBS collateral while raising the cost to fund that collateral."
Yes, the value of the MBS would decline, but both AGNC and NLY convert their variable rate repos into fixed rate with interest rate swaps, hedges. As rates rise, the rate they pay on the swap remains fixed, but the rate they receive on the swap increases. That yields increased revenue. This helps mitigate the increasing cost of repos as rates rise. A spike in rates would yield a spike in revenues from the hedges.
I believe both aforementioned mREITS can successfully weather a rising rate environment. The book value and share price might take a hit, but the dividend will help offset that.
3 Key Metrics That Show Why We Can't Avoid Recession [View article]
ronwagn,
I'm sure there is abuse of the system, no doubt about it, that is human nature, to take advantage for selfish reasons. It's certainly exemplified in our corporate culture, not just in the lower class.
Show me some numbers as to how many people there are who don't want to work. I honestly have no clue how many there are. I get tired of the conservative/Republican rant ( I am a conservative/Republican) about half truths. I don't believe many of these folks really know what they are talking about.
My brother sent me a dozen emails being spread around by conservative groups. Everyone was a fraud and he didn't know it. After I presented him with the truth, he said, "You must be a democrat." LOL Some of these folks don't know the truth when it's presented to them, they are so steeped in their political dodo. I'm not saying this is you because I don't know you. But, Romney was steeped in it when he made the statement about the 47%.
Lessons From 5 Years Of Economic Crisis [View article]
I'm disappointed, but not surprised, that you failed to mention any lessons from being too greedy, selfish, unethical/unlawful, and the fact that trust in the markets continued to erode during the crisis. The government pushed the sale of houses to those too economically disadvantaged to be able to afford them, banks and lenders created interest only loans, requiring no payment of principal at the beginning and in some cases no audit of an individual's stated personal assets/income, and banks and lenders simply made credit too easily obtainable.
Take a look at Brooksley Borne, head of the Commodities Futures Trading Commission (CFTC), who wanted to regulate derivatives in 1998 after Long Term Capital Management (LTCM) failed and had to have a bail out of its own. Alan Greenspan, chairman of the federal reserve, Robert Rubin, Secretary of the Treasury, and Lawrence Summers, Secretary of the Treasury after Rubin, all opposed Borne and regulating the derivatives market. We could have prevented 2008 from happening, it did not have to happen. Alan Greenspan had an Ayn Rand philosophy of laissez-faire capitalism, let the markets be, do not intervene to try and curb corruption. He believed the markets could correct themselves. He now admits he was wrong.
Ethics, common sense, and sound economic policy all were swept under the rug looking back. Until we learn these lessons we are doomed to repeat the same mistakes. We have not learned them yet. We have a government out of control in spending, a Republican party misguided in its belief of not raising governmental revenues, and a government that can not fix the structural problems because the American people, as a whole, have gotten used to living beyond their means over the last 30 years by government subsidizing that living standard through lower taxes and government deficit spending.
If lowering taxes really worked as well as the Republicans seem to believe (I'm not saying it's not effective to a degree), fostering full employment and bringing in sufficient governmental revenues so as not to have to raise taxes or go into debt, we would now have a strong, prospering economy with very little national debt. Such a mechanism works to a degree, but government deficit spending has been going on in a big way since Ronald Reagan and it's only gotten worse by both political parties over the years until now we are on life support due to crushing debt. The American people as a whole feel "entitled" to lower taxes, even at the expense of more government debt (this is a government subsidization of individual living standards), government subsidies for healthcare, retirement, housing, education, businesses (GM, AIG, Bear Stearns, Merrill Lynch during the crisis). We have gone from the greatest generation, who sacrificed their very lives for our way of living, including accepting rationing of gasoline, food, and materials.........to a generation who feels "entitled" to all that they have and the word sacrifice for anyone but ourselves and our self interests is not in our vocabulary at all. We have become selfish, greedy, and in some cases, ethically bankrupt immoral bastards.
We'll either begin to take the painful medicine to pull ourselves out of this mess, learn what it means to sacrifice for the next generation, to be ethical, thinking about the good of society as well as ourselves or we will collapse continuing to follow policies which got us into the mess. The choice is ours to make, repeat the insanity of the past and be destroyed or change and live.
(I have been a Republican all my life, but now view the political process and both parties as very corrupt.)
U.S. Taxes: Who Makes And Who Pays - More Than The Rich Will Have To Pay More [View article]
Can you explain how earning $100,000 or more a year yields a negative ROI over the long term? You'd rather give up the $100,000 income and earn less????
