Happy New Year to all the friends. We were safely back from Lisbon, Portugal, although unexpectedly delayed by 3 days. Also got bad cold for a couple of days. So a bit down in energy right now.
First, just a couple of follow-ups based on my readings on what I have blogged. If you have bought EUO to be short Euro, please hold on. Please see this. John Taylor is the CEO of the biggest currency hedge fund in the world. While I don't need anyone else to convince me of the fate of Euro, I'm glad I'm in line with the world real expert on currency. Euro is heading much lower, probably below parity with US$ not far from now.
Another update is about VIX. In the investing world, you should follow the smart money, those who can change the direction of the market, so-called professional investors. Finally they are also seeing what I have seen for a few months by now. Of course I'm a bit earlier but I stick to what I believe.
Now back to the topic of today. If I hadn't already invested in this stock for many years, I'd have put some money to work by buying this stock now. Why? Because this stock is fundamentally not related to the stock market but to the Fed rate. As long as the Fed rate remains low, it will make money and distribute dividends in a huge amount. The basic idea is that this company, call Annaly (NLY), borrows money at the Fed rate via real estate related investment securities almost all guaranteed by the US government and makes loans to others at a higher market interest rate. The difference (spread) between the 2 interest rates is where they earn their money from. The larger the spread is, the bigger profit it would be. Since almost all their mortgages they hold are those guaranteed by the government, there is virtually no credit risk for the company. Hope you know and believe that there is no chance the Fed will increase the interest rate which is around 0% any time soon, Annaly is positioned to make huge profit at least for the next 2 years I believe. Before investing, something you have to understand though: at this price level, we are not talking about investing in this stock expecting a substantial share price increase. This time is gone. What you should expect is the huge dividend payment, which is around 14.5% as long as you hold the stocks. I started to invest in it in 2008 at around $12-13, more after Mar 2009 (the market crash), and further more when it briefly came down to below $16 in May 2010. Ideally I'd buy NLY at the price around $15 or below but I'm afraid it may not come anymore. So if you have some cash and wanted to invest in something, NLY is a good bet right now, which may be safer than the money you have in the bank if you factor in the actual inflation. The NLY price has dropped to below $18 in the past few days, which was relatively substantial. I don't think NLY's price will really stay low for long, as long as the Fed rate is kept low. So any drop of its price is a good buying opportunity.
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