Why Gold has been Money and will be Money Again

I'm a fan of physical gold coins.  They should comprise at least 5-30% of you non-house net worth.  Too bad there are no high dividend gold stocks.  Please enjoy this short article on why gold has historically been money.  
Every central bank in the word is inflating its money supply.  Some are inflating faster than others.  The US central bank, the Federal Reserve, is leading the way with QE2 and its massive inflation of late 2008.  The Bank of Japan is barely inflating.  That is why the Yen is stregthening versus the Dollar.
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Happy New Year and be seeing you!
Published in: on December 30, 2010 at 8:15 pm  Leave a Comment  

How Bad Is the Debt Burden for Students Who Took Out College Loans? Really Bad. How Bad is the Job Market? Really Bad.

I pay attention to the job market.  The job market should effect the stock market because people without jobs have to cut back on products and services that publicly traded companies provide.  This line a little bit into the article was news to me:

What young high school students are never told is that not even bankruptcy can get you out of student loan debt. It will stay with you forever until you finally pay it off.”

Avoid high dividend stocks that are dependent on younger consumers for growth.  After you read this article you’ll know why.


How Bad Is the Debt Burden for Students Who Took Out College Loans? Really Bad. How Bad Is the Job Market? Really Bad.

Gary North

Dec. 22, 2010

This appeared on End of the American Dream site.

As you read this, there are over 18 million students enrolled at the nearly 5,000 colleges and universities currently in operation across the United States. Many of these institutions of higher learning are now charging $20,000, $30,000 or even $40,000 a year for tuition and fees. That does not even count living expenses. Today it is 400% more expensive to go to college in the United States than it was just 30 years ago. Most of these 18 million students have been told over and over that a "higher education" is the key to getting a good job and living the American Dream. They have been told not to worry about how much it costs and that there is plenty of financial aid (mostly made up of loans) available. Now our economy is facing the biggest student loan debt bubble in the history of the world, and when our new college graduates enter the "real world" they are finding out that the good jobs they were promised are very few and far between. As millions of Americans wake up and start realizing that the tens of thousands of dollars that they have poured into their college educations was mostly a waste, will the great college education scam finally be exposed?

For now, the system continues to push the notion that a college education is the key to a good future and that there is plenty of "financial aid" out there for everyone that wants to go to college.

Recently, U.S. Secretary of Education Arne Duncan visited students at T.C. Williams High School in Alexandria, Virginia and encouraged them to load up on college loans….

"Please apply for our financial aid. We want to give you money. There’s lots of money out there for you." So where will Arne Duncan be when those students find themselves locked into decades of absolutely suffocating student loan debt repayments?

What young high school students are never told is that not even bankruptcy can get you out of student loan debt. It will stay with you forever until you finally pay it off.

Today each new crop of optimistic college graduates quickly discovers that there are simply not nearly enough jobs for all of them. Thousands upon thousands of them end up waiting tables or stocking the shelves at retail stores. Many of them end up deeply bitter as they find themselves barely able to survive and yet saddled with tens of thousands of dollars in student loan debt that nobody ever warned them about.

Sadly, the quality of the education that most of these college students is receiving is a complete and total joke.

Take it from someone that has graduated from a couple of very highly respected institutions. I have an undergraduate degree, a law degree and another degree on top of that, so I know what I am talking about. Higher education in America has become so dumbed-down that the family dog could literally pass most college courses.

It is an absolute joke. The vast majority of college students in America spend two to four hours a day in the classroom and maybe an hour or two outside the classroom studying. The remainder of the time these "students" are out drinking beer, partying, chasing after sex partners, going to sporting events, playing video games, hanging out with friends, chatting on Facebook or getting into trouble. When they say that college is the most fun that most people will ever have in their lives they mean it. It is basically one huge party.

Of the little "education" that actually does go on, so much of it is so dedicated to pushing various social engineering agendas that it makes the whole process virtually worthless. Most parents would be absolutely shocked if they could actually see the kind of "indoctrination" that goes on inside U.S. college classrooms today.

A college education can be worth it for those in very highly technical or very highly scientific fields, or for those wanting to enter one of the very few fields that is still very financially lucrative, but for nearly everyone else it is just one big money-making scam.