3 Key Metrics That Show Why We Can't Avoid Recession [View article]
"What I see is the culture of dependency sapping the energy out of our economy." Why work if you don't have to" thinking. "
I don't know one person who thinks like this, not one. Who are they, where are they? Are you talking about the 47% of the population that pays no taxes? I can think of a number of people in that group who worked all their lives and are now on only social security or SS with a small retirement pension, or who are currently in the work force. They pay no taxes, but they are working or worked all their lives. They do not think "Why work if I don't have to".
One example is my Mother-in Law who raised 7 children without a husband (killed in a car accident). She has a small pension from TXU plus social security. She pays no taxes. She worked all her life. She's now 83.
Other countless examples are women and men who are heads of households, single, with at least one child they provide for. Example: Mary Doe, 33, who is an accountant earning $30,000 a year, and has one son who is 10 years old. With the standard deduction, 2 personal tax exemptions, $1,000 child tax credit, and the earned income credit, she pays no federal income taxes. There are many, many folks like Mary, some are married, some are single, raising their kids, working and making as much as they possibly can, but paying no federal income taxes. I would wager there are more folks like this than those who don't want to work.
I think the tendency is to paint everyone who pays no taxes with the same broad brush, i.e. "Why work". That approach is fundamentally flawed and without merit. It reveals that those who think this way are totally uneducated as to who the 47% really are.
The Next 10 Years: Much More Misery [View article]
In regards to raising the skill level of Americans over the last 50 years: the cost of college has risen very dramatically over that time period. If we are going to raise the skill level we will need government subsidies to aid post high school students wanting to go, and I'm not talking about student loans.
In 1970, I could go to the local 4 year college here in Wichita Falls Texas for a full year (tuition plus books and fees) for the exchange price of one and a half months of summer employment ($300 a month X 1.5 or $450). Today, tuition at the college I attended for a full year is $7,630 for tuition and $1200 for books. That's a total of $8,830. That assumes you can live with your family so that all your cost to go to school is basically tuition, books, fees, and gas. At minimum wage, $7.25 an hour, that equates to 1218 hours or about 7 months of full time work. At $10 an hour it equates to 883 hours of work or about 5 months of full time work. A college education is now anywhere from (5/1.5 = 3.33) 333% to 466% more expensive today to achieve than it was in my day. For a lot of families it's simply out of the question. Add the costs of an apartment, utilities, food, etc. for going to that same college and living on your own, away from your family, and it's simply ridiculous, about $20,000 a year. College simply breaks the bank for a lot of parents.
That's for undergraduate school. Today you need at a minimum two more years of college and a Masters degree. That is tens of thousands more in expense that the average family simply does not have.
If we are going to up the skill level, we are going to have to make advanced education much more affordable so more students can attend. You can not blame that on the student or their work ethic.
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
Looks like some good info., but there is a huge inaccuracy in your article also:
"Notice how the dividend was only supported by the unrealized gains. Net income per common share was only $4.17, with nearly half of its income coming from the line "unrealized gain on available-for-sale-sec... Net." "
This simply is not true. AGNC had $1.267 billion in GAAP Net Income, not counting comprehensive income. That amount divided by the weighted average outstanding shares of 303.9 million yields the $4.17 EPS.
The unrealized gains on AFS securities included in comprehensive income DO NOT enter into the calculation of Net Income or EPS. Those unrealized gains are not included in the calculation of EPS.
However, for 2012, AGNC had $580 million in unrealized losses on derivative hedges. Do you know what this represents? It represents only one side of a hedge hitting the income statement in 2012. The other side is not reflected in net income as of yet. If the hedge is effective, when it expires there would be NO LOSSES from the hedge transaction. Which means this $580 million loss is totally bogus, meaningless. That means you have to add it back to Net Income to get a more reliable Net Income number. (See page 49 of 2012 10-K)
That means AGNC actually had $1.847 billion in Net income. That amount divided by the weighted average outstanding shares of 303.9 million yields $6.08 EPS.
Even with the 57.5 million share dilution from the recently issued new shares, AGNC still made enough earnings to support the $5 dividend.
It may reduce the dividend in the near future, but thus far they have made enough in Net Income to support the current one.
I'd suggest it would be wise to learn a little accounting. You have to understand it to properly interpret the financial statements.
What Will $2 Million Get You In Retirement? [View article]
The article isn't worthless, it just doesn't apply to 90% or better of folks.
I think the reason most people don't achieve this level of monetary wealth is due to a host of factors, some health related, some family related, some job related, some intelligence related. Not everyone makes wealth their goal in life. A lot of people grow up in less than ideal environments and it takes them a large part of their adult life to figure out their strengths.
