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sthutto

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  • 3 High Yield REITs: High Return or High Risk? [View article]
    NLY "hedges" interest rate risk - see the asterisk below*
    Sharp company.
    I compare it to Southwest Airlines hedging fuel and has won in the past, except these guys seem to have found a way to hedge in a low and high interest rate environment. The comparison in the excellent article about regarding 1997 figures is when they just got up and running.
    I have NLY and AGNC. More confident in my position in NLY. Bought into this 4th QTR 2010. Looked at CIM, but would have too much exposure in Mortgage REITs at that point. Attracted to AGNC for the big yield, but still favor the group over at NLY-CIM.

    www.annaly.com/site/pd...


    *The primary risk of the investment strategy, interest rate risk, is managed through the Annaly MBS Barbell Strategy® through which the natural hedging characteristics of floating-rate, adjustable-rate, and fixed-rate securities are intended to enable us to perform through a wide range of interest rate environments. The hedging process occurs when, in general, a portion of our portfolio is expected to perform better in a rising interest rate environment via
    improved spread income and lower price volatility, and a portion of the portfolio is expected to perform better in a falling interest rate environment via capital gains.
    Feb 2, 2011. 01:40 PM | 2 Likes Like |Link to Comment
  • Annaly Still A Buy After Dividend Cut [View article]
    Value Investor concerned about volatility?

    How is that possible if you buy when Mr. Market is erratic and selling you something for 50/cents on the dollar and think in terms of years, not weeks or months. Price follows value. Re-analyze your holdings and assumptions. Historical dividends, normalized earnings, moats/barriers to entry, buy into good management, . Do these sound familiar and what has changed in 8 months to encourage a sell? $0.65 to 0.57/cents drop ($0.08/cents x 4 = $0.32/cents annually) - if this is the thesis you probably had your assumptions wrong to begin with.

    A disciplined Graham Investor probably wouldn't own mREITs based on the fundamentals and use of leverage.

    Unfortunately, I break the rules now and again and probably won't be selling NLY, AGNC or CIM (LONG) until some grey hairs show up. If someone can find a better backstop than a Government Guaranty please let me know. (yes - we are all aware of sovereign debt issues globally and some mREITS are backstopped by Agencies technically speaking - but if they go down everything's going down so hopefully the dividends you made from owning these will allow you to buy assets on the cheap as you will have the liquidity from the mREIT dividends you earned over these "years" in a high yielding bank account at 14% or 20% depending on your entry point)

    If it drops further, load me up with your discarded high-yielding mREITs. If the Agencies pull out of the equation, I would start to get a bit concerned and at that point re-evaluate all aspects to mREITs.

    Disclosure: Very long NLY, AGNC and CIM (the riskier of the 3 being that CIM has non-agency paper) (doesn't hurt that Kenneth Fisher just keeps loading up on some NLY)
    Dec 22, 2011. 11:07 AM | 1 Like Like |Link to Comment
  • The Hardest Part For The Income Investor [View article]
    Remember the smartest mREITs like NLY, AGNC and CIM use the "Barbell Strategy" or Interest Rate Swaps to hedge this risk a bit. Might include that in any future write-ups.

    Below is from NLY's website. NLY is the same management group as CIM and CIM has more non-agency exposure than NLY. AGNC uses their own version to hedge interest rates.

    Mortgage-backed securities (“MBS”) are ownership interests in mortgage loans made by financial institutions (savings and loans, commercial banks and mortgage bankers). When an institution has made enough loans it will “pool” or package them together and sell them to mortgage investors like Annaly. The institution will collect the principal and interest payments made by the homeowners and forward them to the mortgage investor. We structure our portfolio using the “Annaly MBS Barbell StrategySM®.” This strategy utilizes a combination of adjustable-, floating-, and fixed-rate mortgage-backed securities so that it can perform throughout a wide range of interest rate environments. At one end of the barbell are adjustable-rate and floating-rate securities or swaps. These securities tend to outperform when interest rates rise because their yields will increase as interest rates rise due to the adjustable nature of their coupons. On the other end of the barbell are fixed-rate securities. These securities generally experience capital gains when interest rates are falling, which help to offset the lower yields and faster prepayments associated with falling interest rates. Annaly MBS Barbell Strategy sm

    We take pride in the transparency of our balance sheet. All of our investment securities are classified as “available for sale.” Consequently, the entire portfolio is recorded at market value -- determined by the average price provided by three independent sources -- and announced quarterly. The securities in the portfolio are primarily Agency MBS, which, although not rated, carry an implied “AAA” rating. Agency MBS are mortgage-backed securities for which a government agency or federally chartered corporation, such as Freddie Mac, Fannie Mae, or Ginnie Mae, guarantees payments of principal or interest on the securities, and therefore the securities have virtually zero credit risk exposure. To date, we have not needed to introduce credit risk into our Agency portfolio in order to achieve the favorable returns we have achieved for our shareholders. All of our assets can be easily priced and traded in the largest fixed income market in the world, the mortgage-backed securities market.

