biggest problem they have created with tba is they have killed off their consistent predicatbility
what if prices moved down and yet under normal circumstances they would have earned (most of the internals were intact versus a linked quarter - spread, cpr, leverage, etc) - but now the tba rolling over and create losses that make you question the ability to have cash to pay the dividend.
so trying to make more profits is one thing but impacting your predictability will lead to big swings down and probably up next quarter.
book 29 - oh hey book up 5% next quarter and undistributed up to x.xx and now the chase is on and its up up up until the next quarter - as I said great for trading but scarier when long or short into the earnings release.
sounds good for trading and entries - but the big question is that their leverage on their cash on hand seems to be overdone - imagine 2 quarters like this and where is their cash? its gone - so while you don't want to project on agnc .50 taxable (and mtge in much better shape) but what if it happens again - now you create uncertainty in the dividend - will it get cut? and then will it get raised and then will it get cut - and this is what causes uncertainty and then investors go from im pretty sure this is solid to im not sure and hey now I just don't know.
agnc using tba just shook up their core strategy by adding TBA's which was to deliver solid numbers and create predictability.
The tba position is actually pretty smart. The dividend should be maintained at 0.90 at mtge for at least all of 2013. The other issue may be we did not see an entire quarter since the capital raise.. So the new capital has not been completely shown in the earnings. Monday will be a down day for the markets and mtge. market likes getting a case of the Mondays. Monday down, Tuesday down, Wednesday flat, Thursday up, Friday down. That is my theory lol.
TBA SHOULD MAKE MONEY BUT IT HAS ADDED TOO MUCH VARIABILITY INTO A STOCK (AGNC AND MTGE) THAT MOST THOUGHT of as very consistent.
making money isnt the only thing that counts - variability does too else agnc should just lever 50 to 1 why not they make money every quarter - oops not this quarter because of what - jesus - no because of the tba
should have left well enough alone or simply done it much smaller until they built up a track record - but now i cant believe that im the only who is questionning not whether the tba adds value but at what cost - what is the variability to cash flow
and sure okay book is rebounding - but what if it wasnt - its not because internal are any different - its because they tried then got greedy - greedy thinking they could generate lots of alpha but - if wrong then hit to not just book but hit to cash on hand to pay that set divi is impacted.
book bounces and no one will care and cash will spike to (undistributed cash) but the risk is much higher now - risk doesnt mean you will lose big - risk is variability and they have increased risk greatly adding TBA's