Oh, but you parents please keep breaking your backs to put money into the college funds of your children so that they can be spoon-fed establishment propaganda all day and party like wild animals all night for four years.

It really is a huge scam. I was there. I saw it with my own eyes.

But if you will not believe me, perhaps you will believe some cold, hard statistics. The following are 16 shocking facts about the student loan debt bubble and the great college education scam….

#1 Americans now owe more than $875 billion on student loans, which is more than the total amount that Americans owe on their credit cards.

#2 Since 1982, the cost of medical care in the United States has gone up over 200%, which is horrific, but that is nothing compared to the cost of college tuition which has gone up by more than 400%.

#3 The typical U.S. college student spends less than 30 hours a week on academics.

#4 The unemployment rate for college graduates under the age of 25 is over 9 percent.

#5 There are about two million recent college graduates that are currently unemployed.

#6 Approximately two-thirds of all college students graduate with student loans.

#7 In the United States today, 317,000 waiters and waitresses have college degrees.

#8 The Project on Student Debt estimates that 206,000 Americans graduated from college with more than $40,000 in student loan debt during 2008.

#9 In the United States today, 24.5 percent of all retail salespersons have a college degree.

#10 Total student loan debt in the United States is now increasing at a rate of approximately $2,853.88 per second.

#11 There are 365,000 cashiers in the United States today that have college degrees.

#12 Starting salaries for college graduates across the United States are down in 2010.

#13 In 1992, there were 5.1 million "underemployed" college graduates in the United States. In 2008, there were 17 million "underemployed" college graduates in the United States.

#14 In the United States today, over 18,000 parking lot attendants have college degrees.

#15 Federal statistics reveal that only 36 percent of the full-time students who began college in 2001 received a bachelor’s degree within four years.

#16 According to a recent survey by Twentysomething Inc., a staggering 85 percent of college seniors planned to move back home after graduation last May.

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None of this is debt required to earn a degree from an accredited college.



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Published in: on December 27, 2010 at 2:07 pm  Leave a Comment  

Why You Shouldn’t Trust the Core CPI Numbers

This article from The Daily Reckoning’s Addison Wiggin is spot on.  The CPI numbers are rigged to keep Social Security and Medicare solvent a few extra years.  This is why your high dividend stock portfolio must generate at least a 6% – 10% return to beat the real price inflation caused by the FED’s counterfeiting.

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Why You Shouldn’t Trust the Core CPI Numbers

12/15/10 Baltimore, Maryland – Consumer prices rose 0.1% in November…and less than a percent over the past year. If you strip out food and energy – which government number crunchers do, because those prices are allegedly “volatile” – you still get a 0.1% increase.

That’s the “core” CPI, and that’s what the monetary mandarins at the Federal Reserve care about when drafting plans to buy Treasuries, control interest rates, goose employment numbers, order pizza, drink wine, play Xbox 360 or any of the myriad other things they do during their FOMC meetings.

As a group, they can’t be pleased with the number. Over the last year, despite trillions of dollars in government stimulus and quantitative easing, core CPI has risen a scant 0.8% – far below the Fed’s “sweet spot” of 1.6-2.0%.

But whom are we kidding? Even the “headline” figure, the one including food and energy, is suspect.

Our friends at Casey Research put out this chart a couple months ago. The column in the far right – CPI-U – is actually lower now than it was then, all those other columns notwithstanding:

How does the government pull this off? We ask constant readers to indulge our newer ones as we revisit three of the most common tools the statisticians use…

  • Substitution. If steak becomes more expensive, and you buy hamburger instead, then the Bureau of Labor Statistics reasons your cost of beef has stayed the same – no inflation!
  • Hedonics. If the 2011 model of a car costs more than the 2010 model, but it also comes with more standard equipment, the BLS reasons you’re still getting the same value for your money – no inflation!
  • Geometric weighting. Nothing fancy here: If the price of something goes up, the BLS simply makes it count for less in the CPI relative to everything else. If the price comes down, it counts for more. Voila!

These changes started with the last round of Social Security “reform” under the auspices of Alan Greenspan in the early ’80s. The idea was that if CPI were lower, Uncle Sam could pay out less in Social Security benefits.

