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American Capital Agency Corp. Message Board

  • stock_watch_900 stock_watch_900 Jun 24, 2013 11:24 AM Flag

    AGNC has 8x leverage - Bankruptcy is possible

    If bond prices go down 12% really fast, so that AGNC's hedges don't offer much benefit, AGNC's entire equity would be wiped out.

    This would mean mortgage rates go back to 6%, which is entirely possible.

    This same scenario is what put all of the Mortgage REITs into bankruptcy in the 1980's

    Buyer beware!!!

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    • I don't think BK, it will be something that happened to Bimini Capital (BMNM) in 2006-2009, they will pay off as much of the short term loans and then structure payment plans maybe reduced amounts to the lenders and managed the portfolios of MBS they bought for 20-30 years at 2 - 3% yields. Horrible situation, because when rates rise back to normal and could go stratospheric with all the debt demand out there, alot of it is adjustible, you can say rates are going higher for the long term, like 10-20 years. Horrible situation to lever at these low rates, but someone needed to buy these from Fannie and Freddie, the losses have now been socialized onto the masses of M-REIT investors.

    • You hit the nail on the head. That is the basis for the selloff. Leverage equals tremendous risk. You don't get a 20% dividend without risk. In a way the word dividend is deceptive. It almost sounds safe. After all, most dividend stocks are the bulwarks of the industry. They are the tried and true companies that seem to last and last like Microsoft. But the mREITs are nothing like that. They are more like a ball bearing balancing on the top of a glass hill with hedges being used like door stops to keep the ball from rolling off. It is a balancing act. They will survive only if the mREIT managers are agile enough to deal with the conditions presented to them. But tell me this. Who is going to sell AGNC a hedge at a price that they can afford to buy if the hedge seller thinks that they will lose money because one has to assume that the hedge sellers are smart guys who want to make money.

      One of the problems that companies have when a sell off occurs is that they lose the ability to raise cash if they need it because no one will buy their stock if they decide to have an SPO. That is why many companies go bankrupt when their stock price declines because banks won't lend them money anymore with warrants as collateral because they are unwilling to assume that the warrants will ever pay off because the scenario is all to common to them. The experience banker walks away. Only the naive and inexperienced share holder remains long and I'm not talking about the serious money. I'm talking about the retail bag holders that eat it in the end. By that time the serious money has already invested in something that is making them money, making them richer.

      There is a reason why the rich are rich and the poor are poor. It is not because the rich cheat the poor out of their money. The poor do that to themselves. They don’t need the rich to do that. The poor are poor because they do what poor people do. You can’t blame the rich for that.

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