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Western Asset Mortgage Capital Corporation Message Board

  • eyesandears51 eyesandears51 Apr 18, 2013 2:04 PM Flag

    WMC- A good MREIT but....Stock May Be Trading Ahead of It's Ski's

    WMC may or may not soon launch a dilutive secondary. Let’s look at the stock technicals….some cautionary signs. Since April 11, 8 day EMA has dropped below the 34 day EMA, MACD is trending sharply downward, stock is below the 20 and 50 day SMA, and is close to breaking below the 200 day SMA. Stock has dropped consistently from $ 23.80 close on April 8, to $ 21.41, on very high confirming volume. This is happening against a broader market retrenchment. An additional concerning factor is a very high 16.6% Short % of Float (as of Mar 28, 2013), 10% or higher is problematic.

    I am an investor in WMC, and would like to add to my position, but believe that the stock is heading in the direction of testing the $ 19.36- $ 19.90 range realized just prior to and after the first of the year. A good risk adjusted level to add to my position is the mid to high $ 19’s.

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    • MREIT Update: Very good article was published in the Wall Street Journal this weekend. Highlights as follows.

      MREITS purchased $ 450 billion of agency backed mortgage securities in 2012. This is less than 5% of the total $ 7.5 Trillion. US Banks @ $ 1.7 Trillion are number one purchaser, followed by followed by foreign sovereigns @ $ 1.1 Trillion. Particular concern is the Financial Stability Oversight Council, comprising the top US financial regulators, " is expected to cite MREIT's as a source of market vulnerability in it's annual report.........setting the stage for stricter oversight of the industry. " Greater regulations is usually accompanied by increased compliance costs, reduced flexibility, and decreased returns. This does not bode well for WMC, and the other REIT's, posting nearly a 10% correction in their stock price this past week and a half, from a April 8 close of $ 23.80 to an April 19 close of $ 21.60. The cumulative negatives of costly additional regulation, a broader market correction, whose dimensions will not be evident until the end of April, and weakening WMC stock technicals, suggest that WMC could correct another 10% between now and month end.

    • Mr.Eyesanders, Why would you want to put so much in WMC? Too risky. Perhaps GE, JNJ ext. When you decide to exit there may be a problem. Example this last week I set a market order to sell 500 shares on the opened with market at $22.12. Five hundred sh sold in eight lots with prices from$22.12 to $19.88. When not if there is a problem with WMC you will be phked.
      Phil

    • eyesandears...
      thanks for the technical analysis, i follow technicals as much as fundamentals both micro and macro...
      i sold 1/2 of my wmc holdings in the ex run up and sat on the remainder.
      the reason for the sell was that i expected, as many here did, a spo to follow in the days after the ex date.
      if you had asked me at the time of my sell (and my orders were placed at that time accordingly) i would have predicted a drop on ex date to the low 22 area followed by an spo priced in the mid to upper 21s and i had been looking to reinvest in the 21.05 area with bottom being found around the late feb. lows.
      after no or delayed spo, additional tech analysis, as well as taking your analysis into account i now see
      wmc (if spo) finding support in the lower 20 area to 19.80 based on the 12/14 close/low.
      reason for me having less faith in the eoy drop to mid 19's is that it was based on tax info/ predictions that did not pan out.... not to throw that technical low out but in my mind the govt tax uncertainty played a big role in that low.
      hope the divi increase plays some role in increasing support levels if we do a spo as well.... if market continues to weaken and falls in the may sell off as last couple of years.... then these analysis may all need to be rethought and your 19s bottom is very likely.
      thanks for your post, good to read all analysis i can find.

      • 1 Reply to glsimmons3
      • I appreciate most of the thought provoking comments that my commentary has inspired. My intent is to exchange perspectives, analytics, insights, and relevant information with fellow investor and learn from your collective experience.

        I believe that the fear and perceived uncertainty about the FED tailing back on their $ 40 billion/month purchases of MBE is having a appreciable negative impact on all MEITS but disproportionately on those firms with the highest concentrations of government backed MBE’s. This is why I reallocated much of my positions in AGNC successively to MTGE and WMC. While I have protected most of my WMC holdings with some rather complex hedging, surrogate, and option strategies, I do believe that the risk of another 10% correction in WMC shares is far more likely than a 10% increase between now and the end of April. Today’s .33% pullback in WMC, at a time when the broader S&P is rising by .65% should be ignored at our peril.

        Let's update the prospects, more broadly, for MREIT's now that the Federal Reserve Open Market Committee has specific targets for exiting a highly accomodative monetary policy, widely called QE....X. The policy of direct purchases increases the FEDS balance sheet by approximately $ 1Trillion/year. Secondly, the continuation of the Fed's purchase $ 40 Billion/month of Mortgage Backed Securities and the specific targeting of 6.5% real unemployment, factoring in Labor Participation as part of the unemployment rate, is directly relevant to MREIT's. These firms now have substantial clarity about the continuing magnitude of FED purchases and the specific conditions for the program to end. As previously indicated, keeping rates artificially low raises the value of the MREIT's existing portfolio of government guaranteed MBS's, adjusted for the decay, or early payoff of their holdings. Keep in mind payment on the MBS's is government guaranteed, not the early termination or refinancing of mortgage securities. This favors the larger older MREIT's, such as AGNC, that have a larger percentage of older higher yield MBS's. Since the MREIT field has become a bit crowded over the past two years with newer entrants, we will likely see some healthy consolidation, favoring the better performing firms including AGNC, WMC, MTGE, PMT and others. MREIT's attain their margin from the difference between their lower cost of borrowing and the higher percentage realized from monthly mortgage payments. These results are increased or diminished by leverage and hedging. Again the larger and more experienced companies are advantaged. AGNC, for instanced, increased its spread in Q-4 to 1.63% from 1.42% in Q-3. Additionally their prepayment decay, called CPR improved from 10% to 9% Q over Q. In summary, I believe that the greater visibility into the size and conditionality of Fed involvement in MBS asset purchases is a net positive for the larger, older, and more agile MREIT's. Even if they experience some margin compression resulting in lower yields, 15+% is comparatively attractive and difficult to replicate. Additionally CPR decay or early payment, requires borrowers to refinance, a cumbersome, difficult, and unattainable process for many who have impaired credit, underwater equity, are retired, or changed employment status.

    • Eye ...

      Probably due to: [1] all MREIT's are down during that period, although maybe WMC is down more, and [2] the delay in announcing earnings spooked some people. I don't think [2] will repeat.

      Are you holding what you have, and is your position a meaningful amount to you?

      • 1 Reply to ray858945
      • Ray,

        I have, for me, a meaningful six figure commitment, with an appetite to increase by as much as 50% in increments. I am looking to add to my position as it is more rather than less likely that WMC has bottomed and is headed higher. As indicated I believe that the stock's technicals are under significant pressure, this is reinforced by Option open interest orders for April 20 puts priced @ $ 19.78 and lower, exceed the next level $ 22.28 and higher. Overall negative put volume is nearly two to one over optimistic call volume.

        This is why I believe that, before the end of April, the stock is more likely to test mid to high $19's than appreciate much beyond its current levels.

 
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