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  • Western Asset Mortgage Capital And The 16.4% Dividend Yield [View article]
    The quality mreits selling at >20% discounts are indeed worth looking at. Agreed, Pos Concavity. But I take their estimates of IR sensitivity with a grain of salt. Look back at how their NAV behaved during the taper tantrum. They ended up being much more vulnerable to sudden IR vol, and basis risk, than their projected mathematical durations (based on historical models) would have predicted. Granted, they're all positioned more conservatively now, but playing around with mbs at 6-7 times leverage--even when you think you're conservatively hedged--can lead to some rude awakenings.

    Not that credit won't get hammered even worse in a period of IR vol...
    Jun 25, 2015. 10:34 AM | Likes Like |Link to Comment
  • Western Asset Mortgage Capital And The 16.4% Dividend Yield [View article]
    Take a look at the Pimco complex--PDI, PCI. PKO, PTY. Also, Gundlach's DSL is selling at a decent discount. These things may go lower, but they're attractive (IMO) at these prices...
    Jun 25, 2015. 10:26 AM | Likes Like |Link to Comment
  • CorEnergy to buy EXXI Gulf gathering system for $245M, offer 11.25M shares [View news story]
    Agree 100%, BGDD, and I've started nibbling on both ends of the maturities--the 2017s and the 2021s. Are you also buying the unsecureds, and what do you see as the tradeoffs on the diff maturities? The reported Franklin exchange proposal gives me pause, as I worry that this would be privately negotiated, and if it's not a tender offer open to all holders, I could see a big chunk of the early maturities jumping up the capital structure ahead of all the remaining unexchanged unsecureds.

    @ Bullishonmgmt. There's a fairly liquid market (for now), with modest bid-ask spreads, on several of their senior unsecured bonds. I assume the secureds were a PP and aren't publicly traded. You should be able to buy (after doing all your own DD, obviously) from any decent broker. Although if you're not familiar with trading distressed debt, this prob isn't the occasion to get your feet wet. This could get ugly and many of the possible outcomes run through a Ch. 11 BK court.
    Jun 23, 2015. 02:56 PM | 2 Likes Like |Link to Comment
  • Western Asset Mortgage Capital And The 16.4% Dividend Yield [View article]
    I've been nibbling at little at AGNC and MTGE, and will probably continue to do so. But as a relative value proposition, the mreits to me aren't as attractive right now as some of the HY FI CEFs that have been absolutely taken out to the woodshed.

    Something to consider: the typical mreit is putting 6-7 turns of leverage onto a miniscule spread (1-1.5%) in order to eak out 10-12% ROE, and probably running a modest duration gap to earn even this much. Compare this to FI HY CEFs, which are trading at 10% discounts to NAV, and are earning 9-11% using only .3-.5:1 leverage (i.e. 30-50% versus 600%). They're taking some credit risk, undoubtedly, but they aren't going to face any margin calls or panic selling if the TSY or MBS markets seize up.
    Jun 23, 2015. 12:44 PM | 2 Likes Like |Link to Comment
  • CorEnergy to buy EXXI Gulf gathering system for $245M, offer 11.25M shares [View news story]
    I wouldn't touch the EXXI common, but the debt looks interesting at these distressed levels. They've got a billion in cash now, and if they can come close to breakeven on cash flow, they just may be able to ride this thing out. With the far-dated unsecureds trading at .30 on the $, you're getting 2:1 odds that they make it to the other side.

    Only thing that scares me is mgmt talk of a secured third lien (at what rate, if the 2nd lien went for 11%...), which potentially throws any recoveries on the unsecureds out of the money.
    Jun 23, 2015. 10:36 AM | 4 Likes Like |Link to Comment
  • Western Asset Mortgage Capital And The 16.4% Dividend Yield [View article]
    Issue isn't the latest cut, which is negligible. The questions are: (a) is WMC overpriced relative to NAV (and peers) due to the myopic focus of retail investors on yield; (b) is this divvy sustainable without cannibalizing book value; and (c) are they taking extraordinary risks in order to achieve an ROE that's off their peers by an order of magnitude?

