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American Capital Agency Corp. Message Board

  • fredericababe fredericababe May 8, 2012 4:31 AM Flag

    please,how will a greek default effect

    this wonderful stock? won't it get hit harder that other dividend paying stocks in other sectors?
    please, serious replies only.


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    • Not trying to scare you (honestly), but it did go down to ~$25 (90% of book value at the time) in the last panic over Europe in Oct-Nov of last year. I managed to use that as a buying opportunity.:)
      Its not clear to me what would happen now if Greece leaves the Euro. A big part of what drove the "flash crashes" last year was a panic (much like when Lehman collapsed) that the short-term credit markets that MREITs depend on for financing their leverage would dry up. This concern seems to have been mostly removed due to the European central bank having vast sums (500 billion euros or more) it can "lend" to banks for up to three years to keep them solvent and maintain short term lending market liquidity. I still think that it will depend on what the bond markets do to the interest rates in the other PIIGS countries though. If there is a run on Italy and Spain bonds for example, everyone would likely still run to U.S. treasures and gold, which will drive long term U.S. interest rates to new (50 or 100 year?) lows. Falling long term interest rates affect mortgage rates and would eventually cut into AGNC's profit margins by reducing the spread, but it takes a while because their existing (higher interest) bonds would have to expire. If rates go up (unlikely without europe getting resolved) AGNC has hedges against it to protect the book value.
      If big countries like Italy default and break up the euro, this could set of a giant panic like in 2008, when AGNC was ~$15 (what an amazing price :) ), and the ECB would not have enough lending authority to stop it. In that event, I would still want to try to find a bottom and buy, particularly if the price is well below book value :). I didn't get very much at ~$25, and I want to add to my position.
      To summarize my long-winded post: ~$27 in a small Greek panic like last year, ~$17 in a big one. Any price below book value has tremendous upside if AGNC survives a Greek default (like it did in 2008).

      • 3 Replies to natro_glycerin
      • By "like it did in 2008" I mean the Lehman default, which at $650 billion in assets was similar in size to the Greek economy. The other part is that Greece has already effectively defaulted according to the ratings agencies without leaving the Euro. They have "structurally defaulted" by saying they won't pay back 50% of principal, and the rest will be at a much lower interest rate, which effectively wiped out 70% of the value for most of the bondholders left holding the bag. The markets seem
        The real wild card is whether the newly elected, anti-bailout politicians in Greece will keep to the highly unpopular austerity plans that were part of the conditions of getting the bailout revenue stream that allows them to pay their bills now. If they decide not to then the default on the remaining debt as they leave the euro will be very messy, and will probably include hyperinflation of the drachma.

      • And had you bought AGNC on the drop, along with other stocks, you would have done well. The big exogenous events, the Tsunami or last years S&P downgrade, that was your time to buy a lot. So, had you been in cash at the big drop last year on any of these events and bought the market when it was at its worse, then you would have made more money than any other time very quickly. Keep cash in a market like this. This is fantastic; I love volatility. AGNC, MTGE and other MREITs performed well last summer and they held their values and/or recovered quickly form the above events.

        There are the big exogenous events, macro issues, industry issues and micro (firm specific issues). Right now, you can tick the box on the MREITs, and we can only face an exogenous events as the other factors are favoring the MREITs right now. I am not saying that lasts forever, just for the forseeable future.

        Your price of $17 suggests that market will consider this worse than the above two events, which were far worse. Perhaps, if we had a conflict in the Middle East or something, but not Greece. Even Nourbini who is talking right now is saying the breakup of the Euro zone is a slow burn issue.

      • We were also under the cloud of the Republican filibuster of the debt limit, which was a joke threat but scared enough people that the whole market was on eggshells for six months.

        They may be winding up to throw that spitball again in September or October, since it worked so well before. The key is to make sure that it never leaves their hand without the entire country seeing it's all them.

    • You need to consider that last year when the SPY went down by approximately 20%, AGNC held its value. It is a relatively low beta stock.

      Here is a recent short term chart that shows that we are seeing the same type of reliency:;range=3m;compare=spy;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

      How could it be that AGNC and the MREITs are not as correlated to the SPY as other stocks? Investors gravitate to high yield in more difficult times, whether it be treasuries, corporate bonds, high yield bonds, reits, utilities, etc., particularly ones backed by government guaranteed MBS. As long as the short term borrowing costs are within control (repo costs), refinancing is minimal (which at the moment it is) and MBS remains in demand (which it is), then you have a nice safe haven place to put your money. The risk is the borrowing against AAA securities.

      That doesn't mean it is totally safe, so what happens with big exogenous events? They are brillaint, just go back and look at last years S&P downgrade of the US in October. Most money I ever made in one month. Everything drops and comes back within days. Get your shopping list together, know the prices you want to pay and get ready for a big exogenous event. If you are really worried, sell some May 19 covered calls if you have enough shares. Otherwise, I think we outperform the S&P at this point in time.

      The only time the MREITs suffer is when there are rumours around, like taxation of dividends, the structure of the industry (we lived through the SEC "investigation"); the prepayment rates (we lived through the threat of HARP); higher borrower or repo costs (that remains and will always remain an issue, but not in the very near term); and the value of MBS. I would however watch out for any MREIT other than AGNC or MTGE. NLY is potentially a problem, and I am just not interested in any other MREIT at this point. As long as Europe is a question mar and the US housing market remains in the hole, then we can expect accomodative policy from the Fed. When that changes, we will have a problem.

    • This is a "vulture" investment. It thrives on a bad economy. The Fed will have to continue low interest rates longer which is manna from heaven.
      Yes temporarily it may sag as everything is often sold during panic but its fundamentals would strengthen.

    • I am not so sure it will. It seems to me that if that happens the market will go down. When the market goes down or turns choppy the mreits stay steady or go up a little because people look for a safe haven and mreits can act as one because of their high dividends.

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