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NLY Timing Model Up-Date 3/31/2015. Still A Buy.

The new regression equation for the price of NLY is:

Pred. NLY = 11.247 - .17325(FedFundsTargetRate) + 3.9969(TYXMA10).

The r-sq fell again to 0.40 from 0.41 last quarter, and the standard error rose from 2.815 to 2.840. The predicted price of NLY as of 3/31/15 using the 30-year bond yield and the fed funds rate is $15.071. The current price of $10.40 is therefore 1.64 standard errors below the mean, and so the stock is still a buy.

The sell point would be when the price is more than 1.5 standard errors above the mean, which is a price of $19.33. This value changes as TYX (the 30-year bond yield), and the FFR change. NLY is also a sell if the yield spread between these two interest rates exceeds 4.5 percentage points. The yield spread is currently 2.403, and unlikely to rise. See my 12/31/14 update.

I have 10% of my portfolio in REM, and I am trying to re-invest the dividend, which I just received, at a price of $10.62. Last December, I sold NLY before the dividend, and repurchased it at $10.92, which was less than the close before it went ex-dividend net of the dividend. That is, I saved money by not taking the dividend. The day before NLY went ex-dividend this March I sold it again at $10.85, for a $.07 loss on the quarter. The stock closed that day at $10.82. So net of the 30 cents dividend that price is $10.52. I will buy it back during the next month, hopefully at a price well below $10.52, although I risk having to buy it back higher than that. It closed today at $10.40. I will definitely buy it 5 days before the dividend is paid out on 4/30, and the stock-holders re-invest the dividend. I explained this in my last up-date. I will re-invest my REM dividend about the same time, if I haven't got the price I want before then.

Disclosure: The author is long TLT, REM, PTY.