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laterre

laterre
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  • Chimera Investment Beats Delisting Deadline; 2011 10-K Highlights [View article]
    Lots of juicy tidbits in the 10-K, some of which Tim highlights (the 4% ROE in 2011 being a good one). Anyone want to venture how a company "earning" 4% ROE can pay an 11% dividend? Lee Cooperman, a little help here with the math?

    I was struck by the strong language of the auditors admonishing them for material weaknesses in internal controls...not to mention the risk factor of the impending shareholder lawsuits.

    By the fact that their economic book value (netting out the VIEs, which they don't own or control) WAS (note the past tense) $2.81 at 12/31/2011. By the fact that nearly half of their loan collateral is in CA, NJ, and NY where the foreclosure process has effectively been stayed by lawsuits.

    The good news: they can't do any more SPOs for the time being and destroy any more investor capital. What an abysmal example of mismanagement versus mreit peers...
    Mar 9, 2013. 09:57 AM | 2 Likes Like |Link to Comment
  • J.C. Penney: The Sick Man Of Retail [View article]
    Wow, HJ, you try to offer a deep value perspective on JCP, and all the Troglodytes come out of the woodwork... I think you're right there's some real estate value there, but there's also a lot of senior secured debt, and it's hard to extrapolate from book value and deprec what that RE is now worth.

    But LOL @ all these "family values" (homophobe) first-time bashers who'd prefer to pay 25% more for their Levi's to shop at a good Christian store like Kohl's or Target. That's putting your money where your mouth is and the kind of thinking that made America great! I don't want to start any rumors, but the guy at Macy's Herald Square wearing eyeliner who sold me shoes the other day was a little too, FABULOUS, if you know what I mean, so shop accordingly, folks.

    Just kidding. I'll see you all at the Chick-fil-A after church, and the sweet tea is on me. Don't mind the funny taste.

    Disclosure: short JCP common; long JCP bonds
    Feb 28, 2013. 11:30 AM | Likes Like |Link to Comment
  • As Chimera Receives Its Final NYSE Extension, A Filing Or Buyout Better Come Soon [View article]
    "I'm not an accountant, but how can they pay at least 90% of their income in dividend payments since 2008 and still balance the books? "

    Ding, ding, ding, give this man a prize!

    In their case, for the past three or four years GAAP and taxable "earnings" have both been based heavily on the accretion of discounts for mbs purchased, rather than traditional spread income. This is an artifact of their business model. They bought a bunch of impaired, heavily discounted mbs back in 2009 and 2010 and PROJECTED that they would recover more than they paid. Rather than allowing them to bank these "profits" up front, GAAP requires that these "earnings" (and the taxable income based on it) be accreted over the expected time life of the asset.

    But what happens if the asset doesn't perform as expected? What if their projections were wrong or too optimistic? What if the bonds haven't paid off as quickly, the foreclosure pipeline has gotten clogged, and the servicers stop advancing cash? They are stuck paying dividends on phantom taxable income that they haven't really "earned." The confusion/ fiction is further complicated by the fact that they've distilled and concentrated ALL the credit risk in the residuals they've retained, and pledged all the actual cash flows to the senior bonds they've sold to others.

    This is a coin toss. As of the last filing, there was +/- .90 per share of equity in agency mbs, but the variance on the non-agency residuals is huge. I'm interested at the right price but don't buy black boxes.

    Cooperman, Tepper, and others are smart money. Surely they got on their BBGs or called arounf to their Brokers Dealers and inquired about the performance of the AA and A bonds in some of CIM's Credit Suisse re-remic deals from 2010 and 2011. Or at least their LPs better hope they did their homework.
    Feb 22, 2013. 11:38 AM | 1 Like Like |Link to Comment
  • Chimera Investment On Verge Of NYSE De-Listing [View article]
    Re-read their statements carefully: they say, and I quote, "the restatement is not expected to affect the Company's previously reported GAAP or economic book values, actual cash flows, dividends and taxable income for any previous period."

