I think I've figured out what caused the secular decline in mREITs today.
The Fed just ran a stress test on 19 big banks. They asked the question of how far the banks' reserves would go in the case of certain economic-downturn events. 15 of the banks passed cleanly. 3 of the banks did not pass, but would pass if they stopped paying shareholders any distributions (divs, return-of-capital, share buybacks, etc.). One, Ally, did not pass even with flat distributions; its reserves would have gone to mid-single-digits; but it disputes the methodology and the Fed's assessment of its risk portfolio.
The point is, until this stress test was conducted, these institutions were restricted on their shareholder distributions, which was a requirement in the federal bailout following the banking meltdown in 2008.
Immediately following the stress test, several of them, notably JPM and AmEx, increased their distributions (albeit AmEx only went from 16 to 18 cents/share, which is piffle compared to AGNC or MTGE).
That immediately made them more attractive to Yield bugs, who I believe have suddenly diverted some of their capital from the mREIT market, where they must have been nesting while the big banks were on payout probation.
Hopefully it's a temporary thing, and doesn't mean that the banks will be competition for high-yield investment, and we can get back to watching our porters lugging baskets of greenbacks up the mountain again.
My take for whatever it's worth is that YBF is on the right track -- now that those banks can pay shareholders out of their cash reserves instead of having to buy treasuries the rates treasuries have to pay will have to go up in order to attact buyers - and when those rates go up it hurts Reits and MLPs. Sound reasonable?
While rate increases for Treasuries may hurt mReits in general (and then, only in the short term), I think AGNC --- the best of all of them --- should continue to do well. Their continued use of SPOs to inject cash into new, more profitable interest rates will add to both earnings and BV. Investors will be able to see that on a quarterly basis as AGNC reports continued growth.
After the announcement on bank stability, mortgage interest rates spiked up. This could be the start of ever increasing interest rates that will drive the FED to cut short its plan of low rates thru 2014.
Just thought I'd pitch in my 2 cents here,
First, this stock's value is entirely dependent upon the interest rate spread.
The mgmt wouldn't just offer if the rates weren't expected to be right.BTW, they still have held over a few million shares to sell. So who controls the rates now? Yes, any news, winds, rumors, speculation about Mr. Bernanke & co. can change this stocks price. The market is sitting on a hair trigger right now expecting a pullback, but the stock has too much intrinsic value (where else can you get a fed guaranteed investment with a 16% payout?)to fluctuate with the market. This is a gem in many institutional mgrs eyes (the rating qualifies for portfolios). My thoughts are that the capitol hearings, any anticipation of a rate change will alter the stock. As for the refinance, that is just
a false hope and the banks won't lower rates (ie - loose money) because credit markets are tight. I am
no expert, but Mr. B said the rates will stay the same, so I am holding...
I agree. I dont think its an outright sell.
Al is right also. The stress test results resulted in little dollar signs in the eyes of money managers out there.
Simple trade: they sell some of their AGNC at a profit rotate into some big banks that passed ( BAC, ZION, BBT JPM etc) ring the cash register at the 10%-15% pop in price and then rotate back into AGNC. If Jamie Dimon is buying his stock here why shouldnt I?
Been hearing that a lot lately. Don't see it. The economy itself is picking up, not topping.
Today, in the end, could just be Goldman unwinding massively leveraged positions in mREITs. Those chiselers are into so much dark-arts majick we may never know why anything happens.
Hey YBF -
Just a lot of "good" news being thrown at us lately, so it seems like it's a "risk-on" market, safe havens of mREITS & Gold out of favor today.......
But "under the covers" there remains some significant risk in Europe.
In Europe, unfunded state pension obligations are estimated to total $39 trillion dollars, which is approximately five times (5X) higher than Europe’s current combined gross debt. (yikes!!)
In addition, the US Fed is still holding undetermined amounts of USD/EURO currency Swaps……….
Stay nimble :-)
Seems like SPO burnout to me.
Every mreit issuing SPO's in the last week, so all mreits going down. Even MTGE is having a hard time pushing out their 12 million shares today. My AGNC, MTGE, ARR, and NLY are all down.
I thought it had more to do with the Bond Market getting all beat up and thereby crush BV of our darling AGNC and other MREITS.
Do you guys think this research still applies? If so, wouldn't IVR be looking at some pretty good gains in the near future?