Forget About American Capital, Annaly Capital Is Still The Best Of Breed [View article]
For 2012, GAAP distorts each quarters results for AGNC, overstating Net Income in the 1st and 4th quarters, and very materially understating it for 2nd and 3rd quarters. Under GAAP, 2nd quarter, 2012 is a Net Loss of ($.88)/share. But, there were ($655) million in unrealized losses on derivatives that quarter. Adding that back yields a positive $1.30/share for the quarter. 3rd quarter was similar, though not quite as distorted.
Most SA authors don't seem to understand that GAAP, under these circumstances, gets it very materially wrong. And it's not just the mREITs, it's the MLPs also. Someone at FASB needs to take the bull by the horns and make some changes. This is highly material, and highly confusing and misleading to the layman.
A CPA has certain ethical responsibilities, as a CPA. I don't see how they can sign off on this junk and be faithful to those responsibilities. When the GAAP guidelines create an unfair picture of a company's operations, it is the CPA's/auditors responsibility to break from GAAP in order for the results to fairly present economic reality. They need to stand up and disagree with the GAAP reported results in these circumstances, but they don't.
The Real Estate Recovery May Not Be Intact [View article]
"The baby boomers ran up massive federal debts, secured unsustainable promises in the areas of pensions and health care, then stuck their kids with the bill."
Oh yeah, we were greedy suckers only thinking of ourselves and not our kids. Total horse hockey. My son currently earns $38K a year on salary, with a BS in Biology, and he's working on educating himself to earn more. We paid him about $950 per month while he was in college during his undergraduate years, plus I bought him a '96 Jeep Grand Cherokee to go to college in. The fact is education is just a lot more expensive now than it used to be. Some of that money came from his Mother's teacher awards she received while he was in college. He already has a better standard of living than I had when I was his age. For his undergraduate graduation, I gave him $2,000. Not a lot, but as much as I could afford.
The defined benefit retirement plans of yesterday are fading fast, it seems, but that's just the way it was then. That was up to the company to offer it, it wasn't up to the employee. Obviously, they thought they could afford to offer such plans until recently. The costs are getting to be prohibitive, especially for health care, but this wasn't some grand design by the baby boomers for ill-gotten gain. 30 years ago no one knew what the future would be like. My parents had defined benefit retirement plans as well. I don't begrudge them for having that type of retirement. That's just the way it was until the last few years. The interest rate on our home for the first few years was 13.5%. Look at the rates now. You can buy so much more home in our part of the country now for the dollar equivalent of what we spent.
I spent tons of time with my son as he grew up, playing legos, sports, vacations, the zoo, games, whatever. My parents didn't spend that kind of time with me. We are still helping our son with monthly expenses at 28, and have been since he graduated. My son's childhood friends are now dentists, veterinarians, retail store managers, and lawyers, earning a lot more than I or my wife ever did with a higher standard of living, thanks in large part to their parents, the baby boomers. And I think my son will do even better in the next 10 years. My parents helped me and that's what we have done and are doing for our son as well. If I can do well in the market in the next few years, I may open a retirement account for him and make the first contribution to its funding. You make us baby boomers out to be the evil empire, lol Far from it. May the force be with you. lol
This is America, land of opportunity. Instead of complaining, look at the possibilities and seek to make it happen. Such is the mentality of my son and anyone who is going to succeed.
3 Key Metrics That Show Why We Can't Avoid Recession [View article]
Until the Democrats agree to spending cuts, including entitlements, I will also be opposed to any tax increases. We need spending cuts worse than tax increases. The Dems are playing politics with the fiscal cliff, presently, even though Obama said not to. Typical politicians.
What do they call 1,000 politicians at the bottom of the sea? A good start. (Changed from lawyers, of which many politicians are)
Implications Of Fed Tightening For Equities [View article]
Anyone remember the FBI investigating left wing movements in the late '60s, early '70s? Before going to work for the Texas Highway Dept. at the start of the summer of 1968, I had to sign a form stating I was not a member of any of the left wing organizations listed on the sheet. Can't remember who they were now, except the SDS and the Black Panthers.
The pendulum has swung 180 degrees opposite now, hasn't it?
Linn Energy: Don't Believe The (Negative) Hype [View article]
Just wanted to bring some other information into the discussion as food for thought. A lot of folks were saying Wells or Raymond James was recommending the stock. I would hope so, as an underwriter of the stock, and who may own it at the moment. It's hard to find an objective opinion about the stock. Who ya gonna trust?
