Seeking Alpha

laterre

laterre
Send Message
View as an RSS Feed
View laterre's Comments BY TICKER:
Latest  |  Highest rated
  • American Capital Agency Confronts mREIT Malaise [View article]
    Hey TJ,

    Good call--if you're an mreit investor, MTGE is the least bad place to be right now. Would have been an even better call last week (or, ahem, see my post from yesterday AM...) before the blow-out earnings. I'll be out today for a nice 5% bump in the past week. Move it all to WMC, lather, rinse, repeat... Still watching to see how long AGNC/ short NLY pair trade into earnings is going to pan out, but looking good so far...
    Nov 1, 2012. 07:52 AM | Likes Like |Link to Comment
  • Buyback Should Provide Floor In American Capital Agency [View article]
    And...MTGE nailed it!
    Oct 31, 2012. 04:27 PM | Likes Like |Link to Comment
  • Buyback Should Provide Floor In American Capital Agency [View article]
    Hey Searcher,

    I'm thinking more or less along the same lines as you re. MTGE, but I'm even more optimistic. Depending on what they've done with their porfolio mix, I could see MTGE doing much better even than AGNC in terms of big bump in book value. Last I checked, it looked to me like they were even more aggressively front-running the fed, focusing on the new issuance, lower coupons that really popped with QE3--even more than the pre-harped 4s and 4.5s that AGNC had stockpiled. Plus, non-agency mbs had a really nice run with QE3, doing even better on a percentage basis than agency mbs. And MTGE was running a bigger duration gap with slightly higher leverage.

    Sell the rip! The unfortunate side of the equation is this is the absolute last rabbit out of the hat they can pull. There's not a nickle more to be squeezed out of cap gains on agency mbs. I've sold off all my 3s and 3.5s as the QE euphoria is fading. With spreads so tight to treasuries and all that negative convexity risk, you're not getting paid anything to deal with all the "bs" in MBS....
    Oct 31, 2012. 10:04 AM | 1 Like Like |Link to Comment
  • Manic Monday For mREITs [View article]
    Probably about right in this instance, but generally sell-side analysis is worthless. RBC looking to underwrite the next SPO once premiums to NAV return?
    Oct 16, 2012. 08:46 AM | Likes Like |Link to Comment
  • Manic Monday For mREITs [View article]
    Sorry, really, I am. And if you can't stomach the vol or afford the loss, then selling is the right decision for you. You can't control profits but you can limit your losses. Still, the thing I love about mreits is they have intrinsic values. It's inconceivable that they could ever fall beyond some point, as arbs like me will always step in and take the other side of the trade.
    Oct 16, 2012. 08:43 AM | 1 Like Like |Link to Comment
  • Manic Monday For mREITs [View article]
    Reprice was inevitable: the notion that 16% divies and 30% premiums to NAV were going to be sustainable in the face of that yield curve was absurd, and many of us who look at the bond market every day have been saying so for months.

    They've all got two headwinds to struggle with:
    (a) prices of current coupon 3s and 3.5s have gotten ridiculous, to the point that there's nothing to do to earn a decent spread on new money; their costs of funds and hedging can't go any lower, so all the agency mreits are going to eventually face spread compression. Unless something changes dramatically, you're looking at high single digit/ low double digit yields by early 2013. (b) the CPRs are going to get ugly, though this will affect the individual mreits differently. If like AGNC, WMC, or MTGE you've migrated into the lower coupon 3s, 3.5s, and 15 years--and paid up for specified pools with higher coupons and prepayment protection--the effects of prepays are going to be muted. It'll still be bad--maybe CPRs spiking from high single digits to mid-teens, but it won't be crippling. On the other hand, if you're sitting complacently on a bunch of higher coupon 4 and 4.5s without prepayment protection (cough, NLY?), things are going to get truly ugly. I think a pair trade long AGNC/ short NLY into earnings could be interesting.

    The flip-side, the smart folks who loaded up the truck on 3s in advance of QE have made BANK in cap gains. 3s went from something like 98 to 106 at the peak, before coming back in some. That kind of cap gain on mbs in a few months is ridiculous--NAV for the smart agency mreits is going to pop nicely in the next earnings. People who front-ran the fed aggressively are sitting on some nice gains to NAV. It also helps that your hedges are usually priced off of treasury rates, whereas your book gains come off mbs, and in this instance the asymmetry is beneficial. Because mbs prices have gone up a lot more than Treasuries (with the spread between them narrowing to all time lows), it's likely that the losses on hedges are far outweighed by the gains in mbs prices.

