Front Run the Fed Prt2

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Update: was going to initiate a position, but prob don’t have time today

 

I am considering on taking a very significant position next week in this one stock, WMC, Western Asset Management Capital Corporation due to the open ended quantitative easing #4 that came out the other day — Sept 13. (http://online.wsj.com/article/SB10000872396390443890304578006702760267388.html)

The Fed’s goal is not to relieve debt-serfdom, it’s to enforce it. The entire purpose of the Fed’s policies is to ensure homeowners keep paying interest to banks for the rest of the lives, and to encourage those who are not yet debt-serfs to join the serfdom with a “cheap” mortgage.” – Zerohedge
What is WMC?

Western Asset Mortgage Capital Corporation is focused on investing in, financing and managing primarily residential mortgage-backed securities (RMBS), which are not issued or guaranteed by a United States Government agency or federally chartered corporation, or non-Agency RMBS. The Company also focuses on investing in commercial mortgage-backed securities (CMBS), and other asset-backed securities (ABS), as well as RMBS for which a United States Government agency or federally chartered corporation guarantees payments of principal and interest on the securities, or Agency RMBS.

 

The Company is managed and advised by Western Asset Management Company. As of June 12, 2009, the Company had not made any investments.

Reasoning:
They came out with a sexy press release on Thursday after hours saying that they are increasing their Q3 dividends significantly from $0.58 to .$0.85. But not only is it just a sexy PR, it shows how much relative strength this company is related to the Quantitative Easy that came out or how strong it is compared to the Federal Reserve’s Open Ended QE.

Thursday 4:43 PM Western Asset Mortgage (WMC) declares an $0.85/share Q3 dividend vs. $0.57 in Q2 (Q2 dividend was actually $0.38, but following its IPO, covered just half the quarter). In light of new Fed policy – “(which) may have a significant impact on the valuation of our portfolio” – the company issues guidance on its book value, believing it to be $22.68 on Sept. 14. “We continue to be pleased with the position of our portfolio.” Shares +9.2% AH.

PASADENA, Calif., Sept. 20, 2012 /PRNewswire/ — Western Asset Mortgage Capital Corporation (NYSE: WMC) announced today that its Board of Directors has declared a cash dividend of $0.85 per share for the third quarter of 2012. This dividend is payable on October 25, 2012 to common shareholders of record as of October 1, 2012, with an ex-dividend date of September 27, 2012.
The Company also announced that its estimated book value per share, as of September 14, 2012, was $22.68.

“In light of the Federal Reserve’s policy statement on September 13, 2012, we believe it to be important to provide intra-quarter guidance on our current estimated book value, as we believe the Fed’s announcement and subsequent actions may have a significant impact on the valuation of our portfolio,” said Gavin James, Chief Executive Officer of Western Asset Mortgage Capital Corporation.  “We continue to be pleased with the position of our portfolio, given current market conditions.”

The stock is currently $24.10 with a book value of $22.68

Strong analyst opinions from strong banks:  http://finance.yahoo.com/q/ao?s=WMC+Analyst+Opinion
Morgan Stanley owns a decent amount of shares:  http://finance.yahoo.com/q/mh?s=WMC+Major+Holders

Stock Chart:  http://finviz.com/quote.ashx?t=wmc

Yahoo Finance: http://finance.yahoo.com/q?s=wmc&ql=1

Dividend: $0.85

Analyst Target: $24 (passed)

Ex-dividend date is September 27, 2012.

Strategy:
example of 1k shares
  • let’s say it floats around $24, i will purchase 1/4 (250) of my portfolio with this. since ex div is on  (t+3), this will need to be purchased on Monday because it takes 3 days to settle unless you pay cash and settle it the next day to get dividends, but just in case, might as well pick some up on Monday, so you can front run some people going into the ex-dividend date.
  • comes down .85 to 23.15 from $24; will purchase another 2/4 (500) to average my position
  • average price will become 23.4333333 / share but still with a book value of 22.68
  • $0.75333333 above the book value, but with DEFINITE growth due to the backing of the corrupted federal reserve, this should be able to grow significantly
  • if it does to and anywhere near book value, i will buy more to avg down due to the open ended backing of the government
  • also, this is a recently IPOd stock, so it is still under the radar and not a lot of institutional / individual investors really know about it; i think that can give an advantage to us
Shall not only be keeping an eye on the relative strength the REIT sector, but more specifically on RMBS & CMBS index, REM.
REM:  http://finviz.com/quote.ashx?t=REM&ty=c&ta=1&p=d

iShares FTSE NAREIT Mortgage REITs Index Fund (the Fund) seeks investment results that correspond generally to the price and yield performance of the FTSE NAREIT Mortgage REITs Index (the Index). The Index measures the performance of the residential and commercial mortgage real estate sector of the United States equity market.

 

The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. The Fund’s investment advisor is Barclays Global Fund Advisors.

Disclosure, holding a very significant amount of CYS

CYS Investments, Inc. is a specialty finance company created with the objective of achieving consistent risk-adjusted investment income. The Company invests in Agency residential mortgage-backed securities (RMBS) collateralized by fixed rate single-family residential mortgage loans (typically 15, 20 or 30 years), adjustable-rate mortgage loans (ARMs), which typically have coupon rates that reset monthly, or hybrid ARMs, which typically have a coupon rate that is fixed for an initial period (typically three, five, seven or 10 years) and thereafter resets at regular intervals. In addition, its investment guidelines permit investments in collateralized mortgage obligations issued by a government agency or government-sponsored entity that are collateralized by Agency RMBS (CMOs), although the Company had not invested in any CMOs as of December 31, 2011.

 

The Company finances its Agency RMBS investments using a diversified approach involving repurchase agreements with multiple commercial and investment banks. Agency RMBS are residential mortgage pass-through securities, the principal and interest of which are guaranteed by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae). Its portfolio of Agency RMBS is backed by fixed rate mortgages and hybrid ARMs that typically have a fixed coupon for three, five or seven years, and then pay an adjustable coupon that generally resets annually over a predetermined interest rate index. As of December 31, 2011, its Agency RMBS portfolio consisted of 10 Year Fixed Rate, 15 Year Fixed Rate, 20 Year Fixed Rate, 30 Year Fixed Rate and Hybrid ARMs. On September 1, 2011, the Company acquired certain assets and entered into agreements to internalize its management (the Internalization).

Final Comments:
The economy is fucked, but might as well save ourselves and make money from the slaves who keeps owing money to banks b/c the Federal Reserve does not care about the taxpayers, but rather the banks.
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