You can see the end result over time maintained by our friend John Williams of Shadow Government Statistics. Mr. Williams calculates economic numbers the way they did back in the Carter era. The “official” CPI number is in red. The shadow stat is in blue:

In the meantime, the Federal Reserve statement issued after yesterday’s meeting amounted to, “steady as she goes” on the ill-fated QE2. The Fed, looking at current “official” CPI numbers, sees “deflation”…

And so the plan to goose the system with $875 billion in Treasury purchases that started last month will continue to at least double the official rate from whence it sat while they were kibitzing over bagels before the meeting began yesterday morning.

Sooner or later, reality is going to catch up to the gamed statistics. Indeed, “an inflationary outbreak is very likely,” says Chris Mayer, editor of Mayer’s Special Situations.

History is on our side.

“The dollar has done nothing more reliably than lose its value over time,” Chris points out. “I think the future will be no different. People who worry about deflation – that, somehow, the dollars in our pocket will actually buy more in the years ahead, not less – will not only be wrong. They will be broke.

“Writer Jason Zweig points out that ‘Since 1960, 69% of the world’s market-oriented economies have suffered at least one year in which inflation ran at an annualized rate of 25% or more. On average, those inflationary periods destroyed 53% of an investor’s purchasing power.’

“That is why I believe that being prepared for inflation is the most important investment decision we have to face in the coming decade. If you aren’t prepared, then the consequence is a mean hit to your wealth.”

Addison Wiggin
for The Daily Reckoning

Read more: Why You Shouldn’t Trust the Core CPI Numbers http://dailyreckoning.com/why-you-shouldnt-trust-the-core-cpi-numbers/#ixzz19LBybZFb


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Published in: on December 27, 2010 at 1:23 pm  Leave a Comment  

Merry Christmas!!

Merry Christmas to all…and to all a good night!!

Be seeing you!

Published in: on December 24, 2010 at 11:37 pm  Leave a Comment  

AGNC Declares $1.40 Fourth Quarter Dividend – How much longer can they sustain this?

AGNC just declared that it will pay a $1.40 dividend for the fourth quarter 2010.  According to Google Finance there are 56.85 million shares outstanding.  So that equals a dividend payment of roughly $78.89 million.  Net income last quarter was around $60 million.  Will AGNC earn that much in 4Q2010?  I don’t think so.  If they don’t cover the dividend with earnings, then they will have to raid their piggy bank.

AGNC Declares $1.40 Fourth Quarter Dividend


BETHESDA, Md., Dec. 17, 2010 /PRNewswire-FirstCall/ — American Capital Agency Corp. (Nasdaq: AGNC) ("AGNC" or the "Company") announced today that its Board of Directors has declared a cash dividend of $1.40 per share for the fourth quarter 2010.  The dividend is payable on January 27, 2011 to common shareholders of record as of December 31, 2010, with an ex-dividend date of December 29, 2010.

Here is the link to the press release: http://www.prnewswire.com/news-releases/agnc-declares-140-fourth-quarter-dividend-112091904.html

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Published in: on December 17, 2010 at 4:18 pm  Leave a Comment  

Article – What is a Stock Worth (2005)

Here is an excellent article from 2005 that combines Austrian economics with stock valuation.


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What Is a Stock ‘Worth’?

by Sean Corrigan
by Sean Corrigan

The answer seems obvious: whatever someone is willing to pay for it, of course. But, it’s not as simple as that.

For example, whenever we are obliged to determine the net asset value of our fund for the purpose of reporting to our shareholders, we take the last price bid for each security on the last day of the month; we multiply this by the size of our holding; we repeat the process for each security in turn; we add up the results and — lo! — we have an aggregate total.

Though this methodology is standard throughout the industry, by virtue of its simplicity and transparency, we really ought not to forget that the price of the last traded fraction of the company’s stock is not logically applicable to the value of the whole. Here is the reason behind this assertion.

“Dad, we are thirsty!”

Imagine you are walking a baking hot stretch of beach, trailing your two restive and annoyingly insistent kids, each of them moaning that they are thirsty.

Just ahead is the only kiosk visible for a mile or more in either direction so, gritting your, teeth you drag your little darlings over the last few hundred yards of scorching sand and there you happily part with $5 to get them a couple of small bottles of soda.

