thats like saying you own your home. Technically your name is on title but the bank owns it. NLY is levered 8:1 and has borrowed 90% of the capital used to purchase said securities. When push comes to shove as it has right now, the securities are much better off in the hands of their true owners, their creditors, then they are a middle man with no assets.
NLY is getting massive margin calls and assets seizures right now, you can banks on it.
Other that figuring that the yield curve shape is the cause of the wonderful NLY earnings,
why would anyone be interested in yield curves.
If any company will have yield curve problems, it is FNM and FRE. They claim that they have hedges to protect them for a spike. I don't believe it is possible - too complex a problem for solution in a dynamic enviornment as we are likely to have. NLY attempts to address it with a mix of some variable and some fixed rate MBS. A sharp spike of rates to 5% fed funds would kill that deal. I don't see it happening that way though. Maybe it will, who knows. There is danger in the interest rate environment, IMHO. But, again, FNM and FRE will suffer first - and a FED bailout will improve the credit quality of NLY holdings. It won't really do anything to improve earnings.
At this point in NLY's situation given the govt position on the GSE bailout, the major thing to (always) be genuinely concerned about is the shape of the yield curve since that is the major determiner of their earnings. They have already proven in the March debacle thier lender relationships are solid so that bugaboo isn't really on the table anymore.
It really is business as usual along with the gift of a panic driven stock price which will be corrected soon enough.
As per the company 10-Q, Annaly does not have repo's with commercial banks. The repo's are with pension funds, private sources etc. Furthermore, the Federal Reserve of New York will accept Agency Debt as collateral for repo's.
Funding is not going to dry up and the margin calls are overblown.
> But wasn't your hypothetical $2.5B loss assuming 20-1 leverage?
No, the loss is related to the asset value and the percentage drop. $65B * 4% = $2.5B. Has nothing to do with being levered or not.
> Or, wait is the 20-1 what the repo lenders will let it get to?
The leverage that the repo lenders will let it go to is a different matter as explained above. The typical leverage for AAA credits is 20:1 to 30:1 with the lower end being more typical nowadays.
You don't know what you are talking about.
I gave you the trade days ago.
Buy NLY Short FNM and FRE.
I made a bundle on that trade.
Short FNM from 20
Short FRE from 17.
Quit yammering about NLY and start thinking about how to make money Hedging.
Meaning if Freddie and Fannie MBS defaulted it would be like the US Treasury defaulting on their loans. The value of the dollar would be worth next to nothing. While yes you would have more US Dollars then me by shorting NLY in the end it would be meaningless.