I was in and out of AGNC, picked up a divvy, went all cash for a while before and after Uncle Ben's thing, and then I went all in again this morning - if AGNC goes to 30, with the dividend, I'll be happy.
What I'm wondering is how come AGNC isn't going higher? You'd think with the unbelievable dividend, this close to ex-dividend, with all the good press lately, that people would be lining up - but today's volume was below average.
Hell, i consider myself lucky to have a pot to piss in after 8 years of the great war weasel, george w. Hope you all are doing better than me. Thanks again king george. Stay the course, mission accomplished, country in ruins. Way to go joe.
i like it when ita like this. its a classic mis pricing of risk that makes it really ineresting. first we had the haircut feaf. ow, its fear of obamas mortgage give away. i suppose there are rate fears, but people dont usually associate the mbs rate to be so clearly tied to ten year treasuries. the effect of government ownership is an off balance sheet tool to keep mortgage rares closer to the 10 year treasury than should be the case while undermining the three cccs of credit and the legal structure by challenging foreclosures. the problem is you have both republicans and democrats desiring to avoid the biggest subsidy ever created and misused in the western world. the administration is funding fhlmc ans fnm, and that has to stop. they have already destroyed the equity holders and soon be after the bonds and notes. what will always be left will be the mbs securities that the us has guaranteed. if they destoy the mbs values, its going to get ugly,very ugly, because the holders are worldwide. the mreits have a drip in the bucket, which is a good thing. so, lets say obama s stuffed on further eroding the system. if he does, the banks and thrifts will be holding loans on balance sheets, something they do in most other countries. however, they dont have 30 year fixed rate loans at the10 year treasury rate. he keeps playing with fire, but will lose this battle. meanwhile, please pay me my 1.40.
Thanks Ben and the others for the comments on AGNC's model. I guess I thought that since reductions in the long rate are bad for the company, we might have seen some damage to its share price or dividend in the past when the 10-year also came down to 2% or 2.5%. But that didn't happen then -- perhaps because it was a short-lived event. I understand that there are many other factors as well which everyone has described.
From everything I have heard, what sticks in my mind most is the fact that the share price for AGNC (and for the other mReits) is tied to book value, and that is a different valuation model from that of other stocks. Ben, I'm doing what you said -- I am sitting back and watching this period. I'm out of AGNC for the first time in 2 years (loved those dividends) and waiting to see if "it's different this time" as some are saying. I hope it's not.
(Watching the option behavior as well, since AGNC options do behave differently in several ways, as we have discussed).
AGNC trades based on book value...So when 10-year treasury rates fall, thats actually a positive for AGNC overall (Even if eventually the yield comes down, it'll still trade in a tight range around book value). The reason why AGNC sometimes does not go DOWN when 10-year rates go UP is because AGNC is actively managed ;). Look at the second half of 2010 for example when rates increased and book-value was protected -- The benefits of good management!
ephort, i have tried to correlate the 10 year year treasurt, the tlt, etc. it is best to correlate it to spy or standard and poors. try and coorelate bond returns and see if you can come up with something there, but generally agnc is a hybrid with characteristics of a bond and an equity, but it does seem to correlate best to the market, still it can behave conversley. when i first learned about the mreits three years ago, i became convinced they were all going out of business. here is another concept, because they are geared, agnc credit rating would be on the border of investment grade, but they hold aaa rated agency securities. i held puts for a long time, but nothing. them, i talked to a friend about the model, and had observed the spikes around the dividend cycle and its predictable and thebn rising stock price. i have been buying calls every quarter ever since, and i have made more money on this single stock then i have made on any stock. i trade the shares too. the way i do it is to trade out each quarter and start over. i explained the business model, but perhaps you should read nlys newsletter. its pretty good. however, nly has varied its dividend and hasnt performed as well. i like olee and think he is getting a good traders eye, but he (and i) are pretty cpnservative as i have tended to sell when he has from time to time. get to know as much as you can, but as i said, the spreads are good, mbb, the mbs etf, is rising, and the dividend is safe for now. just sit back and lets see what happens this quarter. the other thing i like about agnc is management is in bethesda and not far from fnma or fhlmc. they are right in the thick of it and no how to trade. they also dont have preferred like nly, so i like their cap structure better too. there just isnt much to dislike, and now rotation bacj into high yield stocks and bonds is about to happen. just a few head winds, and olee is right, the spread party will come to and end, but not this quarter.
Actually the period I was talking about was the last quarter of 2008, not of 2009 (I misspoke). They were increasing the dividend from .31 to 1.00 to 1.20 back then. I'm guessing that the market was just discovering AGNC then because it was still a young company.
But even after AGNC was on its steady course, when the 10-year rate fell from 4 to 2.5 (from Apr to Oct 2010), the share price of AGNC wasn't affected at all. And, more importantly, they didn't have to cut the dividend. So how do we explain that?
I understand the role that the rate spread plays in AGNC's business. I just couldn't understand why a positive correlation does not show up in the charts -- not only in that period in 2009, where there is a pronounced negative correlation, but really not at any other time either.
I know how you feel, it makes my brain hurt too.
Yields on the 10 and 30 year treasuries are used to set mortgage rates.
Since most of AGNC holds are 15 year mbs, the 10 year yield is very important.
As for the share price, it could have been the FED's QE and QE2, which boosted the prices of all assets.