Thursday, July 11, 2013

Variable Rate World, Part 2: Mortgage REITs Get Crushed

by John Rubino,

Mortgage REITs are companies that borrow money to buy mortgage backed securities (MBS) and earn the spread between their cost of funds and the yield on their MBS. When interest rates are going down and MBS are performing well these guys make fortunes. But when interest rates go up and bond prices fall, their excessive leverage kills them. They were, in fact, among the earliest casualties of the housing bust just a few years ago. Now they and their memory-impaired investors are back in the same mess:
REITs Deepening Bond Losses as Leverage Forces Sales
Annaly Capital Management Inc. (NLY)’s Wellington Denahan, head of the largest mortgage real-estate investment trust, told investors less than three months ago that reports REITs could threaten U.S. financial stability were as misleading as the media frenzy over shark attacks in 2001.
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Stock 'fear gauge' flawed, Citi equity trading chief says

Investors seeking to predict the magnitude of share price moves at times of market flux may get a faulty steer from a closely watched "fear gauge", one of investment banking's top equity traders has warned.

Citi's (NYS:C) Mike Pringle, global head of equity trading at the third-biggest U.S. bank, told Reuters that the VIX volatility index (^VIX), is now as much a traded asset as it is a guide to investors seeking protection from losses.

The VIX reflects Standard & Poor's 500 (.SPX) options prices and, therefore, expectations of future market moves. The idea is that as people become fearful of losing their money, they are more willing to buy a put option as protection.

At the moment, it remains at very low levels.

"A big mistake the market makes is looking at the VIX as an indicator of stock market risk. Why? Because it's an asset class and it's more traded for yield than protection," Pringle said.  (more)

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3 Reasons the Tech Sector’s In Trouble & One Glimmer of Hope

It’s not just PCs – the whole tech industry complex is having a rough year.

Everyone knows PC sales are in the dumps, displaced by tablets and even smartphones. But higher-end hardware, software and services were supposed to keep the rest of the tech sector cranking. Not happening. Oracle (ORCL) missed analyst estimates in its most recent quarter. Accenture cut its guidance for the rest of the year. Both reports prompted Goldman Sachs to slash estimates for IBM (IBM) ahead of its earnings. SAP (SAP) or Hewlett Packard (HPQ) could be next.

Sales in China and other emerging markets are tanking. Oracle said sales in Asia-Pacific were down 7% last quarter and Accenture projected weakness in Latin America for upcoming quarters. That’s part of what prompted Goldman’s IBM downgrade.  (more)

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Chart of the Day - Costar Group (CSGP)

The Chart of the Day is Costar Group (CSGP).  The stock has both a Trend Spotter buy signal and  96% technical buy signals.  In the last month the stock hit 17 new highs and is up 16.54% for that period.  I found the stock near the top of the New High List when sorted for frequency.

They  provide information services to the commercial real estate industry. Their wide array of digital service offerings includes a leasing marketplace, a selling marketplace, sales comparable information, decision support, contact management, tenant information, property marketing, and industry news. They have three assets that provide a unique foundation for this marketplace: comprehensive national databases; large research department; and large number of participating organizations.

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Abuba Networks ARUN: Beaten-Down Small Cap Looks Poised for a Powerful Breakout

Buying on weakness and selling on strength is the hallmark of the professional trader. While the average Joe investor attempts to buy stocks as they are climbing higher, the professional quietly waits for prices to drop in order to enter positions.

Obviously, not all declines should be bought. Sometimes a falling stock just keeps on falling until it's close to zero. Professional traders call the attempt to buy stocks that keep dropping trying to catch a falling knife.

The question is how does one tell the difference between a falling knife and a simple pullback that should be bought? Here are three ways to help you tell:

1. Determine what caused the pullback.
If the pullback was caused by a one-time special situation, like an earnings warning, negative rumors, or even the selling of shares by an institution, this can create an opportunity to purchase shares at a discount. However, if the negative news comes in waves or something fundamental changes at the company, this could mean that prices will continue lower.

2. Watch the 200-day simple moving average.
The basic rule of thumb with the 200-day simple moving average is that shares that are in the process of dropping and are below that moving average should not be purchased. This can act as a line in the sand between buying and selling pressure. If shares are below the 200-day moving average and start to climb higher, this can be a buy signal depending on what caused the pullback. (more)

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