    On the Dividend History: I would encourage you to visit their history from 1997, you might be impressed.

    I am very long: NLY, CIM and AGNC.
    Nov 21, 2011. 02:13 PM | 1 Like Like |Link to Comment
  • Time to Sell Out of Mortgage REITs [View article]
    roydale91 is Correct.

    Keep in mind the hedging of interest rate risk such as NLY's barbell strategy. (copied+pasted from their website at the bottom)

    The void that is deliberately being created by the Govt pulling back Fannie & Freddie will be filled by the many new mortgage REITs. Pimco is getting in the game, Invesco everyone and they still won't have enough capital to support the gap. I'm long (years) for AGNC, NLY and CIM (blend of some non-agency paper).

    Every 5 years with AGNC I will get all my capital back on the dividends so I'm in for free and look forward to my "double play" consisting of compounding and a re-pricing of the P/E when they try to fill the Fannie/Freddie void. My cash on cash return is whatever the dividend yield is. Even if they cut it 50% which is unlikely if you study their payout ratios, requirement as a REIT to payout and hedging interest rate strategies and look at historical payouts, I would still be in a great position taking my current yield and blending in with a future lower yield. (20% + 10% = 15%).

    What is the Annaly MBS Barbell StrategySM?
    In line with management’s philosophy of prudent risk taking and prudent management, Annaly’s portfolio is actively managed in a manner that reflects this philosophy via our trademarked Annaly MBS Barbell StrategySM. Utilizing this strategy allows the Company to perform competitively in a variety of interest rate environments as a portion of the portfolio will outperform in a rising interest rate environment while the other portion will outperform in a declining interest rate environment. The components of the barbell strategy complement each other while minimizing net asset value volatility as rates increase or decrease.
    At one end of the barbell we have adjustable-rate and floating-rate securities and swaps. These securities tend to outperform when interest rates rise because their yields will increase in line with rising interest rates, due to the adjustable nature of the coupons associated with them. On the other end of the barbell we have fixed-rate securities. Fixed-rate securities generally experience capital gains when interest rates are declining.


    For a more detailed discussion of the Barbell Strategy, please visit the white papers section of our website to read “What happens when rates rise? We use our barbell.”

    What happens if interest rates rise?
    When interest rates rise, you can expect to see some compression in our income as our cost of funding will increase alongside interest rates. The floaters, arms and swap components of our Barbell Strategy create a natural hedge against the risk of rising interest rates. As the coupons of these securities reprice, they will do so at the prevailing interest rate in the market. These securities will generally outperform when interest rates are rising as they will reset at the higher rate and generate a higher yield in the portfolio. For further information please review the Annaly MBS Barbell StrategySM.

    Later dudes....
    Aug 10, 2011. 11:09 AM | 1 Like Like |Link to Comment
  • Rumor Mill: Who Would Buy Research In Motion? [View article]
    I agree with Russ' analysis, great job.

    I recently acquired RIMM shares around $15/share, yet it took me a very long time to commit as I did a fair amount of due diligence and kept coming back to the same Tech conclusions for a sophomore value investor. (I'm still fairly green, but do scrub the books and annual reports). Intrinsic calculations on the short side were a minimum of $80/share. I still could not commit.

    I even saw where Soros, Prem Watsa and Joel Greenblatt were in at the $30s and still could not commit.

    My overarching fear in Tech is low-to-no barriers to entry and the next great thing is being imagined and made in someone's garage.

    Financials: If you looked at the books with a blind eye to who and what the company does, this company still makes huge CROIC and their Balance Sheet is rock solid. I did more analysis and stripped the Current Assets down to tangible and then subtracted all all relevant Liabilities. Still rock solid.

    So as all of us, we had fear their product was/is losing market share to Apple and Android so how might this deplete the books? This is another item that plagued me.

