Strength of jobs growth is based on statistical projections, not real jobs. Rate increases are premature. It is all about politics.
2004/05/11 07:16:02 - Investors should not get too excited about the recnt labor report given last Friday - NY Post : The New York Post discusses Friday's labor report and suggests that investors should not get too excited about all those new jobs that were supposed to have been created in April. According to the article, the bottom line is that most of the 288K jobs that the Labor Department says were created last month may not really exist and they could be figments of statisticians' optimism. Back in the March employment report, the government added 153K positions to its revised total of 337K new jobs because it thought (but couldn't prove) loads of new co's were being created in this economy. That estimate comes from the Labor Department's "birth/death model." As staggering as the assumption about new co's was in March, the Labor Department got even more brazen in April as it was disclosed that these imaginary jobs had been increased by 117K to 270K for the latest month. Without those extra 117K make-believe jobs, the total growth for April would have been just 171K, which is sub-par for an economy that's supposed to be growing at more than 4% a year.
Out this am. I'll be watching though, good luck longs.
I'm not convinced the divi is safe, and am grateful to get out at these levels. Could be wrong but the risk/reward is not in my favor, IMO. Like all things, time will tell.
TODD'S TAKE: An ugly day on Wall Street was especially nasty for the Mortgage REITs in our Income Portfolio. As noted above, the selloff in the market is unbelievable, but the moves in Mortgage REITs show that for this sector the market has lost its marbles. The proof is in the table below:
Company Current Book PB
Name Price Value Ratio Yield
Annaly Mortgage Management $16.34 $13.45 1.2 12%
Anworth Mortgage Asset $10.61 $11.55 0.9 14%
Friedman, Billings, Ramsey $16.70 $10.18 1.6 8%
MFA Mortgage Investments $8.36 $8.64 1.0 12%
In the case of Anworth and MFA Mortgage, the stocks are now trading BELOW their book values. This means that they're trading below their net worth! Look at the price-to-book ratios, and you see that they're unbelievably low, in some cases below 1.0. Historically, financial stocks have traded at 1.6 or higher.
Now look at the yields. At a time when companies around the U.S. have been boosting dividends, and shareholders are responding positively, Mortgage REITs still stand out from the pack with awesome yields.
What investors have lost sight of is that in a changed interest rate environment, Mortgage REITs are going to do better than almost all other Financial Services firms. While profits could decline, these companies are not going to lose money. They will be profitable in good times and bad, whether short rates are higher or lower. There's no shortage of mortgage-backed securities, the assets that the company's buy. And even as rates are changing, the spread between the rates at which they borrow and the yield on their assets means they'll continue to bring in huge profits.
In light of the exodus from these stocks, there are a couple things to keep in mind. Even in the toughest business climate, these companies are equipped to bounce back from tough times much faster and much more powerfully than just about any other kinds of company. We saw this last year, when high prepayment rates hurt profits. It took them one or two quarters to get over that. Compare that to the slump in Telecom or Technology, where the fallout has been massive and drawn out for years.
Next, if the selling pressure persists, and they continue to trade below book value, watch for these companies to sell some assets and buy back stock. Why? Because stock buybacks are accretive to book value. Period.
THE BOTTOM LINE: The Mortgage REITs in our Income Portfolio are below their Alerts. But we have yet to see a compelling argument that justifies the selling we've seen in the sector. No matter how you run the math -- by earnings, yields, book value, and so on -- Mortgage REITs are tremendously undervalued. This is especially important because their profit-making capabilities are generally unchanged, despite what the market says to the contrary. The profit upside remains strong, and room for profit-and yield-driven appreciation is only getting bigger.
Check out the details of these companies on our site, and we're confident you'll realize two things: First, that you should own more of these stocks. And second, that the most important thing a REIT investor needs to generate big gains over the long term is patience.
Y'all might be interested in this quote from the latest issue of BullMarket Reports REIT newsletter:
"Whether homes are bought and sold, or whether new mortgages are created is irrelevant. Mortgage REITs buy existing mortgages neatly packaged by Fannie Mae and Freddie Mac, and there are billions of dollars of them out there to buy. So this whole argument from "Wall Street" HAS NO BEARING on Mortgage REIT income, or their ability to execute their business plans"
As long as rates go up in an orderly fashion the spread between what they borrow money at and what they loan it out at will remain stable. Just like oil companies make more money when oil prices go so to can REITs make money when rates go up. The housing market will not crash if people have to pay $50 more per month.
At this point, I don't see there being any significant bounce until ANH states their next dividend and gives some guidance. I believe that the thing that hurts ANH the most is a flattening of the yield curve (reduction of spread). Since they are mostly in ARMs, the long end of the equation will adapt eventually to the current long term rates. The danger is if short term rates come up too fast. They have protected themselves as best they can by locking in some of their financing in anticipation of higher rates (they stated this in the CC). I think they are in better shape than this selloff would indicate. The only other thing that I can think of that would help ANH in the short term is any event (say, a terrorist attack) or report (inflation in check) that decreases the likelihood of short term rates going up quickly. I think there is a reasonable chance that those things could happen in the next 6 months.
ANH will bounce back at dividend announcement.The divi will be the same as last qtr.when you can get .38$ divi on an $11 stock,it will rise.you can sell then.but you will have to sell before the ex-date.the don't build more land.there was so much talk about a real estate bubble.the reits got sold off.the bubble is still yet to burst.that was a year ago.rates will go up,ANH will still make money,still pay a higher than average divi.population growth keeps upward pressure on real estate.short term you may want to sell.
relax,larry.the sell-off is over done.If traders think a .50% rise in interest rates will kill the housing market.bull.more people working means less defaults.ANH will be back investors will be looking for dividends as the market trades side ways.whereh are you going to get 14% yeild on your money.they'll be back.