American Capital Agency: Not A Terrible Q1, But The Dividend Is Still Not Sustainable [View article]
No, I am not referring to comprehensive income. The unrealized gains/losses of derivatives, used as hedges by AGNC, are recognized in Net Income/Loss as they occur. They are not recorded to Other Comprehensive Income any longer. That ended Sept 30, 2011. AGNC no longer designates hedges, as hedges, for accounting purposes. As a result, both sides to a hedge no longer impact Net Income/Loss at the same time. The decision by AGNC to not designate hedges as such, for accounting purposes, creates a timing difference as to when the changes in value of the hedge and the hedged item impact Net Income/Loss. See link below.
“---------hedge accounting The accounting for derivative instruments at fair value creates a common issue for organizations that hedge risks using such instruments. Specifically, such organizations may face an accounting mismatch between the derivative instrument which is measured at fair value, and the underlying exposure being hedged, as typically underlying exposures are recognized assets or liabilities that are accounted for on a cost or an amortized cost basis, or future transactions that have yet to be recognized. This accounting mismatch results in volatility in the financial statements as there is no offset to the change in the fair value of the derivative instrument. --------------“
As AGNC states in their 2012 10-K, on page 41, under ‘Derivative Financial Instruments/Hedging Activity’: “We recognize all derivatives as either assets or liabilities on the balance sheet, measured at fair value. During the third quarter of 2011, we elected to discontinue hedge accounting for our interest rate swaps. Accordingly, subsequent to the third quarter of 2011, all changes in the fair value of our derivative instruments are reported in earnings in our consolidated statement of comprehensive income in gain (loss) on derivatives and other securities, net during the period in which they occur.”
As long as AGNC used hedge accounting for their derivatives, both sides of the hedge hit Net Income at the same time. That is no longer the case. Now, there is a timing difference. As KPMG states in their publication, this creates an accounting mismatch, a timing difference as to when the changes in value of the hedge and the hedged item impact Net Income/Loss. One side of the hedge hits net income before the other side does. This results in distorting Net Income/Loss, causing the economic reality to be distorted, as reported by GAAP.
The strategy in using hedges is to protect against or mitigate the impact of market risk upon company assets or revenues. As a result, the hedge is designed to react in the opposite direction to market risk, versus the hedged item.
AGNC states that one of the reasons it uses interest rate swaps as hedges is explained on page 74 of the 2012 10-K: “We use interest rate swaps to economically hedge the variable cash flows associated with borrowings made under our repurchase agreement facilities. Under our interest rate swap agreements, we typically pay a fixed rate and receive a floating rate based on one, three or six-month LIBOR ("payer swap") with terms up to 10 years, which has the effect of modifying the repricing characteristics of our repurchase agreements and cash flows on such liabilities. “
For example, in 2012, AGNC hedges against rising interest rates by entering into an interest rate swap agreement. The agreement changes their short term variable rate repurchase agreement into a known fixed rate. AGNC agrees to pay the counter-party, say Chase, a fixed rate of say, 1.5%, and Chase agrees to pay AGNC a variable rate starting out at say, .4%. Their repurchase agreement, the hedged item, pays a variable rate of interest, which at the current time is .5%.
Six months down the road, rates have declined, say half a percent. So, on the hedge, AGNC still pays the fixed rate of 1.5% to Chase, but now Chase only has to pay AGNC .3% because rates have declined. By trying to protect itself from rising rates, AGNC’s hedge has declined in fair value to AGNC. As a result, AGNC marks the fair value of the hedge down and records a loss on the hedge. This loss impacts Net Income because the hedge is not designated as a hedge for accounting purposes. The loss is recorded as an “unrealized loss on derivative” on the Income Statement.
However, the hedged item, the repurchase agreement is now more valuablee to AGNC. Having started out at .5%, AGNC now only has to pay .4% in interest because interest rates have declined. But the repurchase agreement is not marked to fair value. It remains at cost as a liability on the balance sheet, and the favorable effect of paying less interest, which is a gain to AGNC, is not recorded as a gain, and does not impact Net Income.
This is the accounting mismatch. The decrease in value (loss) of the hedge impacts Net Income currently, but the increase in value (gain) of the hedged item does not. To the extent the hedge is effective, the unrealized losses recorded to Net Income will never be realized. This means the GAAP requirement to record those unrealized losses on the Income Statement are largely bogus and will never be realized. In this situation GAAP creates a distortion in economic reality, causing Net Income to be materially distorted and wrong.