    Yes, probably not, and yes would be my own provisional answers...

    WMC was once my largest holding, and I think they're sharp guys, but I'm out until the price corrects.
    Jun 23, 2015. 10:16 AM | Likes Like |Link to Comment
  • Addressing Western Asset Mortgage Capital's Perplexing Dividend Cut [View article]
    Hey Rickrays,

    I like the Pimco CEF complex at these prices (PDI, PCI, PTY, PKO, PFN, RCS). Most of these are trading at 12 mo wide discounts to NAV, easily overearning their current 8-9% distributions, and will likely pay out the difference as year end special divs. They also seem to have done a good job across the complex in hedging out a lot of the IR risk, as some of these seem to have (so far) exhibited negative empirical duration. Doubleline's DSL also looks interesting at these prices. Many of the muni cefs (throw a dart and pick one) have also blown out in sympathy to the TSY complex.
    Jun 21, 2015. 09:14 AM | 1 Like Like |Link to Comment
  • Addressing Western Asset Mortgage Capital's Perplexing Dividend Cut [View article]
    Too rich for my blood at >$15.50. I'm out completely now (including a core position held more or less since their IPO). Look forward to getting back in once this thing comes back to earth. Shifted a good slug of the proceeds into FI CEFs, which are looking cheap.
    Jun 19, 2015. 03:50 PM | Likes Like |Link to Comment
  • Investors rush out of fixed-income, and into stocks [View news story]
    Speaking for the "dabblers," many of us have done just fine with bonds--mbs, junk, distressed, treasurys, munis, etc.--over the past five years, thank you very much!
    Jun 19, 2015. 01:11 PM | 8 Likes Like |Link to Comment
  • Walter Energy delays another bond payment [View news story] brokerage acct is showing the 6/15/15 interest payment on the 9.875s of 2020 as actually paid, on time. Anyone else get their coupon?

    The skeptic in me is thinking (a) that my broker jumped the gun and credited the account before receiving the cash or (b) even if this is real, it'll be clawed back by the senior lenders as a fraudulent conveyance once they declare Ch. 11.
    Jun 17, 2015. 10:15 AM | Likes Like |Link to Comment
  • 1347 Property Insurance: Strong Long-Term Prospects [View article]

    Maybe this is too simplistic an answer, but in order to figure out whether their cost of reinsurance has increased on a per unit of liability basis, you'd need to know their amount of outstanding liability, no? In the aggregate, 13.8 versus 10.2 is indeed a 30+% increase, but this in and of itself tells you nothing unless you know how much liability they're reinsuring. Haven't they grown their business (and corresponding liabilities) significantly in the past year, in which case the cost of reinsurance would necessarily increase proportionately?

    As you say, it would also be nice if they enjoyed some pricing power as well and could jack up the cost of premiums to pass on any additional cost per unit--if indeed their cost per unit has increased.
    Jun 11, 2015. 07:58 AM | 1 Like Like |Link to Comment
  • Walter Energy - The Last Stand [View article]
    There's no reason for them to buy shares when the senior unsecured debt (on which they must pay interest or be forced into default) are trading (literally) at .03 on the $1. At those prices on the unsecured debt, which is senior to the common equity, the shares are ebullient toilet paper.
    Jun 10, 2015. 10:32 AM | 1 Like Like |Link to Comment
  • The #1 Stock In The World [View article]
    Hi Chris,

    Thanks for this interesting idea--as well as the many you provide to SA. I'll have to think more about the mechanics of this and look under the hood of XIV.

    But without looking more deeply into the details, I do worry about the idea of buying an instrument that's selling term volatility. Selling vol is a great business--until it isn't. I wouldn't say it's akin to picking up nickels in front of a steamroller, because, as you rightly point out, the behavioral inefficiencies/ irrationality of most vol-averse ordinary investors means that you're picking up $20 bills. But it's still a steamroller. And selling puts on it (as many were suggesting) seems only to exacerbate the potential for a very ugly fat-tail event.

