The Big Picture For The Week of April 1, 2012

The other day I was reading an article at Seeking Alpha about Annaly Capital (NLY). The author seemed to draw a negative conclusion and he got ripped pretty good in the comments. I would note that the author seemed to misread a couple of metrics and seemed to not fully understand a few others (for example traditional PE ratio isn’t terribly useful in studying a REIT).    As a mortgage REIT, NLY takes on a lot of leverage and the job of the company is to manage leverage correctly. This takes in all manner of variables that I think bulls would concede is complicated. Obviously anyone bullish on the name would believe that the management is capable of managing those variables. The big draw to the name is the dividend yield which is currently around 14%–that is the trailing yield and it is important to note that it is a trailing number. Looking back Google Finance for five years it looks like it has made all of its scheduled dividend payments but the amount of each dividend has a history of big swings in both directions. Foreign companies seem to put less weight on keeping a steady dividend, they pay out on business conditions and it would appear NLY does the same which is of course logical (and required) and not a knock on the stock. For me the stock ticks off all of the negative buzz words; financial, mortgages, real estate, leverage, interest rate spreads so we don’t own it but in looking at the chart it has been remarkably resilient. For five years the stock is up 6.6%, plus...

The Big Picture For The Week of April 1, 2012

The other day I was reading an article at Seeking Alpha about Annaly Capital (NLY). The author seemed to draw a negative conclusion and he got ripped pretty good in the comments. I would note that the author seemed to misread a couple of metrics and seemed to not fully understand a few others (for example traditional PE ratio isn’t terribly useful in studying a REIT).    As a mortgage REIT, NLY takes on a lot of leverage and the job of the company is to manage leverage correctly. This takes in all manner of variables that I think bulls would concede is complicated. Obviously anyone bullish on the name would believe that the management is capable of managing those variables. The big draw to the name is the dividend yield which is currently around 14%–that is the trailing yield and it is important to note that it is a trailing number. Looking back Google Finance for five years it looks like it has made all of its scheduled dividend payments but the amount of each dividend has a history of big swings in both directions. Foreign companies seem to put less weight on keeping a steady dividend, they pay out on business conditions and it would appear NLY does the same which is of course logical (and required) and not a knock on the stock. For me the stock ticks off all of the negative buzz words; financial, mortgages, real estate, leverage, interest rate spreads so we don’t own it but in looking at the chart it has been remarkably resilient. For five years the stock is up 6.6%, plus...

Financial Crisis NIMBY

Zerohedge posted a brief research note from Brevan Howard noting visibility for what it calls a fiscal drag in 2013. It views this as a certainty to be caused by an increase in capital gains and dividend taxes, presumably as the Bush tax cuts finally expire, and the expiration in the reduction of the payroll tax that was in place in 2011 and was extended this year.   This is interesting. I think the more important question is whether or not the above breaks are extended thus kicking the can a little further down the road or whether these breaks come to an end and the country begins to have some sort of reckoning for all of the incredibly easy and consumer friendly policies and the various too big to fail protection policies enacted. My own belief system (which is probably not relevant) calls for tearing off the band aid, I’ve said this all along and of course that is not what has happened. Many believe that housing and jobs are the two important parts of the US economy. Housing is still drifting lower (for the most part) and while employment numbers have not looked as bad as housing (we’ll see if the increase in participation rates persists) we are still way behind most other past economic downturns in terms of job recovery. It would shock me if somehow the political will was exhibited such that the country turned the corner on being accountable for all that has gone on. The Fed’s intention to keep rates at zero into 2014 supports the idea that no such corner will be turned, at...

Financial Crisis NIMBY

Zerohedge posted a brief research note from Brevan Howard noting visibility for what it calls a fiscal drag in 2013. It views this as a certainty to be caused by an increase in capital gains and dividend taxes, presumably as the Bush tax cuts finally expire, and the expiration in the reduction of the payroll tax that was in place in 2011 and was extended this year.   This is interesting. I think the more important question is whether or not the above breaks are extended thus kicking the can a little further down the road or whether these breaks come to an end and the country begins to have some sort of reckoning for all of the incredibly easy and consumer friendly policies and the various too big to fail protection policies enacted. My own belief system (which is probably not relevant) calls for tearing off the band aid, I’ve said this all along and of course that is not what has happened. Many believe that housing and jobs are the two important parts of the US economy. Housing is still drifting lower (for the most part) and while employment numbers have not looked as bad as housing (we’ll see if the increase in participation rates persists) we are still way behind most other past economic downturns in terms of job recovery. It would shock me if somehow the political will was exhibited such that the country turned the corner on being accountable for all that has gone on. The Fed’s intention to keep rates at zero into 2014 supports the idea that no such corner will be turned, at...

There is Nothing New About Conflicts of Interest

Earlier this week TheStreet.com announced layoffs. I’ve been an outside contributor there since 2005. My experience with them has been fantastic and I hope to write for them for a long time. I only found one news story about this from Business Insider and far more interesting than the article was the tone of some of the comments in terms of immense and intense hatred for all things Wall Street; any type of firm and the media covering it. The comment thread was not contained to dislike for the Street.com, it was directed at everyone. Occasionally I see similar comments on posts at Seeking Alpha as well. Clearly the lousy long term returns of the last 12 years and the news about how various brokerage firms treat clients’ interests is a very discouraging combination so I can’t fault anyone for wanting to chuck the stock market altogether. I won’t defend brokerage firms and the domestic equity returns for the decade were lousy and many of us will see another lousy decade in our lifetimes. I don’t think the brokerage firm behavior is much different than it has ever been (my direct experience goes back to the 1980s) but it is more noticeable when returns stink and investment products malfunction one way or another. We all know that equity returns were lousy in the 1930s and 1970s as well as the 2000s so this has been happening about every three or four decades (the 1870s were also bad and there was a terrible bank crisis in 1907). The potential benefit to investing in stocks is getting a rate of growth for your...