I explain this, because the $4.17 of GAAP Net Income reported in 2012, for AGNC, includes ($574) million of these unrealized losses from derivatives, used as hedges, in Net Income. That ($574) million in unrealized losses needs to be added back to GAAP Net Income to get a more reliable number for Net Income, IMO. The adjusted GAAP number yields $1.841 billion in Net Income for 2012, or $6.06/share. The year 2011 was similar, yielding $6.14/share.
So, to form an opinion that the dividend will be cut based on erroneous GAAP Net Income is a major mistake, IMO.
I do think that the decline in fair value of MBS is having a major impact on AGNC’s ability to generate sufficient income and cash flow to fund the current dividend. The wide swing from $353 million in gains on sale of MBS in the 4th qtr., 2012, to a small loss in the 1st qtr. 3013 may be bearing that out, but I’m not certain of that at this point. But I do not agree with you that AGNC’s Net Income was not sufficient to fund the dividend in 2012 or 2011. I believe it was more than sufficient. And I think that's why they have UDTI now.
The Dirty Secret About The 1929 Stock Market Crash [View article]
Ray,
IMO, a lot of fraud was going on that was a major reason for the "crash", as well as a lot of credit being granted which couldn't be paid back. I think this created a huge loss of confidence in the markets. No requirement for audits, no federal agency to govern the issuance of stocks, basically all you had to have was a license to sell stocks. Sounds like It was a fantastic period to create stock value out of so many feet of "blue sky". What market wouldn't crater under such conditions?
Don't Get Suckered By This Popular High-Yield Investment [View article]
Yes, the value of the MBS would decline, but both AGNC and NLY convert their variable rate repos into fixed rate with interest rate swaps, hedges. As rates rise, the rate they pay on the swap remains fixed, but the rate they receive on the swap increases. That yields increased revenue. This helps mitigate the increasing cost of repos as rates rise. A spike in rates would yield a spike in revenues from the hedges.
I believe both aforementioned mREITS can successfully weather a rising rate environment. The book value and share price might take a hit, but the dividend will help offset that.
3 Key Metrics That Show Why We Can't Avoid Recession [View article]
I'm sure there is abuse of the system, no doubt about it, that is human nature, to take advantage for selfish reasons. It's certainly exemplified in our corporate culture, not just in the lower class.
Show me some numbers as to how many people there are who don't want to work. I honestly have no clue how many there are. I get tired of the conservative/Republican rant ( I am a conservative/Republican) about half truths. I don't believe many of these folks really know what they are talking about.
My brother sent me a dozen emails being spread around by conservative groups. Everyone was a fraud and he didn't know it. After I presented him with the truth, he said, "You must be a democrat." LOL Some of these folks don't know the truth when it's presented to them, they are so steeped in their political dodo. I'm not saying this is you because I don't know you. But, Romney was steeped in it when he made the statement about the 47%.
OK, I'll shut up now.
Lessons From 5 Years Of Economic Crisis [View article]
Take a look at Brooksley Borne, head of the Commodities Futures Trading Commission (CFTC), who wanted to regulate derivatives in 1998 after Long Term Capital Management (LTCM) failed and had to have a bail out of its own. Alan Greenspan, chairman of the federal reserve, Robert Rubin, Secretary of the Treasury, and Lawrence Summers, Secretary of the Treasury after Rubin, all opposed Borne and regulating the derivatives market. We could have prevented 2008 from happening, it did not have to happen. Alan Greenspan had an Ayn Rand philosophy of laissez-faire capitalism, let the markets be, do not intervene to try and curb corruption. He believed the markets could correct themselves. He now admits he was wrong.
Ethics, common sense, and sound economic policy all were swept under the rug looking back. Until we learn these lessons we are doomed to repeat the same mistakes. We have not learned them yet. We have a government out of control in spending, a Republican party misguided in its belief of not raising governmental revenues, and a government that can not fix the structural problems because the American people, as a whole, have gotten used to living beyond their means over the last 30 years by government subsidizing that living standard through lower taxes and government deficit spending.
If lowering taxes really worked as well as the Republicans seem to believe (I'm not saying it's not effective to a degree), fostering full employment and bringing in sufficient governmental revenues so as not to have to raise taxes or go into debt, we would now have a strong, prospering economy with very little national debt. Such a mechanism works to a degree, but government deficit spending has been going on in a big way since Ronald Reagan and it's only gotten worse by both political parties over the years until now we are on life support due to crushing debt. The American people as a whole feel "entitled" to lower taxes, even at the expense of more government debt (this is a government subsidization of individual living standards), government subsidies for healthcare, retirement, housing, education, businesses (GM, AIG, Bear Stearns, Merrill Lynch during the crisis). We have gone from the greatest generation, who sacrificed their very lives for our way of living, including accepting rationing of gasoline, food, and materials.........to a generation who feels "entitled" to all that they have and the word sacrifice for anyone but ourselves and our self interests is not in our vocabulary at all. We have become selfish, greedy, and in some cases, ethically bankrupt immoral bastards.
