maverick

Thank you Packer. Do you know anything about mortgage REITs? It seems like ABR is a mortage REIT paying over 9%. These REITs don't have real properties right? Mortgage REITs are capped like bonds/loans & thus the yield you get is all the upside you get. You may actually have a loss due to loan losses. Mortgage REITs like you say are debt funds so the value is in the underwriting or lack thereof the manager. Packer On mortgage REITs - the trick is to buy them when they are trading at a substantial discount to book value if you have confidence that the discount could narrow over time and even turn to a premium. Otherwise, Packer is right that what one earns is the dividend yield. Also, growth comes from issuing equity when the stock is trading above the book value.

But it's so far to find quality companies in the current environment at reasonable valuations.

Thanks to all for posting their inspirational returns. Should folks be also posting a range of AUM in addition to the returns? It's easier to generate higher returns with smaller AUM and one could easily make extremely concentrated bets. However, it's harder to make those concentrated bets with larger AUM.

https://www.cnbc.com/2017/08/30/about-80-percent-of-hurricane-harvey-victims-do-not-have-flood-insurance-face-big-bills.html "Much of the Houston area falls outside those most vulnerable zones and many homeowners who aren't forced to have coverage have decided to do without. Now they are stuck because much of the damage in the nation's fourth largest city won't be covered by their homeowners insurance." Do folks from Houston agree with this report that most of the flooded homes in Houston are without the flood insurance? Homes within the flood designated zones are mandated to have flood insurance. Is the extent of damage more for homes located within the flood zones (and hence with coverage) than the homes located out of the flood zones?

I think one is seeing a rotation from growth into value.

IVR and IVR-PA

HighIQinvestor - so basically you are trading this choppy market, not really investing. Is that a correct interpretation? I think that it's not the time to get very bullish, but it's time to be cautious. I will be using this rally to get out of some of my equity holdings.

I am not so sure about the assertion that Fannie & Freddie did not actually require a bailout back in 2008. For an entity that is leveraged 40-50x, all it takes is a mere 2%-3% decline in the value of assets to completely wipe off the equity. Asset prices declined much more than 2%-3%. They were able to borrow very cheaply in the debt markets because there was always this implicit government guarantee. Could they have continued to borrow cheaply while being insolvent at those low rates without the government backstop. No, they would not have. They would have experienced the same fate as did Bear, Lehman, and MF Global.

My 2cents on preferreds (since I haven't looked at FN/FH preferreds in detail) - if it's a cumulative preferreds, then they can trade much higher than par as all the missed dividend can get added to the par. Since these are not cumulative preferreds, all they can do it is get close to par and trade at whatever the market yield on preferreds for similar risk profile is. If equity has any residual value then the preferreds will go to par. The beauty of preferreds is that the common can't get any dividend till the preferreds get their dividend. I love preferreds, in general, as a high dividend play.

I am not long Fannie or Freddie. Therefore, let me try to challenge the longs (no hard feelings please) and they could perhaps convince me to take a long position. The only reason Fannie and Freddie are still around is due to the government bailout. If not, then the equity and preferreds would have been wiped out. The US Treasury is getting a lot of money from these enterprises now. The longer this has gone on, less is their motivation to spin them back as private enterprises. Further, Fannie and Freddie are shedding most of their risk on newly originated mortgages to the private investors. The government is on hook only for a scenario of catastrophic loss. How will the will to wind them down come if the government is minting money while only exposed to catastrophic losses. To me it appears like a lottery ticket. I am fine to take a position with OPM but will not put my own money into this.

At least 3 bullsh*t macro threads going on at the same time on this board. If some of these characters put as much time into actually studying companies, and learning the practical side of trading, they might actually find something to invest in that didn't have S&P in its title. When I posted earlier in this thread last week, the TSX was in bear territory. It is up several percent since then, while people moaned about S&P market valuations, and fretted about whether a rally is real or not. I bought stocks up to last week, and was selling into the rally yesterday. I agree that it's a trading market and there is money to be made trading in and out. Unfortunately, I have a full time job which precludes me from spending my energy on trading. I own some individual stocks which I believe are undervalued and I want to hold them on for long term (investing rather than trading). I have a large exposure in fixed income type earning a steady 8%-12% current yield. I believe that equity prices are currently being governed more by central bakers' policies than the fundamentals. It's hard to find value currently and the value names could get even more cheap if the market has a total loss of confidence in the central bankers. I am willing to wait patiently before going for the swing.

Long term consequences are that the rest of the world (US/Europe) ends up being just like Japan. imho there is no painless way to get out of the malaise we are in.

It's interesting that Barron's had the same question this weekend: Is the Recovery Real, or Just a Bear-Market Rally? http://www.barrons.com/articles/is-the-recovery-real-or-just-a-bear-market-rally-1457157521?mod=BOL_hp_we_columns "The leadership of the beaten-down stocks suggests to Louise that this is most likely a pleasant interlude otherwise known as a bear-market rally. Their bounces suggest some extreme bargain hunting, as well as covering of short-sale bets. Meanwhile, the ongoing strength in defensive stocks, such as consumer staples and utilities, many of which sport fancy, above-market price/earnings ratios, implies that investors are still bracing for more pain ahead." I think a few questions to ask are: 1)Has oil bottomed? With the Cushing storage approaching its full capacity, could that lead to another leg down in the oil prices? 2) Even if the oil were to rally to around $50, will that prevent the bankruptcies in the overleveraged energy names? For instance, a recent Bloomberg story mentioned that "Blackstone Group LP’s credit unit, which has 20 dealmakers dedicated to energy, hasn’t found much to do during the commodities price rout -- just yet. “We haven’t yet found a lot of opportunity,” Bennett Goodman, the head of Blackstone’s GSO Capital Partners, said Thursday at a conference in New York. “No doubt there’s going to be tons and tons of opportunity,” Goodman said. “There’s another $200 billion coming in a theater near us sometime soon,” he said, referring to the energy producers whose credit is being monitored for possible downgrade by rating companies...........Oil’s 68 percent decline since its June 2014 peak has left dealmakers divided over when exactly to step in with debt or equity investments. Blackstone’s GSO has stayed on the sidelines because of uncertainty about whether producers can repay loans while continuing to fund their businesses long enough for oil prices to recover, said Goodman, who co-founded GSO and joined New York-based Blackstone when it acquired the firm in 2008." 3) If we believe that default rates are going to pick up even further and with recovery rates being historically low, wouldn't the malaise in credit spread to the equities market? 4) One could argue that OK, things are bad but the equity markets would be saved by even further more aggressive policies by central bankers of the world. The question to ask is if the central bankers are reaching their limit and whether investors are losing their confidence in central bankers now.

There are members of the board who have previously written about buying put options, therefore asking this group of esteemed value investors. Except in energy, metals & mining sectors, it's very difficult to find value. Everything is way overpriced due to continued efforts by central bankers of the world to support equity markets. Profit margins have peaked, earnings growth rate is coming down, and even GDP is slowing down. The only one big source of demand for equities continues to be the corporate buybacks. While it's a fools game to forecast a recession and even difficult to recognize one while you are it, US is perhaps getting closer to the next recession. Economists are talking about banning cash ($100 bill in US). There is not an insignificant probability of NIRP coming to US in the distant future which could could kill the banks earnings power. What is it that would take us out of our current malaise!

Is the current rally for real or is it another opportunity to set up new shorts? What do you folks believe. What's the catalyst which could take the S&P 500 above the 2100-2200 level?