Annaly: Buy Now Before It Soars Higher
Ever since the famed “Black Helicopter” speech, Ben Bernanke (aka “The Barnank”) has wowed investors with his attempts to devalue the U.S. dollar faster than at any previous time in history and for his role in exploding the U.S. deficit at a pace that makes even FDR look conservative.
Bernanke’s recent comments that the Federal Reserve is unlikely to continue to buy bonds in an effort to stimulate the economy did little to sway investors. Companies like Annaly Capital Management (NLY), which profit by capturing the spread between long- and short-term rates in the mortgage market, may be impacted, but with rates being as low as they have been, it is hard to imagine where deeper cuts would even come from.
QE3 and the Capital Markets
While it is difficult to imagine how the Fed could ever justify burning huge quantities of additional capital in order to prop up the economy and the market, it is an election year, so anything is possible. A report by Credit Suisse states that recent trading of government-backed mortgage securities indicates that the market is pricing in a 37% chance that further quantitative easing activities will be undertaken by the Fed. The report notes that this is a small decline from the 40% chance present a week ago, but remains a significant uptick from the 25% number earlier in the month. While these statistics are not dispositive, the fact that chances remain this high is instructive.
Annaly has been a long-time favorite of investors seeking yield in an otherwise anemic environment, offering a current dividend yield of over 14%. The stock went ex-dividend on March 28 and will pay $0.55 later this month. In a recent article at The Motley Fool, investors were encouraged to look on these types of dividends with a high degree of skepticism. To continue reading, click here.