We'll either begin to take the painful medicine to pull ourselves out of this mess, learn what it means to sacrifice for the next generation, to be ethical, thinking about the good of society as well as ourselves or we will collapse continuing to follow policies which got us into the mess. The choice is ours to make, repeat the insanity of the past and be destroyed or change and live.
(I have been a Republican all my life, but now view the political process and both parties as very corrupt.)
http://to.pbs.org/TivL0z
http://bit.ly/SSAo71
U.S. Taxes: Who Makes And Who Pays - More Than The Rich Will Have To Pay More [View article]
3 Key Metrics That Show Why We Can't Avoid Recession [View article]
I don't know one person who thinks like this, not one. Who are they, where are they? Are you talking about the 47% of the population that pays no taxes? I can think of a number of people in that group who worked all their lives and are now on only social security or SS with a small retirement pension, or who are currently in the work force. They pay no taxes, but they are working or worked all their lives. They do not think "Why work if I don't have to".
One example is my Mother-in Law who raised 7 children without a husband (killed in a car accident). She has a small pension from TXU plus social security. She pays no taxes. She worked all her life. She's now 83.
Other countless examples are women and men who are heads of households, single, with at least one child they provide for. Example: Mary Doe, 33, who is an accountant earning $30,000 a year, and has one son who is 10 years old. With the standard deduction, 2 personal tax exemptions, $1,000 child tax credit, and the earned income credit, she pays no federal income taxes. There are many, many folks like Mary, some are married, some are single, raising their kids, working and making as much as they possibly can, but paying no federal income taxes. I would wager there are more folks like this than those who don't want to work.
I think the tendency is to paint everyone who pays no taxes with the same broad brush, i.e. "Why work". That approach is fundamentally flawed and without merit. It reveals that those who think this way are totally uneducated as to who the 47% really are.
The Next 10 Years: Much More Misery [View article]
In 1970, I could go to the local 4 year college here in Wichita Falls Texas for a full year (tuition plus books and fees) for the exchange price of one and a half months of summer employment ($300 a month X 1.5 or $450). Today, tuition at the college I attended for a full year is $7,630 for tuition and $1200 for books. That's a total of $8,830. That assumes you can live with your family so that all your cost to go to school is basically tuition, books, fees, and gas. At minimum wage, $7.25 an hour, that equates to 1218 hours or about 7 months of full time work. At $10 an hour it equates to 883 hours of work or about 5 months of full time work. A college education is now anywhere from (5/1.5 = 3.33) 333% to 466% more expensive today to achieve than it was in my day. For a lot of families it's simply out of the question. Add the costs of an apartment, utilities, food, etc. for going to that same college and living on your own, away from your family, and it's simply ridiculous, about $20,000 a year. College simply breaks the bank for a lot of parents.
That's for undergraduate school. Today you need at a minimum two more years of college and a Masters degree. That is tens of thousands more in expense that the average family simply does not have.
If we are going to up the skill level, we are going to have to make advanced education much more affordable so more students can attend. You can not blame that on the student or their work ethic.
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
"Notice how the dividend was only supported by the unrealized gains. Net income per common share was only $4.17, with nearly half of its income coming from the line "unrealized gain on available-for-sale-sec... Net." "
This simply is not true. AGNC had $1.267 billion in GAAP Net Income, not counting comprehensive income. That amount divided by the weighted average outstanding shares of 303.9 million yields the $4.17 EPS.
The unrealized gains on AFS securities included in comprehensive income DO NOT enter into the calculation of Net Income or EPS. Those unrealized gains are not included in the calculation of EPS.
However, for 2012, AGNC had $580 million in unrealized losses on derivative hedges. Do you know what this represents? It represents only one side of a hedge hitting the income statement in 2012. The other side is not reflected in net income as of yet. If the hedge is effective, when it expires there would be NO LOSSES from the hedge transaction. Which means this $580 million loss is totally bogus, meaningless. That means you have to add it back to Net Income to get a more reliable Net Income number. (See page 49 of 2012 10-K)
That means AGNC actually had $1.847 billion in Net income. That amount divided by the weighted average outstanding shares of 303.9 million yields $6.08 EPS.
Even with the 57.5 million share dilution from the recently issued new shares, AGNC still made enough earnings to support the $5 dividend.