Now, those two particular bottles, in that particular time and place, clearly seemed well worth $2.50 apiece in your hour of need. But, by the same token, you’d have been increasingly less keen pay such a premium for a third, a fourth, or a fifth bottle of what you’d soon have come to regard not so much as a welcome liquid pacifier, but as a fairly meager container of overpriced, sugary acid.

Similarly, you’d also be a trifle reluctant to fork over that same $2.50 a pop when you’re cruising — thankfully child-free — along the beverages aisle of your local, air-conditioned supermarket — your shopping cart sandwiched between two long, closely-stacked ranks of competing wares.

Again, at the neighborhood cash and carry, you may well be offered this same soda by the crateful. But, since you’ll have more urgent things to acquire with your last few bucks of housekeeping money than to buy three weeks’ advance supply of soda, it will have to be pretty steeply discounted to tempt you into making such a large purchase upfront.

Taking this to an extreme, you’d be positively dismissive — even if you had the required wherewithal — if Coke itself tried to get you to take a whole year’s production from them at an equivalent price to the one being asked by that damnable seaside “gouger” (actually a man who is not so much a rip-off artist as an astute entrepreneur with a keen sense of what the local market will bear).

So, we should quickly be able to deduce from this that it doesn’t makes sense to calculate the whole of Coke’s annual sales by taking the product of the waterfront kiosk’s circumstantially specific $2.50-a-bottle and the company’s 475 million bottles of worldwide shipments.

But, if this is the case, we should realize it makes no more sense either to fall into the analogous trap of valuing all of Coke’s shares, en bloc, by taking the $42 where the last 4,000 lot changed hands and multiplying it by the whole 2.4 billion shares the company has in issue, to arrive at a market cap of $100.8 billion.

The crucial point to grasp is that any individual trade reflects the monetary overlap in preferences of the most insistent buyer and the most willing seller at the point of exchange.

It should be obvious that each individual will be influenced in where he ranks on that scale of mutual eagerness by plain circumstance. This is exactly in the manner that our two very insistent minors combined with the presence of only one nearby seller to make for a highly skewed deal at the seaside!

Further, it is self-evident that as we begin to satisfy our appetite for what the other fellow has to offer, this quickly changes the relative attractiveness of the trade as we gain more of what we want — soda — and are therefore left with less of what we have to give up — money (and therefore the chance to buy, say, a candy bar for Mom, or a beer for Dad instead).

Theoretically, the converse would apply to our vendor, who would gradually raise the price of each successive soda sold, were it not that he has no other, more pressing needs to satisfy with the money he earns and that he suffers severe constraints of time in shifting his stock-in-trade.

Arguments along these lines were among those which revolutionized economic understanding in the 19th century under the guidance of the so-called “marginal utility” school, which included such Austrian luminaries Wieser, Menger, and Böhm-Bawerk.

Churn and burn

But, as well as this somewhat theoretical objection, there is a more practical aspect to the tyranny of the regular pricing mechanism to which we are subject.

This is that most of these marginal buyers — the I-want-it-now, $2.50-a-bottle guys who effectively set the price for our snapshot of net asset value — are buying now, only to sell a moment later and they are doing this largely with borrowed money, into the bargain.

To give some idea of the incredible rate of churn between specialists, brokers, and clients, consider that NYSE dollar volume has averaged $55 billion a day in 2005, while overall securities trading in the US topped $1 quadrillion (a one followed by fifteen zeroes!) in 2004.

For equities themselves, however, data from the National Securities Clearing Corporation shows that, on any given day, typically as little as 2—3% of that sizeable notional sum actually goes to cash settlement — with the balance being netted out between all those frenzied intraday buyers and sellers, winners and losers.

Thus, in a market dominated by players with the most restricted of short term horizons — who battle it out literally tic-by-tic for the scraps to be made between the brackets effectively set by the less frequent entry of punters taking a longer view — we can see that considerations of the actual fundamental value of any given enterprise are the furthest from the minds of the majority of those likely to set our reference price.

What is a stock worth to these guys? Hopefully, a couple of tenths more than when they bought it two minutes ago.

