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American Capital Agency Corp. Message Board

  • riotcow riotcow Dec 14, 2011 5:51 PM Flag

    Good bear market play for 2012?

    I'm starting to invest for the first time and it looks like AGNC will be a good equity to start me off. I am not confident in most equities as I am making the assumption that interest rates will stay low and the bear market will continue through 2012.

    Is there a significant risk to capital other than rising interest rates? If the Fed holds true to keeping interest low until 2013, can I - within reasonable safety - expect to take 4-6 more dividends?

    One last thing, what effect will inflation have on their ability to leverage the spread? Will it only have an indirect effect if short term treasuries rise?

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    • yourbestfriendintheworld yourbestfriendintheworld Dec 14, 2011 6:49 PM Flag

      Um, rising rates are good for AGNC, as long as the long-term rates rise faster than the short-term rates do.

      Inflation is a problem the Fed wishes it had. Right now it's going out of its mind trying to stop deflation, but with the Euro sinking and the Yuan floated and the dollar rising, that's a difficult get.

      Best hope is that employment keeps going up and we do get some inflation out of that. Not much. A few percent a year will do. Especially if it comes from the rising price of the sort of thing it takes a 30-year loan to buy.

      AGNC's capital is perfectly safe. Its future profits, that's where the risk comes in. But as we're sitting on about the lowest spread we'll ever see (barring a black swan with a fudge swirl), the risk poised to stay where it is or decrease, not increase.

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