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American Capital Agency Corp. Message Board

  • mhoffmanv mhoffmanv Jun 20, 2013 9:42 AM Flag

    What's a fair value for AGNC from here?

    Unfortunately, looks like we're headed for the perfect storm. BV drop, interest rate hike, narrowing spread. They've done a prudent thing doing the Divvy cut, but I'd now expect a drop in BV due to increases in the rates. When it's all said and done, the divvy is still a good thing, but it should be based on a reasonable BV.

    15% doesn't do you any good if the BV is really say 20. After the first drop from 31 to 28 on minor movement in rates, what can we expect by year end? I'm actually a bit surprised the BV dropped as much (4%) when the rate change was about 1/2 a point. Is this due to the leverage factor of 8 at the time?

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    • Spread is INCREASING, short term rates are still very low, long term rates are raising.
      Think about it.

    • I'm in the camp that book value in Q2 will be in the 26-27 range. unless we see another 50bs increase in rates by EOQ

    • At this point I think the dividend is in the noise. This stock moves in one day the amount of a 3 month dividend payout. It seems ridiculous to be focused on a dividend when the volatility is that high. The focus should be on where the stock price will be one year from now, not the dividend. Until this volatility declines the dividend will be irrelevant and anyone investing as if it matters will likely be rudely disapointed.

    • $8.00 going out 12 mos. Reason, is FED plans to start exiting later this year, you don't know if that means after June 30, Sept 30, etc. and will be out of QE by middle of 2014, that is 12 mos. from now. Most people were expecting 2015. Hence, this is even worse than what I was anticipating. This will be in teens shortly, I SAID IT WAS AN EXCELLENT SHORT SEVERAL DAYS AGO AT 26. Also, to buy TBT fund, Ultra Short Treasuries. Up to 73 from 60 in less than a month.

      Supply and demand, lots of people need money to buy, to refi., very limited supply now. We could see a spike like the early 1980's a couple years from now. Alot of REIT's are going to end like Bimini Capital, they will be negatively impacted for 25-30 years from their BV losses and hedging losses. BMNM

      • 3 Replies to dr_klumps
      • nickspinner Jul 22, 2013 11:42 PM Flag

        That's quite an interesting delusion.

        Sentiment: Strong Buy

      • 8.00? ur an idiot

      • I bought TMV which is 3X short 20 year treasuries. TBT is 2X. TTT is also 3X short and performs similar to TMV. The way I see it, owning an ultra short 20 year treasuries ETF is equivalent to shorting mREITs or shorting REM. I think the end result will be close to the same.

        How sure are you about the $8 price target. Have you created a book value model that predicts $8 per share in a year or are you simply extrapolating recent stock price declines because you are expecting more of the same. I would trust a model better than an extrapolation as the BV will be the driving force of the price, not the trend.

        It is possible that many of these mREITs will go bankrupt but then I keep asking myself if the Fed will consider this in their tapering strategy. In other words, would they try to slow the taper enough so that mREITs can survive? But even if they do this I suspect the sector will get hammered hard with huge losses for investors. I think many investors are reassuring themselves that even if this happens that they can just hold until the prices recover, say in 5 to 10 years. However, they assume that the companies of the stocks they own will even exist or that they won't level off to say $5 a share and stay there.

        I know that is simple minded but I'm convinced that many think this way regardless of the evidence of the past that these scenarios often don't play out the way they expect them to. The decline of bank stock values being an excellent example of this. These bank stocks will never recover to where they were in a time frame that is relevant.

    • Some important tidbits your missing here. The reason Q1 BV dropped so much, with a relatively small interest rate change, was because the MBS "premium" that AGNC paid for the low-prepayment pool made up of HARP-type loans lost much of that premium over regular MBS. As such, AGNC's hedges (which are interest rate dependent) provided no real protection to that drop.

      The move we have seen in Q2 for interest rates has been significant and the hedges will play a much more important role than it did in Q1. You can expect BV to have been around $26.5-$27 as of June 12th. I'm going with around $26.5-ish as of today given the rate hikes we saw in the previous two days, maybe as low as $26.

      Its also important to note that AGNC has "rearranged" its portfolio to deal with this rising rate environment (as per Kain's comments in the last investor presentation he made). This includes getting rid of much of the " premium" low-prepayment pool 4.0% 30-yr type assets which are hard to hedge against.

      In my opinion, the stock should be trading around $26-$27, given the $1.05 dividend coming up in a week. I don't see a reason for a premium to BV given the current environment but given how much things have ALREADY moved, I don't think we deserve a huge BV discount either.


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