Some interesting takes.
This was my interpritation.
I recommend you read it, and also they posted he slides on the web site so you can look at their slides while reading it
1) BUY BACK. Was more driven by sector weakness and not by AGNC's weakness to book. They didn't come out and say it, but you can think of NLY and other reits trading below book.
2) They kind of patted their back and pointed out from their Q1 presentation how they predicted what was going to happen (i.e. QE3, rate changes, etc), and were pretty much dead on.
3) THIS ONE IS VERY INTERESTING: The spread Decreased because they Increased their projected CPR. Without the increase in PROJECTED CPR, the spread would have increased.
The CPR projection increase was driven by QE3 and lower rates.
The asset yield declined 20 basis points as a function of faster prepayment projections and inter quarter activity. And this is a critical point for comparative purposes if we had used a CPR projection of 9% which would have been equal to our actual prepayments for the third quarter, our asset yield as of September 30 would have been around 284, above where it was at the end of Q2
4) CPR seemed to be a reoccurring theme (big threat). And he gave breakdowns on your various loans what the CPR's are right now. Some loans types have a scary high CPR right now.
5) Dividend: Vague of course
Said in other way, we could maintain the current dividend for an extended period of time, we have to evaluate though against the environment that we discussed, one which is clearly characterized by somewhat lower returns but also lower risk, what the right strategy is for the dividend in 2013 and beyond, and we don’t really, and I think it’s too early to kind of give any more detailed discussion of it. But that’s how we’re thinking about the world and we know it’s obviously an important issue to investors.
6) Their largest loan holding by type which accounts for 25 Billion of the portfolio only had a CRP of 4% in Oct. (THIS IS GREAT!) Their 2nd largest which is 19 Billion had a CPR of 7% in Oct.
((I'm still going through the Q&A... will come back to this later))
Thank you for the summary -
To me #5 on your list is the most important. Without being political, the politics of this week are certain to matter.
If I were them, I certainly would have evaded the question entirely. There is no reason to commit to any course of action when you have two presidential candidates with completely different fiscal policy positions with regard to the Fed. You could say "steady as she goes" and "more of the same" if the current administration is re-elected.
On the other hand, you should expect a new Fed chief and new Fed course should the incumbent lose and Romney win.
QE3 is slated to continue until December 31st, and is 'tentative' beyond that date. It could continue or it may end. The only certitude is that it WILL end if Obama loses, but not right away, as the swearing-in ceremony is late January. This means under this scenario Q4 is still "all QE" and Q1 is "some QE".
If, on the other hand, Obama wins, you will have Q4 as "all QE" (the same) and Q1 as either "some QE" or "continuing QE".
I know many of you might hate politics but love investing. It is time to recognize that those two things have intersected here. You cannot analyze agency REITs without analyzing politics... at least... just this once ;)
Hate to say it, Warlord, but I think everything in your post is factually inaccurate.
Start with replacing Bernacke .... His term lasts until 2014, and the Prez [Romney or Obama] does not have the power to fire him. Romney's assertion that he will fire Ben is just more lies from the biggest liar in Presidential history. So, don't count on a change one way or the other.
QE3 is not slated to expire on 12-31-2012; it is going to continue indefinitely. It is Operation Twist that is slated to expire at the end of the year, but that Operation does not add liquidity to the economy; it just attempts to flatten the yield curve.
Some people believe that the Fed is in the President's pocket, but I don't. The Fed is supposed to be independent, and I believe Ben is. Regardless of the Prez, Ben will continue to do what he is doing. So, the idea of a fiscal policy with regard to the Fed draws a blank stare from me.
I think politics is important with regard to the Fed, but mostly from a perception point-of-view [like yours], and not because there will be much difference.
Stay cool ....
I believe that the spread is net of hedging. Hedging is the wild card which can change substantially over relatively short time frames. This alone could cause the spread to increase. Lower cost of leverage could do the same. Did anyone on the call ask about that?
Thanks for posting xxavatarxx. I listened to the call and got the sense that the dividend would either stay the same or be decreased but not increased given this environment of lower returns with lower risk (the lower risk being from the Fed providing support to the value of AGNC's assets because of QE3).
You posted part of what Gary said but here is the full response when questioned about the dividend:
"Now that one put aside, let’s look at the dividend, what I want to stress with respect to the dividend is that we have quite a bit of flexibility. Our biggest constraints that we talked about this at in last quarter, are obviously taxable income and undistributed taxable income and clearly, we have a large amount of undistributed taxable income. What does that mean? It means, taxable income is unlikely to be a constraint any time soon with respect to the dividend. The other key thing is that we don’t want to put book value at risk by paying a larger dividend even if we have taxable income to do that. When you look at what’s happened with book value over the last year, okay, were actually since the beginning of 2012, not just this quarter, book values up like 20% despite paying a healthy dividend. So we feel we have a lot of flexibility with respect to book value.
Said in other way, we could maintain the current dividend for an extended period of time, we have to evaluate though against the environment that we discussed, one which is clearly characterized by somewhat lower returns but also lower risk, what the right strategy is for the dividend in 2013 and beyond, and we don’t really, and I think it’s too early to kind of give any more detailed discussion of it. But that’s how we’re thinking about the world and we know it’s obviously an important issue to investors."
I know we put a lot of attention on core earnings which were gloomy, but seems they have big chunks of realized and undistributed gains ... don't they have to show 90% distribution comming up soon? Buybacks could eat it but I wouldn't be suprised if div was raised for Dec or if we see a special div anouncement. Something to consider....
As for 2013 (perhaps beyond) ... core earnings are likely to remain gloomy for 2013, but rising BV may mean suplemental realized gains and ballance things out quite a bit. I also expect to see Agency REITs to do more buybacks (don't see too many other good options??). I save explaining, but all said, I don't see any of this as negitive!