Now you're making assumptions.
1. I'm well aware that AGNC makes money from the spread. You're assuming that long term rates will rise at the same rate as short term rates. You're assuming that holders won't panic once rates rise and greatly depress the stock price.
2. You're assuming a 16% yield of the current price. With the selloff, it might very well be 16%, with a share price of $20.
3. Yes it most certainly does.
I think our colloquy is reaching a natural conclusion but I'll offer a couple of concluding comments:
1. AGNC makes its money from spread, not an absolute level of rates. Rising interest rates are irrelevant if spread is maintained.
2. A "reduced dividend" is not necessarily bad. 16% is less than 18% but isn't shabby - were it to occur.
3. If you believe AGNC is a "declining company" hightailing it makes sense.
I see you took a dig at me in the HTS board.
How about you read this post and absorb the knowledge. Interest rates will affect all MREITs, not a particular company, which you stated. I do not prefer HTS over AGNC, in fact, I plan on selling for a profit this quarter and get out of HTS completely.
I plan on trading AGNC for 1-2 more quarters.
And your option strategy is cute, but not necessary. Thanks, but no thanks.
a $27 strike price, like Sept where you can get about $2.20 or so per share....then if the shares are put to you, sell covered calls against the position for protection and new funds to invest in other stock...do you think there is anythinng much better than this sector is which to invest that WOULD NOT ALSO fall in price when interest rates rise....it will affect everything!!!!!!!That is what I am doing! Susan
When the emotional cause a step disturbance from equilibrium, I can go on margin and double-up on the relaxation to equilibrium, then return to an unleveraged state.
If necessary, I can even free up cash by temporarily getting out of less volatile items elsewhere in my portfolio. Or bring in cash from other accounts.
Anyone who's got all their money in one basket is an amateur.
Well there lies our disagreement. You believe that AGNC will not be affected by rising interest rates, I do.
As good as management is, I do not believe they will be able to hedge all of their losses.
Yes, if you hold, you will still receive a reduced dividend. However, your capital is tied up. I know some people on here are "millionaires" and can invest in anything.
I have a limited cash supply and must be very choosy of my investments. Having my cash tied up in a declining company, while still paying me reduced dividends, will tie up my cash.
Cash that can be used to buy great opportunities.
I agree interest rates will rise and we will see inflation increase over time.
The issue for me is what effect that will have on AGNC earnings and dividends.
In one of my businesses we have $25MM of libor floating debt. We have plugged in increases in libor of .25 per quarter, or 1% per year. So far that hasn't happened.
If you look at AGNC's disclosure you will see that an immediate 1% nominal increase in rates does not depress earnings. I daresay a gradual increase over twelve months will not either.
Thus under what I consider to be a likely outcome - gradual rates increases over time - it is not clear that AGNC earnings will be adversely impacted.
Additionally, my captial is not "tied up" - it is earning a healthy dividend, which is the purpose for my investment in the first place. My investment thesis does not require AGNC to go up in price for success since it is yield oriented. What you're characterizing as "tied up" is for me "working hard and delivering yield".
You are focused on interest rates and share price; I am focused on earnings and yield. There may certainly come a time when earnings decline - at that point share price may or may not go down depending on the nature of alternate investments.
I do agree that a sudden spike in interest rates would not be good for AGCN, I just don't find that an actionable thesis for the time being.
emotion and ignorance create short-term activity as people suffering from them react improperly to changes in the facts.
but over the long term they merely feed opportunities for the calm and intelligent to apply the efficiency of the market and make a profit.
Quads, you've done your due diligence and know the fine details of AGNC.
However, you are discounting the power of emotion in the market. It doesn't matter how good you think the company is, if everyone else is running for an exit. You will be left with a smelly bag of ....
It's a well know fact that inflation is followed by interest rate increases. It's obvious that inflation is here, take a look at food prices, which are leading to revolutions in Tunisia and Egypt.
Interest rates will continue to go up. Here are some points to consider.
1. Your capital is tied up while MREITS go on a sliding path.
2. AGNC has an excellent manager. What happens if he goes? If you insist on holding, better with companies such as JNJ and KFT. They will continue making money no matter how incompenent their management.
3. Only a small part of their portfolio is hedged. Most of it is being used to generate income from the spread of short term loans and long term MBS.