The best might be yet to come. Mreits have been, along with the 10 year, mbs and bonds, have been taking a beating. The entire issue is perception, as neither the Fed, Ben or any fed official have definitively stated The taper. They will now be forced to show their hand, because the impact they have had is to push up mortgage rates and seriously impact the housing market in the short run. Pre payments will be down as an aside. Mostly, they have created market volatility, something is mreit investors normally like.
Here is the potential good news, FAS 157. This describes the measurement date for those securities held for sale. It happens to be on 6/30. Between now and 6/30, the fed may well define its tapering program in a way that causes rates to drop and values to ride, including the book value of mreits, to potentially be better than even Mr. Kain can admit at this stage. Sure, there would be a drop if the measurement date was today, but its not. The fed meets next week.
The consensus forecast is core earnings of 1.48 per share. At 90%, that equates to 1.33 per share, above the 1.25 per quarter. In addition, they had undistributed taxable income of 1.08. It seems that Mr. Kain may be waiting to see what the fed is doing before he declares.
Meanwhile, the fed has increased the volatility of equities, and they might seem expensive generally. Yet, here we have the mreits and an opportunity to buy cheap and earn a nice return. Then there is likely a respectable short position, which will unwind. There were 6.3m short shares at 5/31.
I bought more yesterday, and if we can keep these higher implied volatilities, we may just do better than we think on these calls some of us are holding. How many times have we been through this? I would suggest that other than Christmas, these type of oversold positions have always paid off. However, to get this trade right we need both book value and the dividend to hold up across the sector.
Hi Ben, good to see you again. One point I am also hinging on is not needing to delever and even having more room to lever up according to GK. So let book drop for now, as long as it doesn't come on the back of realized losses on the portfolio it has little tangible meaning. It also opens the doors for accretive SPOs down the road. I have a fairly sizable position as of now at a 24.65 basis and have no intention of moving it for quite a while. I think this got way oversold and still is.
Anyone ever having paddled a canoe can tell you that the over-compensation to the opposite side of one's original tilt is what is most dangerous regarding the tipping of that canoe.
A gentle re-positioning may all that is necessary, if that, regarding AGNC's assets at this time.
I suppose we are back to the same old argument, book value vs dividend. In December when we were talking about it, I have now come to realise both the book value and dividend are important, since it is AGNCs mission statement. I definitely think its oversold, but I hope the fed straightens out their mess. As far as leverage, I don't know how they can delever without an SPO. However, there are haircut provisions in their repo loans. It's tight, but the fed is the game.