Comments on: Can taxpayers begin to get off the hook? http://jubakpicks.com/2010/03/04/can-taxpayers-begin-to-get-off-the-hook/ Sun, 12 Feb 2012 04:57:42 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: marcus_honarvar http://jubakpicks.com/2010/03/04/can-taxpayers-begin-to-get-off-the-hook/comment-page-1/#comment-5038 marcus_honarvar Fri, 05 Mar 2010 19:35:26 +0000 http://jubakpicks.com/?p=3279#comment-5038 I think a REIT like NLY or CIM would definitely be the way to go. These REIT's have the benefit of being able to buy more of these junk MBS and CMBS for cents on the dollar if things get worse and the underlying mortgages become more secure if things get better. MBS and CMBS aren't bad investments as long as the price is right. Any premium over Treasuries is just our government using tax payer dollars to pay someone to take this junk off their books. That way they can keep pumping out false statistics that can be spun to look like our recovery is continuing. I think a REIT like NLY or CIM would definitely be the way to go. These REIT’s have the benefit of being able to buy more of these junk MBS and CMBS for cents on the dollar if things get worse and the underlying mortgages become more secure if things get better. MBS and CMBS aren’t bad investments as long as the price is right.

Any premium over Treasuries is just our government using tax payer dollars to pay someone to take this junk off their books. That way they can keep pumping out false statistics that can be spun to look like our recovery is continuing.

]]> By: sigli http://jubakpicks.com/2010/03/04/can-taxpayers-begin-to-get-off-the-hook/comment-page-1/#comment-4979 sigli Fri, 05 Mar 2010 00:23:44 +0000 http://jubakpicks.com/?p=3279#comment-4979 @Javos The premium on the FDIC offering is probably because they are new. The Treasury market is large and very liquid, but there is no such market for the FDIC offerings. Yes, there is cash flow. These are bonds. This has less to do with taxpayers and more to do with FDIC fund solvency. Obviously, the FDIC needs to get cash to cover bank failures from somewhere. They liquidate assets from failed banks, but there's a cost (hence the FDIC insurance premiums banks pay). They're trying this new sales strategy as a way to get rid of the troubled assets they're holding. @Javos
The premium on the FDIC offering is probably because they are new. The Treasury market is large and very liquid, but there is no such market for the FDIC offerings.

Yes, there is cash flow. These are bonds.

This has less to do with taxpayers and more to do with FDIC fund solvency. Obviously, the FDIC needs to get cash to cover bank failures from somewhere. They liquidate assets from failed banks, but there’s a cost (hence the FDIC insurance premiums banks pay). They’re trying this new sales strategy as a way to get rid of the troubled assets they’re holding.

]]> By: sigli http://jubakpicks.com/2010/03/04/can-taxpayers-begin-to-get-off-the-hook/comment-page-1/#comment-4978 sigli Fri, 05 Mar 2010 00:15:24 +0000 http://jubakpicks.com/?p=3279#comment-4978 Can NLY keep up the high yield? Maybe. This depends on where interest rates go and on their leverage ratio. Basically, they borrow short in the repo market and invest long in GSE guaranteed MBS's. Right now they're spending around $.30/share/quarter to hedge against rising long term rates. Without that hedge they'd be able to pay another ($1.20/year) / $18/share = another 6.67% dividend yield. If short term rates rise then their spread will be lowered, unless long term rates rise in tandem or faster. However, if long term rates rise then they lose money on asset value (hence the huge hedge and adj. rate book). So, the optimal scenario is just what we're seeing--30 year yields going nowhere, and short term rates at rock bottom. As you can see, the high yield is probably a result of the market saying "things can only get worse". This isn't exactly true, however, as Annaly is at a very low leverage level (about 6x). If long term interest rates rise and they like what they see, then they can leverage up and increase returns. Disclosure: I don't own NLY (or any other MREIT) but I want to. They keep going up and I haven't picked a spot to buy in. I'm targeting close to the 200 DMA as a buy point. Can NLY keep up the high yield? Maybe. This depends on where interest rates go and on their leverage ratio. Basically, they borrow short in the repo market and invest long in GSE guaranteed MBS’s.

Right now they’re spending around $.30/share/quarter to hedge against rising long term rates. Without that hedge they’d be able to pay another ($1.20/year) / $18/share = another 6.67% dividend yield.

If short term rates rise then their spread will be lowered, unless long term rates rise in tandem or faster. However, if long term rates rise then they lose money on asset value (hence the huge hedge and adj. rate book). So, the optimal scenario is just what we’re seeing–30 year yields going nowhere, and short term rates at rock bottom. As you can see, the high yield is probably a result of the market saying “things can only get worse”. This isn’t exactly true, however, as Annaly is at a very low leverage level (about 6x). If long term interest rates rise and they like what they see, then they can leverage up and increase returns.

Disclosure: I don’t own NLY (or any other MREIT) but I want to. They keep going up and I haven’t picked a spot to buy in. I’m targeting close to the 200 DMA as a buy point.

]]> By: javos http://jubakpicks.com/2010/03/04/can-taxpayers-begin-to-get-off-the-hook/comment-page-1/#comment-4977 javos Fri, 05 Mar 2010 00:03:04 +0000 http://jubakpicks.com/?p=3279#comment-4977 (Back to Jubak.) If the MBSs are federally guaranteed, then why should there be any premium to Treasuries? And how is this even a half-step toward getting the taxpayers off the hook? Is there a cash flow (mortgage payments) to these securities? Too many unanswered questions. (Back to Jubak.) If the MBSs are federally guaranteed, then why should there be any premium to Treasuries? And how is this even a half-step toward getting the taxpayers off the hook? Is there a cash flow (mortgage payments) to these securities? Too many unanswered questions.

]]> By: sigli http://jubakpicks.com/2010/03/04/can-taxpayers-begin-to-get-off-the-hook/comment-page-1/#comment-4976 sigli Thu, 04 Mar 2010 23:56:35 +0000 http://jubakpicks.com/?p=3279#comment-4976 The bullish activity in NLY over the last few months tells me private capital is starting to show interest in MBS's again. Obviously, the big worry is that interest rates will shoot up, thus MBS values down. This may not be the entire case, however, as NLY is able to largely hedge against rising rates and purchases adjustable rate securities. There duration is something like a low 1.2 (a 100 bpts. raise in rates equals a 1.2% drop in asset value). So, the bullishness may be more of a bet on the curve staying wide rather than on long term rates staying moderate. Either way, yield needs to come from somewhere, and maybe we'll see mean reversion as GSE guaranteed MBS's are seen almost equivalent to US Treasuries. The bullish activity in NLY over the last few months tells me private capital is starting to show interest in MBS’s again. Obviously, the big worry is that interest rates will shoot up, thus MBS values down. This may not be the entire case, however, as NLY is able to largely hedge against rising rates and purchases adjustable rate securities. There duration is something like a low 1.2 (a 100 bpts. raise in rates equals a 1.2% drop in asset value). So, the bullishness may be more of a bet on the curve staying wide rather than on long term rates staying moderate. Either way, yield needs to come from somewhere, and maybe we’ll see mean reversion as GSE guaranteed MBS’s are seen almost equivalent to US Treasuries.

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