    Bottom line: they aren't going to be able to maintain 15% divvies with spread income, but I'm betting that you're going to see some eye-popping capital gains and increases in NAV come earnings time. Sellling winners will allow them to post blow-out earnings. The well run hybrids such as TWO, MTGE, etc will do even better. For people like me who buy based on discount to NAV, not yield, this sector is looking a whole lot more attractive than it did 3 months ago...
    Oct 16, 2012. 08:03 AM | 11 Likes Like |Link to Comment
  • MREIT Death Or Life: Ruminations: 10.14.12 [View instapost]
    Nobody could <possibly> have seen this coming ;)

    Thanks for the dollop of WMC sub-20. Will be adding gradually over the coming weeks as the intrepid 401k warriors puke up more shares.
    Oct 15, 2012. 10:47 AM | Likes Like |Link to Comment
  • Hot Subprime MBS Market May Save Troubled Chimera Investment Corp. [View article]
    Yes, but careful about reading too much into the $.06 number for IOs. For reasons that are too complicated to explain in under 500 words, IOs generally price at massive discounts to their notional values. So you can't make the same inference as you would about a regular mbs that prices at .70 or .80 on the $.

    Also, keep in mind, just because you see homes selling in foreclosure at X% of 2007 prices doesn't mean that CIM gets X% when those homes are foreclosed. It's a time-related issue: for every year that those have sat in inventory, CIM (or the original servicers) have had to advance 6% interest to the people who hold the senior securities. When the homes are eventually sold, all that money advanced gets subtracted right off the top of the recovery. Foreclosures in sand states are moving again and prices are bouncing, but foreclosures in the NE in places like NJ and MA are still frozen indefinitely. All the time that money isn't coming into the door, and until the principal is paid back, CIM's re-remics are still responsible for coughing up that 6% annually to the seniors. Every nickle that doesn't come in the door now comes out of CIM's eventual share on the backend.
    Oct 8, 2012. 02:16 PM | Likes Like |Link to Comment
  • Hot Subprime MBS Market May Save Troubled Chimera Investment Corp. [View article]
    Hey Tim,

    I mostly agree with you: their "delay and pray" approach has clearly paid off for them. If they'd pulled off the band-aid and marked everything to market at the very depths of the market in late 2011, that'd have been the end of their share price. And you're exactly right that spreads on junkier credit have come in to a ridiculous degree over the past 6 months. So assuming we continue in this direction, the fundamentals are behind them: tightening market in housing means recoveries increase; ZIRP to infinity means people get driven into ever junkier credit. This certainly can't hurt.

    Where I quibble slightly is that just as it wasn't fair (according to mgmt, at least) to tie their fortunes to the cash prices of subprime ABS when that market tanked in late 2011, it may also be unfair to assume a linear correlation to recovery now that this market has bounced back. In their defense, what they own **isn't** subprime ABS, where a price move from 35 to 50 or so equates to a 30% capital gain. They own the backends of mainly Alt-A securities, but structured such that **all** the credit risk and losses are concentrated in the pieces that they own. So it's entirely possible, given increasing market information and granularity, and depending on actual cash flows, that what they own may have stayed low at the very same time that what is senior to them has appreciated. It's not exactly like owning a slice of ABS where improving fundamentals mean that these gains are spread across an entire collateral pool. The re-remic structure means that all the losses that exist are--and remain--their's.

    It's still all about the cashflows, which haven't changed materially since 2011. So if CIM was having problems with cash flows previously, the fact that the cash market for ABS has improved is irrelevant. The difference in market price for ABS stems from (a) more information that leads to increasing confidence in the ability of buyers to accurately price risk and uncertainty; (b) greater risk tolerance as ZIRP leads people to discount that risk at a lower level; (c) new kinds of buyers coming into a market that is capacity constrained, below $1 trill now and counting.
    Oct 7, 2012. 11:39 AM | 3 Likes Like |Link to Comment
  • Kraft Spin-Off Creates Cash Cow [View article]
    Hey TJ,

    And it appears, based on the pre-market trading price of KFT, that you are correct. TJ is the man! But my original question remains: why does the August SEC statement refer to a "record date" for the distribution on the 19th of Sept if the KFT shares continue to trade with distribution rights? Based on the original language, one would assume that the Mondelez when issued shares and KFT EX shares ought to converge in price. All a moot point: the market has spoken...
    Sep 17, 2012. 08:14 AM | Likes Like |Link to Comment
  • Kraft Spin-Off Creates Cash Cow [View article]
    Still don't get how you think you know better than KFT IR, but a friendly wager that KFT opens on Monday EX-div and ex-Spin-off..
    Sep 15, 2012. 09:01 PM | 1 Like Like |Link to Comment
  • Protected Principal Retirement Strategy: Retiring Without A Million-Dollar Nest Egg - Quest For An mREIT [View article]
    No problem. And just to be clear--NCT seems like they've turned a corner and maybe has some great upside left. But that comes at the cost of volatility.

