Stocks and Trading Thread - Channeling your inner Mono

[Admiral Yi]

And now we're into the green for the day Dr. Doom. 

Except for PBI, which seems to be looking for a floor at $10. 

Just talked to my ESPP guys, and they charge $10/transaction + 7 cents/share to unload.  At first I was a little PO'ed but now I'm thinking that's a typical bid-offer spread.

[Admiral Yi]

Also MIM, what was that REIT that you gave you wood?  I'm thinking if housing prices have bottomed it's a good time to get in.

Can you DRIP REITs?

[MadImmortalMan]

Yeah, I switched from weekly puts to calls a little while ago. 

I'm up a hundred bucks. :p


Gambling with the weekly options is tough when we get these back and forth days. You're almost guaranteed to lose if you are putting in stops instead of watching it constantly. They all get shaken out.

Those trade fees aren't really that bad. Only discount brokerages and online trade platforms have better.

[MadImmortalMan]

Also MIM, what was that REIT that you gave you wood?  I'm thinking if housing prices have bottomed it's a good time to get in.

Can you DRIP REITs?

Oh, sure you can. May have to call to set that up. I trade my IRA using Fidelity's online setup and I haven't seen a way to input a drip order that way. I've been taking my dividends in cash and then adding to positions manually. Not all REITs offer the drip option I think. Most of the ones you'd want to be in do.

I only own REITs and MLPs in the IRA though. Too weird for the tax returns otherwise.

I own KMP and LRY in there.

KMP = Kinder Morgan (Master Limited Partnership)

LRY = Liberty Property Trust

When you're looking at REITs, the P/E will look insane, like in the hundreds. That's normal. Also, they equalize the balance sheet so the assets and liabilities are the same.

Kinder is a pipeline operator and Liberty is a commercial real estate operator, so neither of those is residential real estate.

For mortgages, I've been considering Annaly. NLY. Screaming dividend (12.9%), cheap price at seventeen bucks. 70% margins. Some shorter-term funding risk if interest rates go up quickly I bet (a risk with any of these I think). ~85% leverage. Another very similar is AGNC American Capital Agency Group, Very similar numbers and balance sheets, trading about $35 with a dividend a little over 14%.

[MadImmortalMan]

Wow those weekly calls I mentioned are now pulling me up by over $400. Too bad I only have fifteen of them. Keep going, market.

[Admiral Yi]

Can you give me a little bit on how NLY and AGNC operate?  Do they just buy and hold residential mortgages? 

[MadImmortalMan]

Yeah they hold mortgages. Mostly federally-insured CDOs and targeted mortgage pass-through securities. Meaning bundles of mortgages that fit the profiles they target--income levels, collateral backing, geographical market location, stuff like that. They usually go around and study the different cities and decide where the strength is and all of that. Incidentally, in case you care, AGNC has NO analysts ratings that are lower than buy right now.

Also, there is a mortgage REIT ETF that's been way outperforming the S&P and yields 10.5%. Symbol MORT.

[Admiral Yi]

I checked them out on etrade because you were too goddamn slow with your response.

I don't really get it.  If principle *and* interest payments are federally guaranteed, why are they paying such mongo dividend yields?  Where's the downside?

[Admiral Yi]

Also, holding mortgages doesn't give you any upside potential if residential housing prices rise.

You happen to know of a way to make that bet, other than with sort of short term index future?

[MadImmortalMan]

I checked them out on etrade because you were too goddamn slow with your response.

I don't really get it.  If principle *and* interest payments are federally guaranteed, why are they paying such mongo dividend yields?  Where's the downside?

You remember 2008? 

REITs and MLPs devote all their profits to dividends. Well, that's a little simplistic, but basically true. So mongo dividends is basically them zeroing out the balance sheet. The main risk I see would be an interest rate spike. The value of the shares would drop like a stone, I would think. As for the risk of the loans themselves, I'm not sure of the mechanics behind the federal loan guarantees. It does sound like a win-win investment for the REIT if not for the taxpayer.

[MadImmortalMan]

Also, holding mortgages doesn't give you any upside potential if residential housing prices rise.

You happen to know of a way to make that bet, other than with sort of short term index future?

You want a bet on rising housing values? The ones that took the biggest hit when the values went down were the builders and construction dudes. Like Lennar and Pulte. ETFs maybe XHB and ITB.

I don't know how much it will help them now that they are going back up, but some of those companies have been recovering recently so maybe. But those are builders specifically and not necessary into the rising value of existing homes, which mostly accrues to the individual owners. Many of whom, ATM, are banks.

[Admiral Yi]

Thanks MIM.  You can take a break now if you want.

[MadImmortalMan]

My big question mark in the housing market is the outstanding pending foreclosures in the pipeline. The biggest reason prices are going up is because there isn't much supply. There isn't much supply for two reasons, underwater owners like me can't sell, and all the foreclosures out there waiting to happen.

They've only gotten through like ten or fifteen percent of the pending foreclosures, and people have been waiting years. In my state, we passed a law that put some requirements on the administrative foreclosure process that basically brought a halt to it happening at all. They went from 5000 a month down to 150 a month. All those people are waiting to get it over with.

When you are foreclosed, you have to pay taxes on the writeoff amount as income. There is an exemption on that tax until the end of 2012, so when these poor people get delayed, it's gonna cost them 30% or whatever in taxes they otherwise wouldn't have had. Houses here are underwater by a hundred grand or more. That's a big tax bill.

Now in the last couple months, the banks have changed tactics. The foreclosure process is too clogged, so now they've begun doing judicial foreclosures instead. That's basically where they sue you to take the property in court. That process is fast. The judge makes his decision and the bank gets the house.

My concern is that once the judicial process ramps up, the houses will begin dumping on the market. Might not happen, but who knows. Banks could sit on them as long as they want theoretically.

[alfred russel]

Best Buy laying off 2400, including most of the Geek Squad.


Sorry, geeks.

Wow, free market does work.  Eventually.

I was recently in a best buy. A very odd assortment of products: TVs, cameras, CDs, appliances, computers, computer games. Mostly stuff you can get at a big box retailer or order online, probably at a discount. I would think their selling point would be the sales staff, but man did they look scuzzie. Lots of tattoos and piercings, one guy that was apparently ignorant of his need for a bra.

[DGuller]

I was recently in a best buy. A very odd assortment of products: TVs, cameras, CDs, appliances, computers, computer games. Mostly stuff you can get at a big box retailer or order online, probably at a discount. I would think their selling point would be the sales staff, but man did they look scuzzie. Lots of tattoos and piercings, one guy that was apparently ignorant of his need for a bra.

Yes, Best Buy stores are truly unpleasant, I don't know how they stay in business.  Those warranties they hang on unsuspecting rubes must be made of pure profit.