Mortgage REIT's are suffering Group Multiple Compression which I predicted 3 months ago. As more expectations and predictions become facts, the present value of a future stream of book value declines can be estimated fairly accurately and we will soon see selling. My estimate is that the PE group multiple of mortgage REIT's will bottom at 60% of tangible book, including TBA adjustments. Hence, we are looking at single digits next year and that is why Sandler Oneil downgrade to SELL. IT IS A SCREAMING SHORT SALE SURE THING, ONE OF THE BEST I HAVE EVER SEEN SINCE MY OWN SHORT CALL AT $33 AND $29 THREE MONTHS AGO.
"present value of a future stream of book value"
There is no such thing..... I hoping you are saying " the PV of future stream of cash flows", discounted at a certain rate of return. This would be the theoretical present day price of the stock.
Present Value of a future stream of market price losses that get reflected in book value and results in actual charges to earning and profits. In due diligence there is, I do it all the time, anyone that buys another company or stock does due diligence. I take it I did not run into you or you heard me speak at the "High Tech Due Diligence Conference" in Sandy, Utah in Summer of 1994.
We're not going to see the high interest rates that would bring about the conditions about which you're warning. We have so much unused capacity in the USA that robust growth, which could result only from large increases in business investment, will not occur. By this time next year, after the market begins to weaken and interest rates drop because the economy is not improving, AGNC may be an outstanding investment.
You have no idea what you're talking about. Yeah, sure, I top ticked the market as well selling @$36.77 a year ago tomorrow. To suggest that BVs can be eaily estimated is ridiculous. If it was so easy these stocks would have almost no vol and everyone would know where they should trade. The sector has never once traded at 60% of BV. Ever. BTW, since the bond sell off many of these guys have duration gaps of 1 or so. When we look at the BV deterioration from Q2 to Q3 it will be nothing like the hits the ytook in the 2nd quarter. And one of my favorite names actually has a slightly negative duration gap which implies that their BV grows as rates rise. Keep in mind sparky that the Fed will taper, but there is no way that they can raise short rates for a long long time. But keep shorting.
They did sell at 60% price to BV few years ago in the 2011 selloff. CIM was at $4.26 and sold off to a $1.90 and Price to stated book value was slightly less than 60%. ARR was halved also. For some reason AGNC was regarded as better managed and only dropped 25-30% from stated BV. But that was then, when AGNC was delivering good results quarter after quarter, then the inflection point got hit and it was all over. What happened reminded me of the movie with Warren Beatty and Natalie Wood was in, about the depression and good times and bad, I think the name was Splendor in the Grass. After the disasterous two quarter this year, an REIT investor if he is still long has got to feel like Warren Beatty in that movie, on the farm with the chickens and his kids and his high school sweetheart who he didn't marry stops to visit him with his wife. Never never ever again will there be splendor in the grass.........it ussually happens only once in a lifetime. I am shorting because the train is loading up and it is headed to Shortsville on the AGNC Express.
Single digits? no.. $15... yes i could see it possibly going there if rates back up to 7% mortgage and spreads widen. Sure.. Or if short term rates start to really ramp up than ya... But single digits? No way lol. AGNC is still a SELL here.
It depends on your time line. If interest rate increases get postponed until 2016 it could delay things quite a bit but it is still inevitable that when they do start to increase that we will probably hit single digits, but not before then. In other words tapering alone probably will not get us there.
However if interest rates stay at near zero percent for 3 more years I am not sure the US dollar can sustain that much dilution. One could also wonder if our trading partners simply dump all their dollars to avoid losing money on them in the future. If that happens then the dollar could lose its reserve currency status and all those returning dollars will cause hyper inflation. Have a savings account? If so then kiss it good bye. And as much as some may want it to be, it won’t be the fault of the Republicans. The good news is that I won't have to worry about paying a thousand dollars for a loaf of bread because I don't eat bread. My only regret is that I promised my dog that that I would not eat her. Oh well. She had a good life.
With that in mind one may want to look for good deals on ammo and you may want to look into large capacity magazines, legal or not. No one will ever know you have them and looters will be too busy running to care.
I finally got my Sig Sauer P226 Equinox which takes 40 cal S&W. I attached to the bottom rail a Viridian laser. So I have been spending time at the firing range to get used to the trigger pull. Its taken me a while to get my groups concentrated but I think I'm getting the hang of it now. It kicks a heck lot more than my 9mm but does not hurt the hand. This will not be my primary weapon and my 9mm will get relegated to the safe. If things start to get seriously bad I will probaby buy a pump action shot gun as well. I figure all my needs should be close range. No more than 50 feet.