    Also, as the folks at Long Term Capital found out, the funny thing about selling equity vol is that there are always lots of natural (sucker) buyers, but very few committed sellers. That is, people are happy to sell vol when it looks like free money--and I suppose this XIV instrument will continue doing so robotically even when every sane human being has ceased and desisted selling--but that supply tends to dry up when there's some danger of actually having to make good on it. Weak sellers of equity vol become desperate buyers. Shorts trying to cover with no sellers tends to exacerbate swings to the upside. Typically, the price flow on VIX is punctuated rather than fluid, no, with those punctuations being especially painful for those short it at the wrong moments?

    Maybe I'm barking up the wrong tree here, as I'm not sure how this widget actually works, but the more general point is be careful playing around short the VIX, especially if you're layering naked puts on top of it.

    You kind of address this with your very sensible points about SIZING this position correctly, keeping it small and doubling down, etc. But not sure that this will register with every reader given that people tend to think that if something is good, then twice as much ought to be twice as good...

    Just a few respectful cavils to what seems otherwise a promising idea. Thanks.

    Jun 9, 2015. 10:21 AM | 4 Likes Like |Link to Comment
  • Walter Energy - The Last Stand [View article]
    Love your optimism, Benitus, and more power to you if you can grab some nickles and dimes from this thing on its way to zero. True that most actual BK filings take place after hours, though I can recollect many (Patriot Coal, actually?) that announced while markets are open. Good luck flipping the hot potato :)

    I'm one of those greedy creditors. We're not in the business of waiting. If someone can't pay us back or make the coupon (which WLT can't) then someone will force them into BK. The only question now is when, not if, they file, and whether it's a prepack or straight Ch. 11. The senior secured lenders will get 95% of the Newco (and own all those "productive and lucrative" assets) for themselves, unsecured noteholders like me may get a small tip of the Newco, and equity holders will get zilch.

    Don't take my word for this, please. Look at the prices on the bonds. They scream a total wipeout for anyone below the revolver and senior secured liens.
    Jun 8, 2015. 08:34 PM | 2 Likes Like |Link to Comment
  • Western Asset Mortgage Capital Corporation And Rising Interest Rates [View article]
    Thanks for the detailed thoughts, Steve, as always. Agree 100% that this is a great company, but not only does it look overvalued in absolute terms (nudging up against SPO territory), but it's positively defied gravity relative to AGNC, MTGE, and other really solid players that are now trading at >=20% discounts to NAV. Some very good mreits (not to mention quality high yield CEFs) are getting whacked in anticipation of some big explosion in rates that may or may not ever happen.

    I've pared all my trading shares and am now liquidating my "core" position in WMC so long as it stays >$15. Will look to replace the position on the next big pullback.

    One other thing that concerns me a bit about WMC--and on the subject of silent risks and embedded potential surprises--is the fact that their move into non-agency, risk sharing, whole loans, etc. doesn't seem to have been accompanied by the expected reduction in leverage. This bothers me for two reasons. First, while I generally buy the assumption that many of these credit or floating rate instruments have very low or even negative empirical duration, things move in weird directions during sell-offs, and some of these credits to which they've imputed negative duration may turn out to be more IR sensitive than people imagine. Second, and relatedly, while I can see dialing up the leverage 7 or 8 times when you're dealing with relatively liquid agency mbs, and even IOs or IIOs, a lot of the stuff they've been acquiring seems anything but liquid. Either high leverage OR illiquidity is fine, but most of the great "black swan" disasters involved a combination of those two things. And as the 2013 summer "Taper Tantrum" showed, even things that are supposed to be liquid have a way of getting less so when the market suddenly goes bidless.

    Odds are, they'll be absolutely fine, and I'm just paranoid (as usual!). But it seems like they're taking some chances in the current market that other players have decided to pass on...

    My 2 cents, FWIW.
    Jun 7, 2015. 01:09 PM | 1 Like Like |Link to Comment