Stocks and Trading Thread - Channeling your inner Mono

[Admiral Yi]

The SDIV is probably because it's in some badly-performing foreign stuff.

Even if they're performing well they're going to get hurt in dollar terms by the appreciation.

[Alcibiades]

Speaking of REITs, MIM, what are your thoughts on CYS if you happen to have a second to look at it?  Seems the price has fallen a lot in the past 6 months.

https://www.google.com/finance?q=NYSE%3ACYS&ei=H89MVoHhM8H2jAGd_KDACg

[MadImmortalMan]

CYS:

About CYS Investments, Inc.

CYS Investments, Inc. is a specialty finance company that primarily invests on a leveraged basis in residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The Company refers to these securities as Agency RMBS. CYS Investments, Inc. has elected to be treated as a real estate investment trust for federal income tax purposes.

Okay, essentially, they take your equity, use it to borrow more money at leverage, and then use that debt to buy RMBS(mortgages). Standard.

I looked up their financial statements. Hope this looks readable.
Edit--ok that looked terrible. Click here for a pdf.

Summary Financial Data
(in thousands)                        Three Months Ended
Key Balance Sheet Metrics       September 30, 2015    June 30, 2015          March 31, 2015
Average settled Debt Securities (1)    $13,099,727   $13,219,744          $12,653,266
Average total Debt Securities (2)       $13,928,756    $14,711,932       $14,810,062    
Average repurchase agreements and FHLBC Advances (3)$11,557,064 $11,610,144   $10,954,377    
Average Debt Securities liabilities (4)       $12,386,093    $   13,102,332    $    13,111,173    
Average stockholders' equity (5)       $1,790,420          $1,893,445       $1,981,424    
Average common shares outstanding (6)       155,702       157,334          160,523    
Leverage ratio (at period end) (7)          6.87:1          7.06:1          6.77:1    
Book Value per common share          $    9.59          $   9.62          $    10.53

Okay, the first thing that stands out to me from that is the leverage ratio. For every dollar you put in as a shareholder, they're borrowing seven.

Let's see what they bought.





So they're about split between loans of duration 15 and 30 years earning an average three and a half coupon.

As for the money they're borrowing, it's left a bit opaque, but I get the impression it's all short-term libor loans hedged with swaps and caps (like calls and puts on debt securities, sort of). I may be explaining that badly. Anyway, finviz lists their long-term debt to equity at only .28. It's probably a quarter behind, but that leaves the other 6.6 to 1 as all short-term loans if true.

So basically, their strategy is to borrow very short-term to buy long term mortgages paying low interest rates. That's a strategy to max out the interest rate gap (like a carry trade).

I don't want to get too far in the weeds, but basically the risks of this strategy are that one, you have to incur constant costs associated with hedging, and two, you are constantly rolling your debt while your income is locked in on long-term mortgage terms. Basically, if interest rates go up considerably, you're fooked. There is a summary of that in their pdf (maybe optimistic).



Honestly, I'd prefer having all debt match duration with my securities, essentially contractualizing the profits, rather than relying on swaps deals to hedge the interest rate risk. I don't like it. I don't want to have to bug the Fed's bathrooms to see who farts when so I know when to sell.

Analysts don't seem to like it much.

[Admiral Yi]

Tonto doesn't want to look at all that shit.  He wants you to tell him what to buy and what to sell.

[Tonitrus]

Tonto doesn't want to look at all that shit.  He wants you to tell him what to buy and what to sell.

I didn't ask about that one...but I do want to see all that shit.  I needs to be edumacated. 

But as I had already talked about...my instincts sour on those high-dividend, purely-mortgage loan-based REITs.  They feel too scammy/good-to-be-true for investments that are even remotely long-term.

I prefer the idea of buying REITs that own property and extract rents...because that is what I would like to do with my money, but don't want to actually having to deal personally with all that landlord shit.  And a nice, modest dividend (as SIR/IRT, etc have) is good too. 

[Alcibiades]

Thanks MIM, you're the best. 

[Admiral Yi]

Pearson ADRs went in the shitter.

I r poor. 

[Admiral Yi]

Thinking about putting my 2016 IRA money into Square.  They have an app that allows small businesses to process credit card payments through their smart phone.  Anyone want to talk me out of it?

[citizen k]

Thinking about putting my 2016 IRA money into Square.  They have an app that allows small businesses to process credit card payments through their smart phone.  Anyone want to talk me out of it?

http://investorplace.com/2015/12/300-million-reasons-avoid-square-stock-sq/

[Admiral Yi]

Danke agent k.  Doesn't necessarily talk me out of it, but the number of participants in the market is definitely food for thought.

[Tonitrus]

 NPR had a story not long ago highlighting some pretty glaring problems they had with client service that was pissing of some of their users/customers.  That being that they were arbitrarily shutting off accounts for unproven "questionable activity" and locking up the associated funds (which could be killer for some of those micro businesses).  Normally might be something calling their client customer service could square away, but the spin of the story was that the above account shuttering also cut off their access to that very same client service. 

[MadImmortalMan]

Rubbermaid kickin on merger talks.

http://www.wsj.com/articles/newell-rubbermaid-jarden-in-merger-talks-1449521419

[Tonitrus]

I had some NWL, but sold it a couple months ago. 

[Tonitrus]

MAH STOCKS. 

[Admiral Yi]

Fed.  We've been living on borrowed time.  Let's see where it bottoms out.