First we were told (by Motley Fool, Seeking Alpha, Barrons) that QE is bad for REITS, that it will shorten the Interest Rate 'Spread' and the Stock price of REITSs will go up once QE is phased out. Now these same people are stateing that the end of QE is bad for REITS, will shorten the Interest Rate 'Spread' and the Stock Price of REITS will go down if QE is phased out. My point is that the 'News' of the eventual phase out of QE and the loosening of FED buybacks is already baked into the cake. Its not exactly a case of "Sell on the rumour, buy on the news"; but my suspicion is that once QE and Buybacks stop, strong REIT's such as AGNC with 2.8 billion in cash will have traders flocking to them. No one has hired me as their Financial Analyst yet. But I know enough to think long-term, hold onto my AGNC shares and enjoy the Dividends while others give in to hoop-la from manipulators and the emotinally distraught. Count me in as a Shareholder of AGNC as least through 2015.
Sentiment: Strong Buy
AGNC has been tracking the Agency RMBS prices, which have dropped for the last consecutive eight days. It's very unusual to get an eight day decline, so relief is likely very soon. Declining RMBS prices will affect AGNC book, as occurred in the first quarter, but will not necessarily affect the dividend. But stock prices are driven both by book and by dividends, so we have to suffer through this sell off.
It's only a matter of time before RMBS prices recover some of their recent losses, at which time AGNC book will be restored. Participation of the Fed in RMBS markets has created some additional volatility, which is generally a bad thing for mREITs. It's my opinion that the Fed has very little understanding of the markets, and should have stayed out. But one mistake often leads to another, so their withdrawal will likely have more negative effects.
Another message board is attributing today's selling to a disappointing earnings report by WMC. A Seeking Alpha article dated 5/13 recommends WMC as an alternative to AGNC. Doesn't look like a particularly good call today.
Prices on Agency RMBS have turned up this morning, but the mREITs are being trashed. There's a chance that mREIT prices will turn up later today, which has happened in the past. If prices don't turn, I will be inclined to believe that a fear of dividend cuts, margin call selling, and/or a day of capitulation is taking place.
The concern is that the market will price in the end of QE as soon as it looks plausible. As such wouldn't the price get impacted as soon as that likelihood is inevitable? The premiums being paid now are in the range of 4 - 6% above par. With leverage isn't the reversion to PAR going to create a substantive swing in the stock price? Thanks.
Very informative content. Thanks. My feeling is that it would be nice if eventually the FED would let the true market value of businesses come out instead of this constant 'pumping up'. Strong companies with good management would benefit from that.
Sentiment: Strong Buy
Very good advice. I found out the hard way that 2 Harvard MBA's with the same education and the same amount of intelligence can have 2 drastically opposite opinions. A Billionaire with a dozen Financial Advisors thought he had a 'consensus' among his Advisors when he bought 7 million shares of BOA at 30 dollars apiece a year or so ago.