    I hear you on the mreits--no reason to hurry there. I've pared almost all my mreits, with the exception of a small position in MTGE and the newcomer WMC, which was until recently very attractively priced relative to book.
    Sep 5, 2012. 12:29 PM | Likes Like |Link to Comment
  • Protected Principal Retirement Strategy: Retiring Without A Million-Dollar Nest Egg - Quest For An mREIT [View article]
    Hi akaralph,

    Good article--sensible advice for retirees. I've been very vocal in criticizing the people on here who herd retirees into mreits on grounds that these are safe places to park cash.

    A few quibbles/ questions with your reasoning. First, I agree with the poster above who points out that REM isn't likely to provide many diversification benefits. It's heavily weighted in those you wanted to avoid in the first place (assuming you're correct in screening these out) and the asset class has a high correlation in times of stress. In a panic, they're all going to go down. Witness last summer and fall.

    If the main concern is principal protection and not going "boom," then you've picked an odd assortment with your screen. Obviously price, premium to NAV, dividend reductions, etc. have to figure in, but if you want something that is not going to suffer in a big downturn, you'd want something that is a pure agency mreit and is responsibly managed. NLY, AGNC, CMO, HTS, i.e. one of them not taking credit risk or doing esoteric stuff with CLOs.

    Which brings me to the results of your screen and your choice of NCT. With the exception of MTGE, most of those you've identified with your screen--including NCT--have some heavy involvement with the riskier slices of credit, through repackaging defaulted whole loans, managing down legacy CLOs and servicing portfolios, investing in CMBS. It's no surprise that these have done well lately and have been able to maintain their divvy whereas the pure agencies have had to reduce or cut back. There's been a monster rally in 2012 in junky credit. But you should be aware that companies such as NCT, NRF, SFI, NYMT, etc. are going to be much more volatile than the pure agency mreits and have a much greater potential to go "boom" if we have a serious credit event. I'd bet that the beta on this group is three or four times that of the agency mreits.

    Bottom line: your stated goal of protecting principal isn't well served by your screening criteria. A good, thought-provoking article nonetheless.
    Sep 5, 2012. 07:33 AM | Likes Like |Link to Comment
  • Kraft Foods Spin-Off Provides Growth And A Cash Cow Dividend [View article]
    I don't follow this stock and have no special knowledge of the situation. But I do know how to parse legals. Apologies if I'm missing something or having a brain glitch, but the announcement reads clear as day.

    As per the announcement and 8-K, you need to be the owner of record on September 19th ("the record date") in order to (a) receive the regular quarterly dividend of $.29; AND (b) to receive the special "distribution" of new shares in Kraft Food Group (.33 for each share of KFT you own).

    Operationally, this implies that your existing shares of KFT will trade EX-(both of dividend AND new shares) from the 17th of September until Oct 1st, at which time they will convert into an equal number of shares of MDLZ and you'll receive your .33 shares of KRFT. KFT will disappear as a ticker on October 2nd. You'll get your dividend on the 15th of October.

    To sum up (for all those still with me!): what their statement means is that the last day to buy KFT and receive both the dividend and new shares is close of trading on the **14th of September**. I'm with Fish on this one! Conversely, if you buy KFT *after* the 14th you will receive neither the dividend nor the special shares of KRFT and any shares of KFT you buy will turn into MDLZ on the 2nd of Oct.

    If that's not how things are going to work (and TJ may very well know something we don't about this...) then they need to put out a new release and fire someone in legal...
    Aug 28, 2012. 04:45 PM | 1 Like Like |Link to Comment
  • Treasury Forces Fannie And Freddie Portfolio Reduction [View article]
    Michael,

    I don't want to deny that there were "pushes", in the sense of Congressional mandates that got them to relax lending standards. But what people miss is that the "push" was self-imposed: and indeed was one of the most catastrophic instances of regulatory capture in American history. Once subprime heated up and they started to lose market share to Wall Street, they *wanted* the mandate to get into affordable housing. And they gamed the mandate brilliantly, as rather than underwriting crappy loans--which they realized was a bad business--they satisfied their affordable housing "mandate" by buying subprime ABS from the Street and holding it on their own books. You could literally take a pile of steaming dog doodoo, stamp the top slice AAA, and flip it to FNMA if it paid 150 bps above agency mbs. Like everybody else, they loved that riskless spread.

    Anyone around DC in the 90's and 00's who thinks that Congress "made" FNMA or Freddie do anything is living in a dream world. They cracked the whip, and Congress did their bidding. But oh how the mighty have fallen...

    Totally agree with your general premise, though, Michael, in that the fed govt is now so deeply in housing that it's inconceivable how they'll ever get out.
    Aug 19, 2012. 08:56 AM | 1 Like Like |Link to Comment
COMMENTS STATS
467 Comments
598 Likes