    I'm sure this will all be literally true or they wouldn't have said it. But it's also irrelevant to the real question. That is, what is the relationship between GAAP, economic book value, and taxable income (all of which are book-keeping numbers based on projections) and the REAL (not book-keeping) value of their non-agency residuals right now in 2013? And what are the ACTUAL CASH FLOWS, which are never disclosed?

    In my opinion (we have absolutely no way of knowing this, except by studying the performance of the senior bonds that sit above CIM's retained residuals in the credit stack), I think it is very likely that their portfolio has not performed in line with those original ca. 2009-2011 projections in terms of timing of pre-pays, recoveries, and cash-flows and that these will need to be revised on a going-forward basis.

    But at this stage, my guess is as good as yours. I don't buy things based on guesses.
    Feb 15, 2013. 02:31 PM | Likes Like |Link to Comment
  • Chimera Investment On Verge Of NYSE De-Listing [View article]
    Not worth the risk at these valuations. If you want to own a bunch of residuals TGONF is much cheaper, with a ton of upside, and rather than paying a phony div is buying back shares like crazy.

    I can already feel the shriek from when CIM's mgmt pulls off the bandaid...
    Feb 15, 2013. 02:02 PM | 1 Like Like |Link to Comment
  • Annaly Capital's Q4 Results Show Decline Rate Slowing [View article]

    "Masterfully." Really? If by "masterfully" you mean they've lagged their peers; squandered one of the most auspicious yield curves in the history of mbs trading; failed to aggressively position themselves in front of QE3 to capture the bump in prices that others in the space snapped up; and left themselves stuck with a bunch of higher coupon off-the-run 4s that are prepaying at twice the rates of AGNC, WMC, and others' portfolios, then yeah, they've really hit it out of the park the past year or two. Rah, rah, keep up the great work...

    The key going forward is the NIM. NIM is the engine that makes mbs spread arbitrage possible. With a NIM in the 1-1.2% range, and using 6-7 times leverage and paying themselves 1.5% in mgmt fees, they're barely earning their marginal cost of capital.

    As for the "assets they're replacing" as they prepay, these used to be paying 4%. They're now forced to replace these with overpriced 3s and 3.5s that will be lucky to yield 2.75% once you take into account the prepays and premia.

    "The market price for such assets has not risen, has it? I think it's dropped to the floor!" Dude, no offense, but what planet are you living on? Even with the backup in rates the past couple of weeks, FNMA 3s are still only one good afternoon away from 104.

    They're not going out of business by any means, but what a mediocre run for a company that used to be best in breed. The consolation prize is that they can only do better moving forward.
    Feb 8, 2013. 08:30 AM | Likes Like |Link to Comment
  • Annaly Capital Management, Inc. 4Q12 Results In A Snapshot [View article]
    So you borrow at a cost of capital of 8% (NLY-A), then use that money to buy securities with a NIM of less than 1% over your short term repo and hedging costs. Lever that up 6 or 7 times to yield a staggering 8% ROE!

    Sounds like a hell of a business model on a going-forward basis. Sign me up.
    Feb 7, 2013. 02:00 PM | 2 Likes Like |Link to Comment
  • A Housing Recovery Investment, And A 15% Dividend Yield Opportunity [View article]
    No worries, TJ, that's what makes a market! And I agree totally about getting paid to wait--except when things are *stupid* cheap like JOE got to be last year.

    Would you believe, interestingly, that over the past 12 months JOE has outperformed TWO (even inclusive of dividends)? Who'd have thunk that! Just goes to show the power of buying things that are cheap and overlooked--even if that means vacant land in NW Florida. They've started building again down there, actually, and some nicer developments than JOE's south on route 98 are selling lots pretty steady.

    Give it a couple of years; it'll turn. Subprime and non-agency, on the other hand, have nowhere to go but down from these price levels. 5-7% loss-adjusted on Alt-A = too rich for my poor blood.
    Jan 29, 2013. 03:12 PM | Likes Like |Link to Comment
  • A Housing Recovery Investment, And A 15% Dividend Yield Opportunity [View article]
    Fair enough. It's not Pine River's day job, but smart money is smart money.

