Lower. Really, how could it be factual advice if it is trying to predict the future? That would be an opinion not a fact. That being said, the chart direction looks to be in a downward trend. The fundamentals are declining spread and a lower dividend. Most of the mREIT sector is retracing ahead of the Fed meeting. If we ever got a taper announcement, I think the mREITs could bounce, but as long as that is overhanging, they seem weak.
32. I have not been watching this since I bought it back in Aug. It seemed to be rebounding well, but now is dipping below the 50 dma. I would not be adding in here, but waiting for a further test of support below.
Curiously, the recent rebound went right up to the gap when they announced that spo back in Aug. Who said technicals don't matter?
I thought this was covered a few months ago. On a levered basis, the return from buying assets was greater than the cost of redeeming the preferred. I don't remember the exact math, but it went something like buying assets with a 7.5% yield and using 50% debt at a cost of 4.5% produces a levered return over 10%. As long as they can find assets that return over the cost of the preferred, that is what they will do. REITs are in business to grow their portfolio and add assets. If they can't do that any longer, they sell. The preferred is not the most pressing issue now that it is being brought current and issuing common while it is still in the $5 range just to buy back the preferred won't be done. I think they will use the credit line first to acquire assets before they issue more equity as acquisitions increase the dividend which improves the pricing on the equity.
So what. They have it and they have been accruing the liability, and the commons could not get paid until this was paid. I hope you are not in the skittle camp who thinks the common is going down because the preferred got paid what it was owed.
We've seen quite a few headfakes and corrections that didn't come. The end of the year typically produces a rally, but this year has been very atypical. I wouldn't be surprised to see a selloff leading into the Fed announcement, then a rally after, especially if they do taper. The market really needs a correction to present better buy opportunities. If it keeps going up without a correction, it's like buying a stock with an RSI over 70. You know its going to run out of gas.
Many stocks have broken down and are rolling over. The question is where are they going to find support.
On CVS, with RSI over 70, I don't buy. The chart is almost straight up. While it is true that it went over RSI 70 a couple of times recently without a major pullback, it can sometimes take 2 or 3 times before the stock finally pulls back.
I don't know about chasing the market here with the Fed on deck for next week. Maybe a small taper is baked in the cake.
PWS, you have been pumping this since it was $23. Face facts, mgt stinks. The couldn't manage hedges and had to take a charge back in 2011. What happened to all of those written off charges that were supposed to recycle through book value? Then they switched to agencies just in time to get hit with the taper talk. Their spread is down to 1.38% when it used to be much higher. They should be buying back stock, and in fact, they should just liquidate the whole thing since they can't make money for the 1%+ management fee they get.
stagg, I took a quick look at their presentation. It looks like they are trying to make the case that the new entity should be valued on a p/e multiple compared to other asset management firms and the presentation lists some high p/e multiples. Funny, they mention the general partners of MLPs as a comparable. I think the structure is very similar to a GP of an MLP which are valued mostly on a yield basis ranging from 3.5% to 5% (some may be a little higher). Based on the 30 cents per share projection, it could be worth $6 at a 5% yield. More once the incentive levels are hit.
Note, I previously owned shares of NRF before it tanked during the financial crisis. In my experience, real estate is cyclical, although the cycles can last for a long time. Then all of the developers and lenders end up chasing the same deals and overpaying for them, The retail investors get squashed because they can't see the inflection points. Sam Zell is the best tell. When he sells, retail should follow.
Maybe. Once we get the taper, the mREITs could rally. But historically in past cycles (when the Fed used to raise and lower the Fed funds target), once you get the first rate hike, there were always more to come. Now we have a budget deal with more spending (assuming it gets passed) and no more unemployment extensions, there's less reason to worry about a govt shutdown. As for ZIRP, don't forget that the Treasury starts issuing floating rate Treasuries in January and the primary dealers are going to want to see short-term rates rise (and you thought the Fed set short-term rates).
BTW, there was a great debate on Kudlow's show last night between Greenspan and John Taylor on the relationship between short rates and long rates.
I am reviewing CMLP to see if my investment would be better invested somewhere else. I bought several MLPs a few years back and have spent a lot of time reading other posts on different boards and on investor village. One lesson that I learned is that a larger yield doesn't usually win. The big dogs, PAA, EPD, MMP and others have done much better even with smaller yields. On the other hand, patience can reward. One had to wait a long time for ETP to get going. The general partners seemed to do the best. I have ETE (I made a mistake selling some), TRGP (which I should have bought earlier) ATLS and am looking at WGP. I am looking at MPC/MPLX after their recent presentation predicting double digit distribution gains for several years. MMP has projected double digit distribution growth, but it never sells off. I own some MWE and it has been selling off because of some disappointment, but it has a great position in the Utica.
liza, I wish you could help me remember the poster who first mentioned the issue with pressure. I can't remember if he was on the CHKR board or one of the other boards, but he was a petroleum engineer who mentioned that the finance people always overstate the production figures because they don't account for the drop off in pressure. I sold CHKR the day I read that post and started to buy puts right before the distribution announcements.
Three things. First, do you have any empirical data that supports that theory that NYMEX prices drag all NG prices higher? Can't remember if SDT made this disclosure in their prospectus, but CHKR (CHKR is in the Granite Wash which is not that far from the Mississippi Lime so maybe both SDT and CHKR deliver to the same region) disclosed that their selling differentials would INCREASE over time from NYMEX prices. Second, higher prices will only lead to higher revenue if, and this is a very big IF, production stabilizes. If production decreases, the higher price may still not help. Third, these higher prices could also effect any hedges (I can't remember what ng hedges that SDT has in place and at what price and type).
