Miscellaneous news on AGNC, TNH, and SCCO.

American Capital Agency Corp. (AGNC) news:

Title of article is "Mortgage REIT dividends look risk free this summer".  I generally agree that the MREITs are going to do well this summer.  It takes awhile for an inverted yield curve to develop and wreck their profits.  But the people who write these articles do not understand how the Federal Reserve works.  The chairman of the Federal Reserve Board, Ben Bernanke, says he's keeping a key interest rate low for an extended period of time.  That interest rate is known as the Fed Funds Rate.  It is the rate that banks charge each other for overnight loans to meet reserve balance requirements.  However, the big banks have over $1 trillion in excess reserves.  They aren't lending to each other over night because they are stuffed full of reserves.  Commercial bankers are keeping the Fed Funds rate low not Ben Bernanke.

Its a good thing they commercial bankers aren't expanding lending because if they did loan those excess reserves, then prices would more than double from what they are today.  Think $10/gallon gasoline.


Conclusion: Don't buy AGNC for an investment, but you can buy it for a short term trade.  In the not too distant future interest rates will rise and destroy its asset values and net income profits.

Terra Nitrogen (TNH) news:

Shares of Terra Nitrogen Company, L.P. (NYSE: TNH) fell by 6.44% or $-9.13/share to $132.75. In the past year, the shares have traded as low as $66.38 and as high as $143.50. On average, 44595 shares of TNH exchange hands on a given day and today's volume is recorded at 52049. The shares are currently trading above the 50-day moving average which indicates that the shares have been experiencing strong upward momentum as the 50 DMA is above the 200 DMA. The stock may come back down to test the 50-day moving average, so look for a move back to the $124.35 area where the stock will likely see buying pressure.

Conclusion: Buy it way down in the $90.00 range when it is on sale.

Southern Copper (SCCO) news:

Southern Copper (SCCO) Showing Bearish Technicals With 7.23% Dividend Yield

Southern Copper (NYSE:SCCO) closed Wednesday's winning trading session at $32.25. In the past year, the stock has hit a 52-week low of $25.65 and 52-week high of $50.35. Southern Copper (SCCO) stock has been showing support around $31.50 and resistance in the $33.34 range. Technical indicators for the stock are Bearish. For a hedged play on Southern Copper (SCCO), look at the Aug '11 $32.00 covered call for a net debit in the $30.65 area. That is also the break-even stock price for this trade. This covered call has a duration of 51 days, provides 4.96% downside protection and an assigned return rate of 4.40% for an annualized return rate of 31.52% (for comparison purposes only). A lower-cost hedged play for Southern Copper (SCCO) would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the Southern Copper (SCCO) Jan '12 $25.00 call and selling the Aug '11 $32.00 call for a total debit of $6.40. The trade has a lifespan of 51 days and would provide 2.64% downside protection and an assigned return rate of 9.37% for an annualized return rate of 67.1% (for comparison purposes only). Southern Copper (SCCO) has a current annual dividend yield of 7.23%. [THA-Seven Summits Research]

Conclusion: Technical analysis means nothing without an understanding of the fundamentals of the copper commodity price.  Wait until this stock drops to $23.04 (which is 12x average earnings).  The dividend isn't safe.

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Published in: on June 30, 2011 at 2:03 pm  Leave a Comment  

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