    As a leveraged RE play (albeit without the positive carry), I prefer JOE. Nothing rises higher and falls deeper than vacant land in a tertiary market. I know their developments, and the NW FL market's turning faster than JOE's stock price.
    Jan 29, 2013. 08:20 AM | Likes Like |Link to Comment
  • A Housing Recovery Investment, And A 15% Dividend Yield Opportunity [View article]
    Hey TJ,

    Agree about this being a decent leveraged play on RE recovery. And the guys at Pine River are among the smartest in the HY/ FI game. They made serious $bank for LPs in their leveraged mbs funds in 2012. TWO has always been a good operation. But all that's from trading mbs, not flipping fixer-uppers.

    Smart of them to spin this Silver Bay thing off to retail, as the mid single digit ROE you can get on single family RE rentals is lower than TWO's usual cost of capital. I guess once they get their inventory cleaned up and fully rented they could start adding some leverage, but I can't see this throwing off more than 5-6% net yields, if that. At the margins profits in single family real estate are made with local knowledge from mom and pop who know a cheap electrician or how to root out a clogged toilet on a Sunday night. I've yet to be convinced that this business model is scalable without major inefficiencies. Maybe they'll be able to make it work, but you've got to go into SBY thinking cap gains in 5 years from resales based on a major reflation of housing prices, not mreit-like yields. Maybe TWO will hold onto a piece of the SBY equity, but wouldn't be surprised to see them offload more of their % via successive SPOs.
    Jan 29, 2013. 07:52 AM | 3 Likes Like |Link to Comment
  • 5 Reasons To Stick With Mortgage REITs [View article]
    Hey CK,

    Just wanted to say, belatedly, that this is an outstanding article. Even I don't feel the need to quibble: you pretty much nailed it. Nicely done, and happy new year!
    Dec 30, 2012. 11:51 AM | Likes Like |Link to Comment
  • The Uncertainty In Annaly Could Now Be Faced By Non-Agency REITs [View article]
    The devil is in the details, as always, but scenarios I've seen floated involve some variation of the following two proposals, neither of which is plausible for different reasons: (a) refiing underwater high coupon non-agency mortgages into a new GSE-backed mortgage, which would involve relaxing current GSE standards; or (b) a "voluntary" (i.e. negotiated btwn fed and bondholders) modification of existing non-agency mortgages that bondholders would presumably find mutually beneficial. One version contemplated is an IR reduction for some period (say, five years) with the gvt picking up the tab of the diff for the initial term and the bondholder swallowing the loss after the initial period 5 year period passes.

    Neither of these will happen, and even if they did, they'd be neutral to mildly positive with respect to most of the non-agency universe.

    (a) would be Nirvana for the mreits and bondholders, as they'd get paid back at par for something that they're currently marking at 70, 60, or even lower in some cases. But there is no way in hell that Congress approves FNMA and Freddie onboarding more underwater junk onto their balance sheets. The only presumable losers would be holders of extremely high quality prime non-agencies that trade above par, say, a really nice vintage 2005 JPM slice, who'd stand to lose a few points back to par

    (b) is even more improbable. Unless they want to throw contract law out the window, you can't force a private bondholder to agree to a mod or write-down. Any cramdown like this would be litigated for years. That's why in the scenarios being floated, there's some kind of sweetener being proposed. But the problem is, if there were any kind of financial advantage to the bondholder to be gained by mods, forgivenessm or IR reductions, they would have done so themselves voluntarily. If a program along these lines materializes it will be carefully negotiated, voluntary, and only bondholders with extremely crappy paper where they saw some financial advantage would agree to participate.

    But don't listen to me, the newspapers, or the fear-mongers: be an empiricist. The non-agency bond market has basically yawned at all these stories. If anything, the problem with the non-agency market right now is it's too rich, not too skeered...
    Dec 30, 2012. 11:37 AM | 1 Like Like |Link to Comment
  • Why Eagle Preferred Shares Could Triple [View instapost]
    A fascinating case, and I've also been scratching my head at how this all played itself out: the trifling 3 month "extension," the non-existent cash, the bankruptcy bluff that folded with the keys just being handed over. Who were the big losers, the secret winners? Ah, to be a fly on the wall...or a lawyer with discovery motions.

