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American Capital Agency Corp. Message Board

  • dr_klumps dr_klumps Jul 1, 2013 4:49 PM Flag

    Why this could Test $8.00 PS in 12 mos.

    If you have studies M-REIT's reactions to abruptly rising interest rates, they drop 70-90% before the smoke clears and the prices arrive at Bottomsville. A 25-30% decline is only temporary stop, Bottomsville is below the IPO price. Why, 10 yr. TBills are 2.45% today. Twelve months from now, they will test the 3.75% range and sell-off to 3.25-3.50, that is how they move in trend cycles. After rates rise back to equilibrium with no QE. The last time they are at 3.5-3.75% was in Dec. 2010 - Mar 2011. That too will be temporary, look for 4.5-5 within 2 years from Summer of 2014. I think AGNC will stabilize at $8.00 after they get their hedging settled down and leverage fine tuned. Next summers analysis will determine is this ends like Bimini Capital (BMNM) or like Annaly (NLY). Remember, in 2008, NLY went down below $5 for a while before straightening their leverage and hedges out. This time will be no different. Trade only, but continue to raise cash on strength. Just my opinion, do your own due diligence.

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    • I see AGNC and MTGE's prices crossing paths this year. I don't think AGNC will see $8 ever. I also think that 7.5% mortgage rates with current hedges brings AGNC's book to about $17 not $8. So... I don't know what models you are using but they are pretty far off. Of course we are assuming only a 1 point under-performance of mbs to treasuries.

      • 1 Reply to instantwinbutton
      • I am using 3.75% by next June 2014 for MBS, 30 yr, 3.5's, which is still quite low. I also expect 4.5% yields in 2 years, 3 years at most. Yields in China have already hit 3.5%, we follow these guys. I never was one that thought a debtor nation can control interest rates, I am of the belief an "Investor Nation" like China and all of Asia will determine what we pay. They have spoken in May that rates will rise and they pulled the strings on their puppet, Big Ben to echo those beliefs. HENCE, RATES WILL RISE. How do I know, China told me with the Big Ben puppet.

    • Chances are better that you'll be in the looney bin than that this will hit $8.

      Sentiment: Strong Buy

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