Moreover, even the longer-term players who impart the underlying momentum to the market — those who, as it were, provide the ocean current, rather than the tide which is superimposed upon it — may well be executing trades based on a whole host of disparate factors: technical analysis, “relative value,” “sector rotation,” “index arbitrage,” “asset allocation,” derivative or convertible arbitrage, and “black box” trading. The list of such blind, mechanistic, model-based approaches seems endless.

As a particular case in point, on average, more than half — and anything up to three-quarters — of NYSE volume is now accounted for solely by program trading (Goldman, Sachs alone accounted in this way for 1.2 out of the total 8.8 billion of recorded volume in the week of June 24th).

Yet another facet of this commoditization and temporal foreshortening of the market is the rise of the exchange-traded funds, or ETFs — quasi-mutual funds which “trade just like stocks.” As the latest hot thing to hit the Street, last year the assets incorporated in these entities soared by nearly one half, reaching $222 billion as everyone sought to cash in on the speculative fever of the times.

Are these savings vehicles or tools of speculation? Are they a means to “grow the world economy by furthering the development of low-cost, efficient capital” (as the DTCC motto laughably proclaims) or merely another fancy way for respectable folks to do a little gambling with their nest-eggs?

You tell us. But again, note that most of the people involved in trading this way — and so in setting a price on all the relevant securities — would be hard pushed to name the CEOs of the constituent companies, or their main line of business, or a single key product, much less tell you anything about their balance sheets or income statements.

It should be apparent that the motivations of the overwhelming majority of “price-setters” are thus wholly different to the ones which drive us as we try to discharge our duty to our shareholders.

In our work, what we are firstly seeking to avoid are costly mistakes of over-enthusiasm — of buying when the market is clearly overpricing a business. We try not to buy soda for $2.50, no matter how much the kids might whine at having to drink water instead.

Conversely, we always try to recognize and take advantage of those times when the market underprices claims on valuable, well-managed, wealth-creating assets. 50 cents a litre? Yes, please. Do you deliver?

By now it should be apparent that on both these counts — both the theoretical and the practical — that to focus too much on price, especially in the short term, is to commit what logicians call a “category error”: instantaneous market price and long-term value are decidedly not the same animal!

Discounting the future

But if a stock is not always “worth” the price, what factors should we consider in valuing a company?

Here, many fall back on something called the “dividend discount” model, which effectively assumes a near infinite flow of dividend payments and discounts them back to a price payable today, using some readily observable long-term interest rate — usually, if highly inappropriately, in our view — the US Treasury 10-year note yield.

This simplistic calculation, however, poses a number of problems, namely:

  • the dividend payments are inherently uncertain (unlike those contractually set by a fixed income instrument) and will certainly be variable;
  • the company may choose to return shareholders’ funds through buybacks instead of dividends (whether or not financed by borrowing);
  • it may chose not to return them at all;
  • from the other side of the equation, the T-Note yield is itself intimately subject to market whim and is therefore by no means an objective yardstick;
  • being technically “riskless” (a rather empty guarantee related to the surety with which a government can always print enough local currency — however worthless — to redeem the bond) it is not really suitable for gauging a “risky” asset like a common stock, in the first place.
  • For our part, to the extent we pay any attention at all to this concept, we sometimes compare the market’s earnings yield to that applicable to 30-year BAA-rated corporate bonds — which, unlike US Treasuries, therefore theoretically discount for real yields, implied inflationary erosion, and corporate credit risk. This leaves us with a broad measure of expected real, long-term earnings growth. This, in turn, can be loosely benchmarked against observed or expected rates of change in gross domestic product with which, intuitively, it should be correlated over the long run.

    We should caution, however, that the only purpose for doing this is to judge how “cheap” stocks — as a group — may or may not be, relative to bonds, and not whether they — much less any individual components of the index they comprise — hold any absolute appeal whatsoever.

    Through the looking glass

    But what of the vexed issue of why anyone other than one of our market-timer friends would ever wish to buy a non-dividend bearing stock? What we can say here is as follows.

    A non-dividend paying, non-liquidated, still-independent stock derives its worth from a gauge of the company’s ability (a) to generate real income (over some uncertain, but broadly-estimated time horizon) and (b) to maintain and hopefully to extend that income generation capability in the course of its operations (i.e. to preserve and accumulate ‘wealth’).