    Ancillary Due Diligence: I met with an owner of 97 wireless stores in the Northeast and asked him what he thought about RIMM. (scuttlebutt technique borrowed from Fisher) I felt this guy was very knowledegeable and could see product move and customer tastes. He said RIMM focused on the Corporate User, not the finicky retail user. They wanted the big contracts and more stability. Anyone looking for safety and security with their information. He said (as those doing research have known) that the keyboard for users is their hook and people love it. This all was said in the discussion of how much ground has been lost and why the other user interfaces are superior for the retail customer at the moment.

    I started thinking about that more. Security and Corporate users. Then I wondered if the IT departments in companies view this like they do IBM infrastructure who creates a "barrier to entry" in the Infrastructure. For a buyout candidate, why not IBM? Is that not a natural match? Corporate users and IT departments are the target for both. Sure, Im writing this on my iPhone and their will be preferences in devices, but if RIMM can catch up with the books they have, they aren't going anywhere and are very undervalued.
    Mar 2, 2012. 08:25 AM | Likes Like |Link to Comment
  • Ultimate Deep Value Stock Screen [View article]
    What is the likelihood HAST goes BK?

    I was looking at the books and like your analysis, but considered an overlay that Barnes & Noble, Borders (did go BK) and others are in a vast changing environment where books are going digital and bricks & mortar is becoming less valuable. I'm trying to find the barriers to entry or moat, but it seems like Amazon, Apple and others are clawing into this arena and are beating B&N on the online purchases. I would be very curious for others insight into this books/music business model and the future of it, especially in regards to physical real estate.

    Statement of Cash Flows do not looking promising and their Working Capital, at least the quick look I viewed on Yahoo Finance & Google Finance showed a company that is in serious trouble. 11-86 = -75
    Very little cash on the books, increasing inventory and short and LT liabilities that overwhelm Current Assets.
    Jan 20, 2012. 09:08 AM | Likes Like |Link to Comment
  • Beware The Safety Of Treasuries [View article]
    Has anyone looked to see what is inside of the BWX ETF? How is this ETF rising when the inside of it looks toxic? "AAA" isn't "AAA" anymore thanks to the subprime debacle and sovereign debt-to-GDP or better yet, Debt-to-Revenues that are unsustainable. The Greek debt issues are really only associated with a 20% cut with a lot more needed. When will the market discuss the depths of problems with Spain, Italy and even France. What about the exposure to the sovereigns that did not count against their countries Banks capital reserves when they bought various sovereigns (as they were supposedly "AAA" and would never fail) and turned around and sold Credit Default Swaps on the same sovereign debt that is strained and should default or a "credit event" will occur causing a payout on the CDS and hurting their true capital ratios by getting hit twice. Once on the failure of the sovereign debt and the payout on the CDS. Does anyone else see this or is my research incorrect?

    Disclosure: I am short BWX.
    Oct 27, 2011. 01:58 PM | Likes Like |Link to Comment
  • Takeaways from Fairholme's Bank of America Call [View article]
    They were forced to buy Countrywide and Merrill. Govt will step in worst case, but so much cash on the books, they will be fine.
    Aug 13, 2011. 08:36 PM | Likes Like |Link to Comment
  • MacAndrews & Forbes Holdings - Ron Perelman's holding company - offers $24 a share for M&F Worldwide (MFW +42%), a 42% premium to Friday's closing price that values MFW around $464M. Of course, Perelman was already running the conglomerate like a private firm for the most part.  [View news story]
    My fear of this stock is coming through. Perelman driving the price down to buy the company cheap. Now the Attorneys are out in force to collect 30% of the gain on the increase per share of the offer or what a potential court may render. Perelman watched this stock drop below book value per share and real value arguably near $100/share and I have seen valuations as high as $149/share. (min of $70/share value, similar to a very conservative article written on Seeking Alpha a few weeks ago). Let's hope he doesn't pull this off and the stock realizes its true intrinsic value. I would be curious to how other shareholders feel on the topic and if they are signing up with the Attorneys who are investigating. Or is Perelman creating this frenzy to bring attention to the share price and allow it to realize its value?
    Jun 14, 2011. 11:42 AM | Likes Like |Link to Comment
  • Can You Say No to Jiangbo? [View article]
    Why would their lenders accept stock if it was a worthless fraud? I would hope their creditors are smarter than that. I have to make an assumption their creditors are comfortable by taking the shares that this is a good deal for them.
    Jan 25, 2011. 08:35 PM | Likes Like |Link to Comment
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