    And speaking of incentives, something about this never smelled quite right, beginning with all the conspicuous chatter about these preferreds.

    Imagine the following purely hypothetical game theory proposition. For an average cost of $1, I can buy a security with a highly asymmetric risk-reward set of 0 or $15. It's not a continuous distribution, but binary: I'll either get the $15 or I'll get diddly squat. Provided there's a modestly plausible scenario for the $15, I take that bet all week long and Sundays.

    Suddenly, though, voila and something changes. Now I have the option to take $5 (for a guaranteed 400% profit!) or wait around to find out what's behind Door #2. Selling off even 30% of my holdings takes me out of that original binary scenario and into a new opportunity set whereby with heads I win a little, tails I still win an awful lot. Who wouldn't rationally migrate from scenario A to B?
    Dec 23, 2012. 02:55 PM | Likes Like |Link to Comment
  • Chimera Maintains $0.09 Dividend, But Likely Two-Thirds Is A Return Of Capital [View article]
    I've long ago said my piece on CIM.

    (a) the fact that they know there's *any* ROC at this point means that they aren't earning the dividend. If you care about your money, this is all you need to know. When it comes to reits in particular, isn't it a purely academic question as to how much of what you're getting back they aren't earning? It also isn't news to anyone who understands their business model. They've always paid out more than their actual cash earnings because of how they booked accretion on securities they purchased at discounts. These "earnings" are premised on assumptions about cash flows and recoveries that go back to 2009 or 2010. These need to be revisited and OTTI booked. For whatever reason, they are dragging their feet on doing this.

    (b) On the accounting. Is this tricky? Obviously. It may even involve revisiting cash flows received from servicers that were actually advances, and these will have to be recouped by the servicers upon liquidation of defaulted loans. But is it rocket science requiring nine months to go back and recalculate everything? Come on. This should have been tidied up long ago but for the fact that the results will be inconvenient.

    (c) Presumably the mgmt and NLY have a clear vision of the cash flows and impairments. And yet they aren't buying, and haven't been for some time, even at significant discounts to NAV. Why is this? I watch what people do, not what they say, and actions speak louder than words.
    Nov 29, 2012. 03:07 PM | 2 Likes Like |Link to Comment
  • A double-take is necessary to believe some of the handles in the mREIT sector, undergoing another savage selloff as the Fed hints at even more QE. The pure-agency REITs - in direct competition with the Fed for paper - are hit hardest. AGNC -3.4%, ARR -8.1%, CMO -4.9%, WMC -7.1%, to name a few. [View news story]
    Interesting question about asymmetric information. Yes, that's right, virtually anyone with a modicum of savvy in the financial world who spends 3 hours with a spreadsheet, BBG, and a couple of old 10-Qs can monitor in real time what's going on in most mreits within a comfortable margin of error. They all have their niches and strategies, so even the changes they make between quarters are pretty predictable. You are playing poker against people who can see your hand.

    The difficulty is that most retail investors can't do this, or more specifically, don't know how to do this. So they get spooked. They read a lurid story somewhere, see red, and panic sell. This triggers stop losses, which triggers more panic, and so forth. I think that's a big part of what's gone on. That's the unnatural and irrational part of the process, the "animal spirits," if you will.

    That being said, everything in the market is in the process of re-pricing, particularly risk assets which have been way overbid, and I think premiums to book and mbs prices more generally had gotten complacent. It was obvious that those investor expectations about yields and premia to book weren't sustainable given the current shape of the yield curve. So the re-rack we've seen is actually a really messy (and scary) but entirely *rational* transition to a different price point that makes more sense in the face of the headwinds and uncertainty moving forward.
    Nov 15, 2012. 04:56 PM | 2 Likes Like |Link to Comment
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