    Essentially, this ‘worth’ reflects the fractional ownership of the firm’s productive assets, its claims on resources; its inventories of finished goods; its stock of work-in-progress; and any other titles to property it holds, as well as to more ephemeral entities such as brand and reputation.

    Above all this, though, the stock has value as a vehicle through which to devote one’s savings to a participation in that epitome of wealth generation — entrepreneurial activity, especially that of a kind in which one either is technically, or perhaps, financially unable to engage, alone and unaided.

    Granted, ownership of the stock must eventually release some of the income or the capital to its proprietors whether through dividends, buy-backs, spin-offs, liquidation, transfer sale, or take-over or there would be little purpose in owning it, beyond vanity.

    However, so long as one regards the potential for such deferred remuneration as reasonable and as long as one possesses the suitably low degree of time preference to wait, one need not demand such a disbursement in the here and now before considering the stock worthy of purchase today (particularly if one holds a realistically dark view of the process of the chronic monetary depreciation endemic to our modern system).

    To illustrate this, we ask you, would you have wanted Microsoft to have paid a dividend in the early, and rapid expansion days (at the possible cost of slowing its advance to profitable, global dominance)? Would you consider a share in the title to an undeveloped (and so, financially ‘inert’) gold-bearing ore as “worthless”?

    Moreover, for so long as the firm is deemed to be growing its shareholder equity better than any alternative is likely to do for a given degree of uncertainty which is a purely subjective matter, no dividends rationally should be paid; for to do so would actually be to squander and possibly to prejudice entirely the ultimately realizable worth of the company.

    Vive la différence

    To recap our earlier theme, it is critically important to try to maintain the distinction between this process of consciously and painstakingly estimating the true going-concern worth of a viable business enterprise and the one derived by a glib (and wholly non-marginalist!) extrapolation from the prices posted, second-by-second in the stock market, at which a handful of its shares are passing from largely instantaneous sellers to equally short-term buyers, the majority of whom are engaged in a frantic game of musical chairs, often after having borrowed the money for the entrance fee.

    As the example of Mr. Buffett, among others, underlines, significant returns can be had, often at relatively low risk, if one realizes that the two sums can diverge significantly — and can stay divergent for a considerable period of time.

    Indeed, the knack of recognizing this kind of disparity is what makes a great investor simply another form of entrepreneur (if a vicarious one) that is to say, a man who is constantly seeking to exploit the arbitrage between what he feels is the unduly depressed price of resources being made available to him and the total real income he will ultimately derive from their use.

    So, what is a stock worth? The answer — different things to different people — is not as trivial as it sounds, for in that very difference lies a world of opportunity for those of us who know the only way to protect our clients’ existing wealth — and then to nurture it — is by redeploying it at the most propitious moment so that it can share in and help foster the creation of wealth anew by others.

    July 14, 2005

    Sean Corrigan [send him mail] is an executive of Sage Capital Zürich AG and strategist for the Edelweiss Fund.

    Copyright © 2005 Capital Zürich AG

    Sean Corrigan Archives

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Published in: on December 15, 2010 at 11:06 pm  Leave a Comment  

AGNC news: American Capital down after starting offering

American Capital down after starting offering


NEW YORK | Fri May 14, 2010 8:53am EDT

NEW YORK (Reuters) – Shares of American Capital Agency Corp (AGNC.O) fell 6.9 percent to $25.65 in premarket trading on Friday, a day after the company commenced a public offering of common stock.

(Reporting by Ryan Vlastelica; Editing by Theodore d’Afflisio)

Article link: http://www.reuters.com/article/idUKTRE64D34P20100514?type=companyNews

Here is the press release courtesy of http://www.PRnewswire.com:

AGNC Announces Pricing of Public Offering of Common Stock


BETHESDA, Md., Dec. 9, 2010 /PRNewswire-FirstCall/ — American Capital Agency Corp. (Nasdaq: AGNC) (“AGNC” or the “Company”) announced today that it priced a public offering of 8,000,000 shares of common stock for total net proceeds of approximately $219 million. Citi and Deutsche Bank Securities acted as underwriters for the offering.  In connection with the offering, the Company has granted the underwriters an option for 30 days to purchase up to an additional 1,200,000 shares of common stock to cover overallotments, if any. The offering is subject to customary closing conditions and is expected to close on December 14, 2010.