It may reduce the dividend in the near future, but thus far they have made enough in Net Income to support the current one.
I'd suggest it would be wise to learn a little accounting. You have to understand it to properly interpret the financial statements.
What Will $2 Million Get You In Retirement? [View article]
I think the reason most people don't achieve this level of monetary wealth is due to a host of factors, some health related, some family related, some job related, some intelligence related. Not everyone makes wealth their goal in life. A lot of people grow up in less than ideal environments and it takes them a large part of their adult life to figure out their strengths.
Forget About American Capital, Annaly Capital Is Still The Best Of Breed [View article]
Most SA authors don't seem to understand that GAAP, under these circumstances, gets it very materially wrong. And it's not just the mREITs, it's the MLPs also. Someone at FASB needs to take the bull by the horns and make some changes. This is highly material, and highly confusing and misleading to the layman.
A CPA has certain ethical responsibilities, as a CPA. I don't see how they can sign off on this junk and be faithful to those responsibilities. When the GAAP guidelines create an unfair picture of a company's operations, it is the CPA's/auditors responsibility to break from GAAP in order for the results to fairly present economic reality. They need to stand up and disagree with the GAAP reported results in these circumstances, but they don't.
The Real Estate Recovery May Not Be Intact [View article]
Oh yeah, we were greedy suckers only thinking of ourselves and not our kids. Total horse hockey. My son currently earns $38K a year on salary, with a BS in Biology, and he's working on educating himself to earn more. We paid him about $950 per month while he was in college during his undergraduate years, plus I bought him a '96 Jeep Grand Cherokee to go to college in. The fact is education is just a lot more expensive now than it used to be. Some of that money came from his Mother's teacher awards she received while he was in college. He already has a better standard of living than I had when I was his age. For his undergraduate graduation, I gave him $2,000. Not a lot, but as much as I could afford.
The defined benefit retirement plans of yesterday are fading fast, it seems, but that's just the way it was then. That was up to the company to offer it, it wasn't up to the employee. Obviously, they thought they could afford to offer such plans until recently. The costs are getting to be prohibitive, especially for health care, but this wasn't some grand design by the baby boomers for ill-gotten gain. 30 years ago no one knew what the future would be like. My parents had defined benefit retirement plans as well. I don't begrudge them for having that type of retirement. That's just the way it was until the last few years. The interest rate on our home for the first few years was 13.5%. Look at the rates now. You can buy so much more home in our part of the country now for the dollar equivalent of what we spent.
I spent tons of time with my son as he grew up, playing legos, sports, vacations, the zoo, games, whatever. My parents didn't spend that kind of time with me. We are still helping our son with monthly expenses at 28, and have been since he graduated. My son's childhood friends are now dentists, veterinarians, retail store managers, and lawyers, earning a lot more than I or my wife ever did with a higher standard of living, thanks in large part to their parents, the baby boomers. And I think my son will do even better in the next 10 years. My parents helped me and that's what we have done and are doing for our son as well. If I can do well in the market in the next few years, I may open a retirement account for him and make the first contribution to its funding. You make us baby boomers out to be the evil empire, lol Far from it. May the force be with you. lol
This is America, land of opportunity. Instead of complaining, look at the possibilities and seek to make it happen. Such is the mentality of my son and anyone who is going to succeed.
3 Key Metrics That Show Why We Can't Avoid Recession [View article]
What do they call 1,000 politicians at the bottom of the sea? A good start. (Changed from lawyers, of which many politicians are)
Implications Of Fed Tightening For Equities [View article]
The pendulum has swung 180 degrees opposite now, hasn't it?
Linn Energy: Don't Believe The (Negative) Hype [View article]
American Capital Agency: Not A Terrible Q1, But The Dividend Is Still Not Sustainable [View article]
“---------hedge accounting
The accounting for derivative instruments at fair value creates a common issue for organizations that hedge risks using such instruments. Specifically, such organizations may face an accounting mismatch between the derivative instrument which is measured at fair value, and the underlying exposure being hedged, as typically underlying exposures are recognized assets or liabilities that are accounted for on a cost or an amortized cost basis, or future transactions that have yet to be recognized. This accounting mismatch results in volatility in the financial statements as there is no offset to the change in the fair value of the derivative instrument. --------------“
http://bit.ly/VsWvjX
As AGNC states in their 2012 10-K, on page 41, under ‘Derivative Financial Instruments/Hedging Activity’: “We recognize all derivatives as either assets or liabilities on the balance sheet, measured at fair value. During the third quarter of 2011, we elected to discontinue hedge accounting for our interest rate swaps. Accordingly, subsequent to the third quarter of 2011, all changes in the fair value of our derivative instruments are reported in earnings in our consolidated statement of comprehensive income in gain (loss) on derivatives and other securities, net during the period in which they
occur.”
