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American Capital Agency Corp. Message Board

  • reits_r_us reits_r_us Dec 3, 2012 11:59 PM Flag

    Let's talk about mReits, especially AGNC

    I hate to break up all of the fun, but I think we know by now, who believes 'what', regarding political persuasions, and it should be even more obvious that all of the vitriol, even though it might be somewhat cathartic to tell others that they are idiots, isn't really going to persuade them from changing their political views.

    That said, which is probably only cathartic for me, I know the regulars will still attempt to proselytize, demonize, or otherwise black ball, censor or in more symbolic fashion drive all those not affiliating with their fortified camps deep into the ground. Life is somewhat boring at times.

    For your enjoyment and relief from the Archie Bunker name calling(you guys should get more original than "idiot" and use Archie's "MEATHEAD"!! Remember? Now there was class, especially with that quintessential grin and satisfied shake of the head upon delivery. You all need to step your game up! If the invectives are to continue please have a little finesse, that special je ne sais quoi, that not only leaves your opponent demolished but in a manner that leaves the rest of us satisfied as from a glass of fine wine and good cheese.

    Well enough for my introduction. I have noticed something which no one, I mean no one(And I know everyone...;-)) has brought forward as causing somewhat of a weight or anchor dragging behind AGNC's ship of state. We are unique as most know, of being 100% Agency. For those who have no clue what that means, in a few words it means that AGNC deals only in RMBS(Residential Mortgage Backed Securities), which are guaranteed by the Federal Government(GSE). Here is a short primer:

    "" Fannie Mae (FNMA) and Freddie Mac (FHLMC) are government-sponsored entities (GSE's). They were originally created by Congress, but are now shareholder owned and operate as public companies. Instead of insuring or guaranteeing mortgages, they purchase the mortgages from other banks to provide new funds for mortgages.

    While Fannie Mae and Freddie Mac are not considered government agencies, during the housing crisis of 2008, the federal government stepped in to guarantee their viability. The two GSE's were placed under conservatorship of the Federal Housing Finance Authority (FHFA), with a US Treasury guarantee to provide additional funds if necessary to offset losses from a giant wave of mortgage foreclosures."""

    That's about as brief as it gets and all you need to know, for now. The two big Kahunas that deal 100% in GSEs are NLY with a Market Cap of 14B and Enterprise Value of 115B. The other is none other than our own AGNC with 11B and 90B respectively. NLY has been around much longer since Oct. 1997, whereas AGNC was born May, 2008.

    The problem , which NO ONE has mentioned in the press or on these MBs is not the fact that NLY has had its problems in the past, with their late CEOs run in with the SEC for 'irregularities'. From Motley Crew:

    ""Farrell, the co-founder of both FIDAC and Annaly, was censured by the NASD, fined $150,000, suspended "30 days from associating with any member of the NASD," and had his securities license revoked. The charges? Among other things, "filing inaccurate [regulatory] reports," "filing [an] incomplete and inaccurate annual audit," and keeping "inaccurate books and records."""

    Recently NLYs corporate fill in the blank board positions have been filled by members of the same family:

    """Chimera's chief financial officer,Alexandra Denahan. If you're an investor in either of these companies, this name may sound familiar, as Alexandra is the sister of Annaly's co-founder and now-chief executive officer Wellington Denahan. (Chimera was both founded and continues to be managed by FIDAC, a wholly owned subsidiary of Annaly.)""

    The article points out the accounting discrepancies of Chimera(CIM) of not having filed annual or quarterly reports for over a year with the SEC(under Alexandra Denahan) and that now playing catch up by refiling four years worth of Q'lys by mid-January will cost the company "the restatements will reduce its net income over the effected time period by a staggering 66%." .This by its own estimates. Motley continues:, ""at least two additional executives at Chimera are related to board members at the companies"". Nepotism is great until it isn't.

    Ok Doc, NLY sucks!! We know and we know you know, so how does that affect AGNC? Ahh..there it is...Many of us know AGNC is not an NLY. AGNC has great management, low prepays(great paper), great hedges, so what's the problem? The problem is we have this anchor dragging bottom that we are towing through the agency mReit space with us. Look at all of the mutual funds which have AGNC and NLY as their two largest headliners. My fear(settled knowledge) is that NLY will continue(as I have been preaching these past two+ years), suffer greatly in PPS via the decline in earnings(therefore divi payouts)with high pre-pays, and most due to previous and current internal managerial incompetence.

    This will in turn see an erosion of their share price which will cascade in the further spiral downward. Jonkai, a pumper of NLY, criticized me for berating NLY this past year or two, as I pointed out many of these same things. He tried to marginalize my warnings through ad hominem attacks and my prediction, last May, of NLY's PPS falling into the 15.00-15.50 range."No way!", he said. I was a little early, but here we are! I see NLY, falling into the low 13.00's this coming year. That concerns me for the further drag on AGNC for the reasons I have outlined.

    We have this run, right now, to the Dec EX in AGNC. I will be watching NLY closely, but I am afraid, it will be as if from one of the life rafts, upon the sea, watching the Titanic.

