Annaly Capital: A Sinking Ship?

Ouch, a terrible selloff Tuesday (May 28, 2013) continued into the morning session yesterday (May 29, 2013) which knocked the mortgage real estate investment trusts (mREITs) down sharply on continued fears that the Federal Reserve will cease its asset purchases and interest rates will rise. By the end of the trading session yesterday, mREIT stocks had recovered most of their morning losses. Why so volatile? While the Fed has not confirmed or denied any actions yet, interest rates have been on the rise in the last few weeks, which can pressure the mREITS as I will discuss below. In fact, mortgage rates have now spiked to their highest level in a year, which has further pressured the mREITs. May has been one of the most awful and painful months in history for investors in mREITs as the entire sector has seen a selloff after poor earnings from both American Capital Agency (AGNC) and Annaly Capital (NLY). In light of the recent action, I was compelled to......................READ MORE

American Capital Agency: Time To Abandon Ship?

The pain continues. May has been an awful month for investors in the mortgage real estate investment trusts (mREITs) as the entire sector has seen a sell-off after poor earnings from both American Capital Agency (AGNC) and Annaly Capital (NLY). There was also disappointment reported from the hybrid mREIT American Capital Mortgage (MTGE). Last week, we saw a similarly depressing earnings announcement from an up and comer in the mREIT space, Western Asset Mortgage (WMC). After being inundated with inquiries regarding the future of AGNC and its main competitors, I felt compelled to.........READ MORE

The Fed To Trigger A Large Correction? Profit On The Panic

Stocks have had strong gains for six months straight after dipping in November. We are now in the longest stretch in over 7 years without a correction of 5% or more. This cannot go on forever, even with the Federal Reserve having its pedal to the medal. In fact, as soon as there is a confirmed indication that the Fed will pull its foot off the gas to reduce its massive third round of quantitative easing, aka QE3, big money will likely hit the sell button. Just this morning (5/20/13) the Dallas Fed President stated that it is not a matter of "if" they will dial back the easing, but "when" and how much. In fact, Fisher stated that halting it altogether will be "too violent for the market." I do not know how or when they will begin to dial back, but we are overdue for a correction. I think the market will ......READ MORE

After Dismal Earnings, 3 Hybrid REITs I Am Considering To Replace American Capital

Following American Capital's (AGNC) dismal quarterly performance, I have been on a hunt for a replacement for this beloved dividend paying real estate investment trust [REIT]. For my followers not familiar with a REIT, a REIT is simply any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages under Internal Revenue Code section 856. The rules for federal income taxation of REITs are found primarily in Part II (sections 856 through 859) of subchapter M of chapter 1 of the Internal Revenue Code. The advantage of being a REIT is that the company is entitled to deduct dividends paid to its owners, and thus a REIT may avoid incurring all or part of its liabilities for U.S. federal income tax. To meet the qualifications, REITs are required to distribute 90% of its earnings to shareholders. Although I still like AGNC, its earnings report (links to a pdf file) was worrisome. For the first quarter, it reported comprehensive loss per common share of $1.57. This included $0.64 net income per share with a $2.21 loss per common share in other comprehensive areas (such as unrealized losses on investments). AGNC also reported a $0.78 net income spread per share (that is, the income made after cost of borrowing, expenses and interest income). The book value of the company dipped 9% to $28.93, down from $31.64 at the end of 2012. In searching for a replacement