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Annaly Capital Management, Inc. Message Board

  • PHAGE1998_99 PHAGE1998_99 Feb 20, 1999 4:29 PM Flag

    Back to Basics

    We invest in a lot of different situations, so I
    get confused about once
    a week. When this happens,
    I reduce things to their simplest possible
    terms
    and get out my little library of reference
    books.

    First, in the present interest rate environment, the
    mere fact that anyone is
    offering a 13% return on
    anything should tell you that risk is involved.
    This
    "premium" is what attracts investors. The
    only question
    is: "is the premium high
    enough?"

    Second,
    we have a firm here that invests
    in mortgage
    securities only--a medium sensitive to interest rate changes
    in both
    directions. They are leveraging
    these
    investments by a factor of 10X, (apparently customary and
    reasonable in
    the sector.) This means that they
    are
    extremely sensitive to any contractions in
    liquidity,
    which is what happened this summer.

    Third, the
    "insiders" you refer to are
    professional investors,
    holding "beneficial interests" in Annaly, (greater than
    5% with no intent to control.) When
    the banks
    began to restrict credit this
    summer, they began to
    sell en masse;
    because they knew that the risk
    premium was no longer high enough and that their

    competitors in the stock would feel the same.

    In other
    words, this is inherently a risky situation. It is not
    suitable for those
    requiring day-to-day stability of
    principal.

    On the other hand, the price volatility
    built
    into the stock by risk factors of
    the business
    makes it attractive to other
    kind of
    investors--especially when compared to the earnings and dividend yields
    of stocks or the coupons of bonds.

    At some
    point, the big guys will be back.
    You can then sell
    out your position for
    whatever capital gain
    exists, plus the
    accumulated income return for the
    holding
    period.

    Not a bad deal. The key here is to have
    no
    immediate need for the money invested.

    I'm glad that
    I'm not Jim Grant! He's
    trying to write for MONEY
    about investment
    opportunities not usually covered
    for that
    audience. He must get about 60 angry
    letters a week!

    Hey, does anyone have anything to
    say about Annaly's approach realtive to
    other
    mortgage REITS? Is this really a
    conservatively managed
    company?

 
NLY
11.29+0.09(+0.80%)Oct 20 4:01 PMEDT

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