    Good luck to all of us AGNC longs. I am in it with you, as we climb the ladder pulling up this anchor(NLY) behind us to our glorious 34+ in December...does someone have a knife to cut off the dead weight?...;-)


    Sentiment: Strong Buy

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    • nice post, Doc, but i have a bad feeling about this one.

      when the Fed announced its program, i bailed. you can't fight the Fed. i also bailed out on most of my ARR. good thing for both mREITs. a nice gain locked in for both. AGNC's own quarterly report is estimating the Benji is sucking up nearly 50% of all new agency paper. even if they cherry pick the rest, AGNC has less opportunity to make money on the lower rates.

      i fear that the dec dividend announcement will include a reduction.

    • Good as far as it goes, but there is a synapse missing in your story. You made the point that NLY is a poor choice in the mReit sector (thanks to bad management). You also made the point that AGNC (thanks to good management) hasn't suffered the same fate (declining pps), but does suffer from the "dragging anchor" syndrome. What's missing is a few lines about that "dragging anchor" syndrome and why it holds the AGNC pps back from, say, $40/share. {For example, in the electronic chip sector, AMD has struggled most of its existence; but you don't see it dragging Intel down from its lofty highs. So, what's different?]

      It may be intuitive to you, but not to everyone else. So, spoon feed us, once again, please.

      Sentiment: Buy

    • Outside the US, social upheavals have harmed millions. Americans have no direct experience of life in an unstable society.

      Those who come to the US from unstable countries bring scars, sometimes multigenerational.

      For instance, eastern europeans fear above all, socialism and communism. Fear can infect reason. Thus Orly Taitz is consumed with her campaign to fight socialism, wrongly interpreting the President as a symbol of such.

      The harm I have seen from my own heritage is the effect on a civilization of unchecked Stupidity, to the point where opportunists exploit that Stupidity.

      This is why simply reading a messageboard excites my worst apocolyptic fears. It is sad because there are people who feed off that fear and play me for it.

      Seeing these people spout utter nonsense on a messageboard while those who know better remain silent is a microcosm of what I witnessed of a society falling to ruin and chaos while people who know better do nothing.

    • It is my opinion that the the main reason Mreit sector is being hurt by marigin compression or the fear of it. Everyone in my business knows that cost of funding cannot really go much lower but the yield on new investments have come down substantially. We can talk all we want how AGNC's investment portfolio is paying at a very slow CPR but when new money gets put to work its going into MBS that are yielding a good 50-60 bps lower than before Sept 14 (QE infinity announced)

      Something else I have to add. Suddenly everyone and his brother is telling me about "this stock I am investing in that is yielding 15-16%!!, it has something to do with mortgages...A...G ...something something"

      Very reminicent of the time I had a cocktail party at my home in 2000 and I was amazed to overhear my neighbors, carpenters, software engineers, sales people, housewives all chatting about stocks they were buying, DELL, SUNW, EBAY, etc

      Anyone who has been investing as long as we have knows that " The m#$%$ are #$%$"
      Joseph P. Kennedy (1888-1969) knew that it was time to get out of the market in 1929 when his shoeshine boy began giving him stock tips...

      As you know I have been divesting somewhat.

    • Its to bad NLY is weighing on this reit. AGNC doesn't have the same type of MBS's in their portfolio as NLY, nor did they have to finance risky high coupon mortgages as NLY did during the bubble years. Recall the past 5 years AGNC started up in 2008 when rates plummeted, they bought up MBS at higher rates and have been aggressively funding them with lower rate financing and increased their interest spread over this period. Now the trend for higher net interest margins has tapered off, but funding rates remain low.. This low rate environment gives AGNC the additional leverage to sell its portfolio at nice gains. Something they don't do to excess. Its an interesting dichotomy. The market here is pricing AGNC between its high dollar valuation of its EPS to its low dollar valuation of FFO.

      AGNC projects out to have an EPS at year end of $10.92 yet they project out to pay a dividend of just $5.00 per share.. The threshold for retaining a reit status mandates a payout of 90% of its net taxable income of course excluding any capital gains and non cash gains from the equation, we then bark the dog down to the $5.00 and up area for distributions.. The case could be made for a special one time dividend, but instead, this reit now has the engine to plow those capital gains back into it's investment strategy without having to float secondaries.. and this is the good side, the side the market has undervalued.

      AGNC has a projected annual return on equity of 28.67%, theoretically if this reit were to cash in its gains on the portion of its eps not paid out in dividends( $10.92-$5.00= $5.92 per share) it has $5.92 share in it which to grow shareholder values, hence management has correctly interpreted the cycle and is buying up is undervalued shares on the open market. This strategy will realign long term growth in the dividend. Less shares in the market less total dividends to payout. Shareholders who commit to long term here are getting in at the right time.

      The valuation earnings per share for AGNC comes in at $76.66, and is very undervalued in the current market.

      Sentiment: Strong Buy

      • 1 Reply to zigmond.roid
      • -----------------------------
        Its to bad NLY is weighing on this reit. AGNC doesn't have the same type of MBS's in their portfolio as NLY, nor did they have to finance risky high coupon mortgages as NLY did during the bubble years.

        NLY is turning into a head scratcher for me.
        It's a terd, but I was still expecting it to rally at least a little bit and maybe be around $15 by now.

        Still seems like a potential option play going into he EX.
        If your willing to fork over for ITM 14's for Dec or Jan, they look cheap.
        OTM Dec $15's are 6 cents.

        I picked up 20 NLY calls about 2 weeks ago which are now down about 20%.
        Pondering weather to pick up some more.

        OT, I sold 35 of my 60 NYMT calls this morning.
        And have 25 JAN $5 left at 1.20.

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