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American Capital, Ltd. Message Board

  • thetechnology thetechnology Jun 20, 2013 10:40 AM Flag

    Rate Concerns

    The worm has turned on interest rates. The next move may be to reverse part of the increae in rates thereby punishing anyone who was late in adding protection. Longer term rates are headed alot higher.

    ACAS is being severely punished by incorrect portfolio positioning by its mortgage reits AGNC and MTGE. Both companies have cut dividends, AGNC down to $1.05 & MTGE down to $0.80. In itself that is not too bad, The question is how much more will dividends be cut before things stabilize, and how much will book vale decline. My own view of these companies is that this may be a very bad place to be for quite a while. It just depends on how right or wrong they get interest rates.

    I had been planning to take a look at buying back ACAS at $12. Given that the overall market has taken so long to roll over, and the vigorousness of the sell of in ACAS so far, I am inclined to look more toward and entry between $10.5 & $11, probably in late summer. Seems ridiculous, but that is what it is.

    The nice thing about all this is if you are a very long term holder, it gives the company great opportunity to accelerate the share buybacks at great prices.

    Frankly after 4 years of holding ACAS, I am glad not to be riding this down, and if I miss getting back in because the stock jumps, well that is just the risk in being out. If I get an opportunity to come back in on capitulation from panic selling then I will consider myself very lucky.

    In the future I will be holding both some stock and the majority of my position will be a bull call spread with a put write to help pay for it. The added cushion this trade provides if things go bad means much smaller losses.

    I am bullish on ACAS very long term. Unfortunately there is alot of risk here if the Fed loses control of long term interest rates. This is a time for great care with investments.


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    • Everybody was waiting for the tightening to start, sitting on the edge of the chair waiting. Interest rates will be rising again, mortgage reit's , etc. will suffer. However, the sell-off will be to large, like all overly expected events in the market. Therefore, a bottom will be expected as well as the share price turns buy more acas or any other over- sold stock and be grateful.

    • Getting to look like Oct, 2011 again but for a different reason.

15.57-0.26(-1.64%)Jun 27 4:00 PMEDT