AGNC expects to use the net proceeds from this offering to acquire additional agency securities as market conditions warrant and for general corporate purposes.

To read the whole press release go here: http://www.prnewswire.com/news-releases/agnc-announces-pricing-of-public-offering-of-common-stock-111598429.html

Let’s do some simple back of the envelope math.  The press release mentions that AGNC expects $219 million in new capital will be raised by the new offering.  $219 million divided by 8 million shares = $27.38/share.  If the full 9.2 million shares are purchased then the per share price drops to $23.48/share.

No wonder AGNC dropped from $29.50/share at the close on December 8th, to $25.65 in pre-market trading.  At 9:42 am MST it has climbed to $28.52.

So how many agency securities can AGNC buy with $216 million dollars in new capital.  AGNC maintained an average leverage level of 8.5x in the third quarter of 2010 according to their latest 10-K quarterly report.  If we apply that leverage level to the amount of new capital to be leveraged we get:

$216 million times 8.5 equals $1.836 billion dollars in new agency securities.

Their portfolio size was $9.7 billion at the end of the third quarter 2010.  Add the $1.836 billion in new agency securities and I expect their portfolio to grow to $11.536 billion by the end of the fourth quarter 2010.  I also expect AGNC interest rate spread to tighten.  If I use the tighter interest rate spread of 2.12% from 2009, then I get a total revenue of $244.6 million for four quarters.  Divide that number by four to represent expected net income in the 4th quarter 2010 and you get: $61,140,000 per quarter net income.

According to Google Finance there are 52.19 million AGNC shares outstanding.  If AGNC keep its dividend of $1.40/share, then it will need to pay a $73,066,000 dividend payment in the 4th quarter of 2010.  That is unlikely to happen because net income in the 3rd quarter was $60.0 million with a $9.7 billion portfolio and an interest rate spread of 2.21%.  The question remains whether AGNC can grow the portfolio and the interest rate spread sufficiently to generate enough income to keep paying that $1.40/share dividend.  I don’t think they can do it.  Time will tell.

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Published in: on December 9, 2010 at 2:29 pm  Leave a Comment  

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If you can read this, then my test post worked.

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Published in: on December 8, 2010 at 10:11 am  Leave a Comment  

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Published in: on December 6, 2010 at 10:46 pm  Leave a Comment  

AGNC earnings power

American Capital Agency Corp. (AGNC) has a massive dividend of near
20%. That easily meets my first criteria for a high dividend stock
which is a dividend yield greater than 6%.

But what about its earning power? I like at least five years of
annual earnings to examine, but ten years is even better. A longer
record of earnings will usually encompass at least one Keynesian
central bank induced boom-bust cycle (e.g. 2001 – present). It is
important to know how the business performed at the top of the boom
and the bottom of the bust in order to determine the average earning

AGNC earnings power

Year, Earnings
2005, not in business
2006, not in business
2007, not in business
2008, $2.36, MAY to DEC ($3.15 annualized)
2009, $6.78
2010 (my est.), $6.28 – $7.18*

Low average = $5.40 EPS/year [($3.15+$6.78+$6.28)/3]
High average = $5.70 EPS/year [($3.15+$6.78+$7.18)/3]

AGNC has been paying a $1.40 quarterly dividend for the last 5
quarters. That equates to a $5.60 annual dividend payment per share
if the company does not change the dividend. It is just too soon to
tell if the average earnings power of AGNC can sustain that $1.40
quarterly dividend. The company’s interest rate spreads tightened in
the last quarter. The company’s net income will decline if the
interest rates spread tightens and that will lower earnings per share.

I would personally stay away from any bank, financial, insurance, or
REIT unless you can understand how the company makes money. I’m still
confused by much of what I read in AGNC’s annual and quarterly
reports. I’m staying away from AGNC despite its huge dividend. I
don’t think the dividend is very safe.

AGNC closed today at $29.47.

*2010 earnings by quarter
2010 Q1, $2.13
2010 Q2, $1.23
2010 Q3, $1.69
2010 Q4, $?.?? (low $1.23 – high $2.13)

Be seeing you!

Published in: on December 3, 2010 at 11:06 pm  Leave a Comment