Buy when there is blood in the street.
There is blood in the street with fixed income securities. Interest rates have recently skyrocketed, driving the price of bonds through the floor.
Yesterday I bought some NY MTAs that were yielding 5%. They were way out. Further out than what I would normally like. But I bought them for the yield and for a trade. Todd and I believe they’ll be worth more in a few months. I’m looking for more. It’s not easy to find them. Bonds trade by appointment. There are so many you can’t watch their prices in real time by the minute as you can with equities, like IBM and Amazon. In fact, their prices vary depending on how good you are at negotiating and begging and from whom you’re buying them.
TIPS are Treasury Inflation Protected Securities issued by the Federal Government. Because they pay so little interest, TIPS fluctuate far more than any other government bond. As a result I got interested in them, especially the 30-year which yesterday was selling at $78 and change. By the end of the day, as the crisis ebbed, it was up to $80 and change.
I got this chart and prices off public Bloomberg (i.e. www.Bloomberg.com). I’m trying to get a price chart of these bonds. A friend has a real Bloomberg terminal and he has promised it to me shortly. Here it is:
There is also blood in the water with the mortgage REITs, like NLY and AGNC.
NLY now yields 14% and AGNC 21%. Their dividend payouts have dropped, so these yields may not be sustainable. But I’m looking. Your thoughts?
Meantime, a dear friend says buy the mortgage REITs with the biggest discount to book value, namely CYS, ANH and ARR.
I’m mulling.
I didn’t sell any equities yesterday.
Wimbledon tennis has started. In a major shocker, Nadal got beaten by the 135th ranked player, a 29-year old player from Belgium called Steve Darcis, who played out of his mind. There was some talk that Nadal’s knee was bothering him. Nadal had won Wimbledon in 2009 and 2010. The tennis is live now on ESPN and later on ABC. There are also endless repeats on The Tennis Channel.
Harry Newton who transferred via ACAT his TDAmeritrade account to his Fidelity. It’s taken four days. My Fidelity account gives mess a whole new meaning. It’s total shambles. Never do transfer an account. They say it’s easy. It’s not.
Check out the debt to equity ratio for most mortgage REITs. It is typically, around 8 to 1. I have seen some as high as 20 to 1. At an 8 to 1 D/E ratio a 12% decline in the value of their assets means you have no equity left. I have watched mortgage REITs for many years. They go down if interest rates go down, they go down if interest rates go up. I have seen them go down when interest rates do nothing. Mortgage REITs may make for a good short term speculative trade if you are into trading. As a long term holding, they are bad.
A good reason to own TIPS is that if you build a ladder of TIPS with average real yield of 0.4%, you can withdraw 4% inflation adjusted (admittedly as defined by the govt) of your initial investment for 26 years before your balance is zero. For retirees in their 60s that is good enough.
From Leo Hall on Mortgage REITS; I use Navellier’s Portfolio Grader to assist in buy and
sell decisions . He has “F” ratings on CYS, ANH and ARR