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Ellington Financial LLC Message Board

  • thewisejman thewisejman Aug 30, 2012 10:57 AM Flag

    Further reducing position in EFC

    Just before the ex-dvi date, I had 2,000 shares of EFC, I started selling it off yesterday and today, and is now down to 500 shares. I still believe it will be a good long term hold especially its recent SPO price was 22.45 and it was traded today at only 21.72, therefore if you do not have any, it may not be a bad idea to just buy a few shares and hold on to it. However, there are signs that the market will turn SOUTH as early as next month, probably right after Labor Day. Now if Bernake will announce QE3 or more stimuli at the next FOMC meeting (around 9/12, 13), then the market will be pumped up again. However, there will be a pretty major market correction as early as December or as late as Q1 next year, I am simply not willing to hold on to too many shares of any one stock including EFC no matter how attractive it may seem. EFC is very small cap and it uses a lot of leverage and therefore making it extremely high risk. People need to understand before they buy EFC. What bother me the most though are the small sizes of its orders (both BUY and SELL). It almost appears most of the BUY or SELL orders are for just 100-200 shares. Today's (8/30) trading volume so far was only 25,776 while its average daily volume for the last ten days was 224,288. It almost appears most of the traders of this stock had indeed gone to the GOP convention or started their Labor Day holiday earlier. That also means there are a lot of day traders on this one because some times all of a sudden you will see very large orders appear from nowhere. Therefore, with a mix of small investors and large volume day traders makes this stock very unpredictable and volatile. If it gets hot, it will jumps up mighty fast and if it falls, it will drop very rapidly. Its current yield of 12.88%, IMHO, is simply not worth the risk. When there is a selling panic, all these small investor will dump their shares at whatever prices they can get or day traders will start dumping large volumes into the market, both of which will cost it to fall like a rock. Of course, it will probably rebound when everybody see how under priced it has become.

    There are much safer REIT plays out there, such as CXS, PMT and CLNY. There are REITs that have higher yields and with better LT appreciation potentials, such as NRF, RSO, NCT and ARR. FSC (a BDC) will be a tremendous LT hold and a safer buy at 10.30 or lower. Therefore, right now one needs to have at least 25% or more in cash, waiting for the opportunities (they will definitely come after the election) to buy some very good dividend stocks when the market falls. In the mean time, if you DO NOT have any GLD, consider buying a few shares for insurance, because you will need it, sooner or later with more and more fiat money being pumped into our economy. Super run-away inflation will be in the States within the next decade if we cannot reduce our debts. Guaranteed. GLTA. J

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    • Thanks for your interesting and informative post. I bought this stock 2k @ $22.60 so right now with the divie I am a little under water. Having said that, this is a small cap stock and I am sure it will appreciate to the level where I take profit. I am currently invested in only 3 stocks, NLY, EFC and NYMT. My NLY is a stock that I have had good results with 2500@ $16.93. I used to buy the mREITS because of the dividend but also the opportunity to sell when "dividend buyers" are buying before EX date. Now, EFC is UP today after it's Ex Div date, that is curious, not a large move I will grant you.

      I am not sure who is going to win the "election" which has become an "auction", too much money in this and I don't even watch the "conventions" on either side. Romney is over promising just like Obama did. I trust you would agree that without QE we would be in a depression; it is going to take ten years to heal this mess just like it did in Japan. IMHO my main concern is an attack on Iran by Israel with as a supporter of Israel I think would be a disaster and good for a BIG correction in the DOW. Egypt is no longer ruled by a corrupt old man but the Muslim Brotherhood. In addition, I believe if Israel takes this action threre will be many incidents of domestic terrorism. The Likudniks could cause thousands of innocent Israeli and Iranian lives. Right now I am 60% in cash and will liquidate NLY once I decide how to trade it. I agree that a big correction could occur, but earnings haven't been that bad and the banks are lending again to credit worthy customers. Israel and the "fiscal cliff" are two of my major concers. It is obvious that the DEMS & REPS are going to have to sit down and sort this out. We cannot have QE forever.

      Good luck with your investments, I enjoyed your commentary and am going to look into some of the other stocks you mentioned.

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