As long as AGNC used hedge accounting for their derivatives, both sides of the hedge hit Net Income at the same time. That is no longer the case. Now, there is a timing difference. As KPMG states in their publication, this creates an accounting mismatch, a timing difference as to when the changes in value of the hedge and the hedged item impact Net Income/Loss. One side of the hedge hits net income before the other side does. This results in distorting Net Income/Loss, causing the economic reality to be distorted, as reported by GAAP.
The strategy in using hedges is to protect against or mitigate the impact of market risk upon company assets or revenues. As a result, the hedge is designed to react in the opposite direction to market risk, versus the hedged item.
AGNC states that one of the reasons it uses interest rate swaps as hedges is explained on page 74 of the 2012 10-K: “We use interest rate swaps to economically hedge the variable cash flows associated with borrowings made under our repurchase agreement facilities. Under our
interest rate swap agreements, we typically pay a fixed rate and receive a floating rate based on one, three or six-month LIBOR ("payer swap") with terms up to 10 years, which has the effect of modifying the repricing characteristics of our repurchase agreements and cash flows on such liabilities. “
For example, in 2012, AGNC hedges against rising interest rates by entering into an interest rate swap agreement. The agreement changes their short term variable rate repurchase agreement into a known fixed rate. AGNC agrees to pay the counter-party, say Chase, a fixed rate of say, 1.5%, and Chase agrees to pay AGNC a variable rate starting out at say, .4%. Their repurchase agreement, the hedged item, pays a variable rate of interest, which at the current time is .5%.
Six months down the road, rates have declined, say half a percent. So, on the hedge, AGNC still pays the fixed rate of 1.5% to Chase, but now Chase only has to pay AGNC .3% because rates have declined. By trying to protect itself from rising rates, AGNC’s hedge has declined in fair value to AGNC. As a result, AGNC marks the fair value of the hedge down and records a loss on the hedge. This loss impacts Net Income because the hedge is not designated as a hedge for accounting purposes. The loss is recorded as an “unrealized loss on derivative” on the Income Statement.
However, the hedged item, the repurchase agreement is now more valuablee to AGNC. Having started out at .5%, AGNC now only has to pay .4% in interest because interest rates have declined. But the repurchase agreement is not marked to fair value. It remains at cost as a liability on the balance sheet, and the favorable effect of paying less interest, which is a gain to AGNC, is not recorded as a gain, and does not impact Net Income.
This is the accounting mismatch. The decrease in value (loss) of the hedge impacts Net Income currently, but the increase in value (gain) of the hedged item does not. To the extent the hedge is effective, the unrealized losses recorded to Net Income will never be realized. This means the GAAP requirement to record those unrealized losses on the Income Statement are largely bogus and will never be realized. In this situation GAAP creates a distortion in economic reality, causing Net Income to be materially distorted and wrong.
I explain this, because the $4.17 of GAAP Net Income reported in 2012, for AGNC, includes ($574) million of these unrealized losses from derivatives, used as hedges, in Net Income. That ($574) million in unrealized losses needs to be added back to GAAP Net Income to get a more reliable number for Net Income, IMO. The adjusted GAAP number yields $1.841 billion in Net Income for 2012, or $6.06/share. The year 2011 was similar, yielding $6.14/share.
So, to form an opinion that the dividend will be cut based on erroneous GAAP Net Income is a major mistake, IMO.
I do think that the decline in fair value of MBS is having a major impact on AGNC’s ability to generate sufficient income and cash flow to fund the current dividend. The wide swing from $353 million in gains on sale of MBS in the 4th qtr., 2012, to a small loss in the 1st qtr. 3013 may be bearing that out, but I’m not certain of that at this point. But I do not agree with you that AGNC’s Net Income was not sufficient to fund the dividend in 2012 or 2011. I believe it was more than sufficient. And I think that's why they have UDTI now.
The Dirty Secret About The 1929 Stock Market Crash [View article]
IMO, a lot of fraud was going on that was a major reason for the "crash", as well as a lot of credit being granted which couldn't be paid back. I think this created a huge loss of confidence in the markets. No requirement for audits, no federal agency to govern the issuance of stocks, basically all you had to have was a license to sell stocks. Sounds like It was a fantastic period to create stock value out of so many feet of "blue sky". What market wouldn't crater under such conditions?