What I think happens is that retail speculators think that these bounces in NYMEX NG prices will fall to the bottomline for these trusts, so they bid up the stock prices and then the disappointing production and selling prices are disclosed and the gas (pun intended) is let out of the balloon.
The question is how big a rebound and whether you will be satisfied with getting part of your money back or whether you get greedy and think they will return to prior higher levels. Greed usually takes over. I didn't start out using options to play these patterns, but found it is much easy to use the inevitable negative info and technical conditions to work for you (e.g. bad production numbers, possible impairment, negative Seeking Alpha articles, ex-distribution date markdown, broken uptrends lines, stop loss orders creating additional selling, hedge fund shorting and panicky selling) instead of "hoping" that the lure of a high so-called "yield" and wishes for higher NG prices draws more suckers. Best of luck to you that your greed doesn't get the best of you.
ep, it's not just the inhouse accountants. I have not checked to see if they have already eliminated other duplicative costs, but here are some: outside counsel; SEC filing fees for offerings, fees for the NYSE to list their respective stocks; benefit plans; transfer agent fees; auditing fees; tax and K-1 preparation, insurance etc. Bigger companies usually get better rates and benefit from efficiencies. I'm not saying this amounts to billions, but EPB has a market cap of $7 b and KMP is $35, so the costs get spread over a larger base. I have also not checked the differences in borrowing rates of the two entities, but that's where it could really make a difference.
For KMI, it makes no sense to pay one set of unitholders 8% and another 6.6%. Even if you split the baby, by giving half of this difference to EPB holders in the form of a premium, KMI still makes out by 0.7% which is $500 million PER YEAR.
I agree with Liza that the premium won't be a windfall, but 5% is less than $2 at this point, so it might take a couple of dollars more than that.
vcan ,this is the problem with these trusts. You get burned once or twice and then you think they are due for a bounce, but you don't trust it. Then the bounce comes and you buy and all those that finally break even sell and its back down you go. I am even tempted at these prices but the better way to play may be to buy calls (to limit your capital exposure) or to sell out of the money puts.
But are they getting $4.20 for their gas? Is that the NYMEX price that you are quoting? Many of these trusts sell their gas in the regions in which it is produced and the price can vary from the NYMEX price because of so much supply and easy access because of all the pipelines. For example, gas is higher in the Northeast. Many of these trusts warned in their prospectuses that their selling price would be less than the NYMEX price and that the differential would grow. At least that was the case for CHKR.
stagg. today is a double POMO (permanent open market operation) in which the Fed is buying 2 batches of Treasuries totaling $5 billion. On most POMO days, stocks are up although they sometimes fade later in the day. There was also a positive article on WMC on Seeking Alpha. WMC has been down and AI is just recovering what it lost after it hit RSI 70 (geez, do you think there is a connection between hitting RSI 70 and a stock selling off? someone ought to look into that!). But the 10 year Treasury's reaction to last week's employment news was somewhat muted (currently the rate is 2.86). Also, we should see some dividend announcements within the next 2 weeks, so this might be the beginning of a divy run.
Of the two, I think AI has a better looking chart and maybe they are benefitting from owning nonagency mortgages. WMC looks like it held support around $15.50, but it has resistance ahead at $16.25. The SA article mentioned that WMC could show more decreases to book value this quarter.
I own Jan calls on WMC but am looking to sell on an uptick. I thought the stock would bounce
r when the taper became the untaper back in October, but it didn't.
This is a good summary of the effects of rising rates on mREITS. However, it leaves out a couple of issues. First, the post assumes that the Fed's ZIRP policy means that short-term repo rates will not increase at all. I don't know if that can be stated as a certainty and would be interested to see if anyone has a chart from Bloomberg that proves this. I don't think it is as simple as that. I suspect that as rates rise and prices decline on mortgages, the repo lender's risk increases. Once the trend of rising long-term rates is established, the repo lender has to account for this directional change with a larger spread to his cost even if his cost is tied to ZIRP. Similarly, the cost to hedge should also increase as long rates rise. The bank selling the interest rate protection to the mREIT is not going to accept a loss, just to help the mREIT out. As long-rates begin to rise, the demand for hedges should increase and that increase in demand should result in an increase in the price for that hedge. I can't remember being in an environment where long-term rates rise but short-term rates stay near zero, so I don't know if there are historical charts that show what happens to repo rates and hedge costs, but my gut tells me there is no free lunch.
Next is the "rubics cube problem." We already saw that in the rate decline cycle, mREITs issue more equity and expand leverage which they use to offset the declines in their spreads. In an increasing rate cycle, as long as their stock price trades below book, they aren't going to be able to issue accretive spo's and I doubt their leverage can expand. Where do they get the equity to buy these new, higher yielding mortgages? If they sell some of the portfolio to reinvest, what happens when rates continue higher?
A couple of things here. First, they announced that there were still 3 drop downs to come into EPB so the eventual merger into KMP may still be after 2014. Note that it doesn't make sense to do dropdowns unless they are accretive to EPB's distribution. Second, as to the eventual merger, while KMI controls the process, there will be a conflicts committee to approve the transaction and they will no doubt remember the lawsuit that EP lost for having Goldman on both sides. As for the reason for the merger, there are always cost savings from duplicate overhead in accounting and other areas. KMI gets the benefit from using KMP with its lower yield as a currency to buy EPB units. Of course, the price that they determine will have to result in benefiting their gp stake more than hurting their lp stake in EPB.