I posted the following in a reply to the Seeking Alpha article about "being time to abandon ship?" in regards to rising interest rates which I believe is the reason the mREITs have been sold so heavily the past several days:
"It is important to remember that not all interest rates are the same. The FED for the past several years through their Quantitative Easing programs have lowered all rates it is true. However, that does not mean that all rates will go up at the same time. With the FED reducing their purchases of MBSs, longer term rates are poised to increase but that does not automatically mean that short term rates will likewise increase. What I see ahead is a steeping of the yield curve, (long term rates rising faster than short term rates), which in turn will greatly benefit mREITS and others who depend of the interest rate "spread" for their earnings. However, the offset to increased earning, (profits), that result in long term rates increasing is a decrease in Book Value. This is where mREITs that are highly leveraged will be more negatively affected, (because their borrowing capacity is reduced and they may be forced to sell some of their holdings possibly at a loss), than mREITS that have less leverage and therefore less affected by changes in book value. It is for this reason that I am avoiding those mREITs that are highly leveraged but continuing to buy others on dips."
AGNC, IMO, is too highly leveraged not to have a significantly negative impact to its BV by raising interest rates. However, there is a point in which the negative impact to BV is fully discounted and I think that we reached that point today or are very close to it. It is for that reason I was a buyer today.
My feeling is that we may really be in "new" territory. Something about this downturn feels a lot like the 2007-2008 failures, but just for MREITS in this case.
For the life of me, I cannot figure out why the stock price is so far below it's valuation. It is almost like some folks out there know something that we don't. I am not saying that's what is going on, but it sure feels that way.
If the price stays this low, you can be guaranteed a cut in the dividend - it would way too high relative to stock price.
Besides the end of quantitativ easing, what is really driving the price down? That's what I can't figure out. If short contracts can continue up to two weeks after the end date (May 15 I think), then we would know more by June 1 or early next week. If the price doesn't go up, I would tend to think that means the stock is down permanently, and is not going to recover.
At that point, I personally will wait for the dividend upswing and exit before the dividend. Because no matter who you are, this is kind of hard to watch
Mostly the options traders are absent but they were only trading on repeat patterns and I think it is clear that we are in new territory absent of any pattern that the past would predict. If you are an options trader and buying puts then I guess you are doing fine but I don’t recollect reading anyone posting about their wonderful put buying experiences lately. Most of those old option strategies were focused on upward trends between ex divvy dates and we aren’t seeing an upward trend now days. My guess is most people are doing poorly if they have a position in AGNC except for a few very smart traders who were able to figure all this out before it happened, and I suspect that they are few. If you sold and avoided most of the down trend then you did better than most.
It has been my experience that once a stock develops stink associated with it that it takes a while for the smell to wear off. Usually one can do better deploying the money elsewhere until conditions return to normal. I think it is unwise to leave one’s money parked in mREITs now days. I believe the risk of owning them is much higher than the risk of not owning them and investing in something else. But many will rationalize a hold risk by saying that they have not lost until they sell as if stocks always return to older prices eventually. If you need a cure to that mentality just look at the 10 year chart for city bank and ask yourself just how long people will be waiting for it to get back to $500 a share, post split. Maybe not in their life times.
Cannot agree more. Don't buy to catch a falling knife. Don't know if it is wise to sell though. Let shorts enjoy the fun. They cannot short the broader market - the Fed will yank them out. Such niche sectors are the only game in town for shorts. Be prepared to get wounded for some time. Hope you had raised some cash before to buy the upcoming opportunity.
We are still here, probably just "licking our wounds" and awaiting word from the company...
I moved my 30 calls to 28 calls today for a pretty size-able loss, but I am still optimistic that when AGNC actually announces their Divvy that;
1. it will be better than currently priced into the stock (which I am estimating above 90 cents) AND
2. we will still get our run-up into dividend...
Above $28 before Ex, and I am happy. At $29, I more than recover my loss from my $30 calls..
I also started to build up a position of stock to collect the dividends for the remainder of the year...
Sentiment: Strong Buy
My strangle would have turned out perfect, except that the Fed released its information in the perfect way to make me dump the Put side early. I'd gladly have taken a dead loss on the Call leg to get the easy triple that the Put leg would represent if I still owned it.
I'm thinking of suing Ben Bernanke for that.
My opinion: it was a good buy at $32 and a GREAT buy now. People are spooked that the Bernanke will taper off QE. They are fools thinking that the Fed has an exit policy. Not only won't QE3 taper off, but QE4 is coming around the bend. America has serious financial problems but the Fed tightening its policies is not one of them.
I don't think it is possible to make statements about what the Fed would do with any degree of certainty. But I know one thing for certain. Just about every time I hear someone saying that it is different now days, that old cycles will not repeat because we are in different times, they have ALWAYS been wrong. If you are implying that interest rates won't get raised again then you are definitely wrong. They will. It is just a matter of when.
That said it is in the US's best interest for the dollar to be devalued (debased) because it will give us a trade advantage and we need to do this to get employment back up because too many of our jobs were exported overseas. And flooding the market with money will accomplish that goal.
But there are some things that the Fed cannot control. Back in Jimmy Carter's day the US government could not print money because inflation was running rampant. If the Fed printed it just made things worse. People were pulling their money out of US treasuries because their value was being inflated away. It was the opposite scenario of today. But I can guarantee that with some degree of certainty that some day we will be there again.
I don’t think that home prices are going up so much as it is taking more dollars to buy them. There is a difference. The Fed can only allow so much of this to happen or our savings will be worthless. This will become the next political issue and they will be forced to raise rates. The Fed is in the process of giving us all a pay cut. Just how long will people remain silent?
There is really not much to report. For almost a year, mREITs where highly over valued and yet people didn't complain. Now that they are falling people are in a panic. None of this is out of the ordinary. QE decreased mREIT margins for a while and thus we all knew that divs needed to get cut. Further, the more an mREIT was leveraged, the worse their BV would be if they call hedges wrong. AGNC specifically got very lucky with their calls a few years back, but they cannot get it right all the time as we saw in the last report. Looking forward however, long term rates are up, short term are still near zero... this means $$$. This is the time buy. Buy under book, and watch it rise as profits increase. Start to worry when short term rates go up faster than long. This wont happen for a while.
You seem to know what you are taking about however I am not convinced that short term rates will remain low if long term rates rise. If the Fed can't keep long term rates low then what motivates them to keep short term rates low as all they would be doing is creating unusually large spreads and I do not understand why they would let that situation persist for very long. It seems to me that if long term rates go higher then the Fed would feel no need to continue to lend money for almost nothing as they have been. Am I missing something?