Article - What is a Stock Worth (2005)
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AMERICAN CAPITAL AGENCY CORP.
NEW YORK |
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 www.PRnewswire.com:
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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The Duel Over the Fed's Dual Mandate | FONT SIZE |
Given the opposing views of the potentially parsimonious new Congress and the continuously accommodative Federal Reserve, there is a movement afoot among Republicans to eliminate the Fed's "dual mandate." Prior to 1977, the Fed only had one job: maintaining price stability. However, the stagflation of the 1970s inspired politicians to assign another task: promoting maximum employment. This "mission creep" has transformed the Fed from a monetary watchdog into an instrument of social policy. We would do well to give them back their original job.
The imposition of the "dual mandate" was informed by the Keynesian belief that inflation and unemployment don't mix. An economic concept known as the "Phillips curve" postulates that low levels of one cause high levels of the other. But, like many things in modern economics, the curve is a fiction. There is no real reason why low inflation would produce unemployment or full employment would create inflation.
On paper, at least, the Fed has appeared to strike the balance that Congress demands. But this is a fool's errand. The Fed's dual mandate is the equivalent of asking a corporate CEO to maximize shareholder value by giving away as many free products as possible to consumers.
The best way for the Fed to ensure maximum employment is to focus on its one true job - creating price stability. The irony of the dual mandate is that by trying to satisfy both, the Fed ensures that we will get neither.
While it is true that increases in inflation may occur concurrently with drops in unemployment, there is no logical causality that can be implied. Any correlation simply results from inflation lowering the real cost of employment. Put simply: because inflation reduces wages in real terms, employers can afford to hire more people. So it's lower wages, not inflation, that puts people to work.
Inflation does nothing to alter the structural issues that cause unemployment. Like everything else, the labor market is governed by the laws of supply and demand. High unemployment results from a wage structure that is too high relative to demand. Demand for labor is a function of productivity, or more accurately, profitability per worker. Absent higher productivity, which takes time to develop, the only way to clear the imbalance is for wages to fall. However, government and unions typically prevent this from happening. Economists describe this as wages being "sticky" on the downside.
Over-taxation and over-regulation further restrict demand and add to unemployment. On that front, one of the worst offenders is the minimum wage law. It doesn't actually raise wages for anyone, but simply renders unemployable many low-skill workers. By creating inflation, the Fed effectively lowers the minimum wage. Another cause is extended unemployment benefits. Since these payments narrow the disparity between employment and unemployment, and in some cases may even be preferable to accepting a low-paying job, workers are incentivized to reject employment opportunities that they might otherwise accept.
To get around these roadblocks, the Fed lowers the cost of labor through inflation. However, this inefficient solution to a simple problem creates negative consequences for the economy. While wages may go up with inflation, goods prices usually rise faster. The net result offers no benefit for workers. By tricking workers into accepting lower wages, the Fed allows politicians to claim meaningless victories.
In addition, wages are only one cost of employment. Even as inflation lowers real wages, other factors can work to increase employment costs. In the current environment, higher payroll taxes, new health care mandates, economic uncertainty, and the potential for even higher future taxes to fund large budget deficits are all offsetting the "benefits" of lower wages. On top of that, large current budget deficits are crowding out small business credit. The result is that employment costs are rising despite lower real wages. Taken together, these policy mistakes are creating a toxic, job-killing mix.
The other fallacy of the dual mandate is that a fully employed workforce demands higher wages, forcing business to raise prices. More employment increases the supply of goods and services. Yes, employment raises demand, but that demand is satisfied by the additional supply created by a productive economy.
Since wages are the price of labor, wages are themselves prices. To say that rising prices are caused by rising prices makes no sense. Workers cannot demand higher wages unless the increases are justified by higher productivity. If they are, such wage gains will not result in higher goods prices.
The real reason that prices rise, for both goods and wages, is that the Fed creates inflation. This policy undermines the economy by destroying both current savings and the incentives to accumulate future savings. Since savings finance capital investment, lower savings equal weaker economic growth.
So, the best way for the Fed to create maximum employment is to focus on the single mandate of price stability. While a few elected officials seem to be figuring this out, most are just as clueless as the Fed. Unfortunately, even if Congress succeeds in changing the Fed's mandate, there is not much chance that monetary policy will change significantly. Keynesian thinking is so ingrained in Bernanke and his colleagues that they will exploit any wiggle room in their directives to jump back in the driver's seat and send us ever faster toward the edge of an economic cliff.
Recap: AGNC reported earnings of $1.69 per share during third quarter 2010, compared to $1.82 in the year-earlier quarter. Excluding non-recurring items, recurring net income for the reported quarter was $1.11 per share.
First, you must understand that Boehner is a GobGop: a Good Old Boy of the Grand Old Party. The GobGops' goal is to keep the present system funded by the Bigs: Big Business, Big Pharma, Big Oil, and Big Banking. If you do not understand this, then you are as naive as a Democrat who thinks Obama speaks for The Common Man.
Boehner shilled for Hank Paulson and Goldman Sachs by begging the Republicans to vote for the $750+ billion Big Bank Bailout in 2008. Watch his emotional performance here. "We just have to do it!" No, they didn't. Ron Paul told it straight. He is no GobGop.
Boehner is going to do it again. He has already told us what he intends to do.
The obvious target is Obamacare. The Tea Party voters hate it. They regard it as an affront.
You've probably seen this. It's all over the Web. It's supposedly from Maxine, the cartoon character who speaks for geezerdom.
Let me get this straight . . . . We're going to be "gifted" with a health care planwe are forced to purchase and fined if we don't,
Which purportedly covers at least ten million more people, without adding a single new doctor,
but provides for 16,000 new IRS agents,
written by a committee whose chairman says he doesn't understand it,
passed by a Congress that didn't read it
but exempted themselves from it,
and signed by a President who smokes,
with funding administered by a treasury chief who didn't pay his taxes,
for which we'll be taxed for four years before any benefits take effect,
by a government which has already bankrupted Social Security and Medicare,
all to be overseen by a surgeon general who is obese,
and financed by a country that's broke!!!!!'What the heck could possibly go wrong?'
This is all true. Tea Party people know it's all true. They threw the rascals out . . . but left enough of them behind to sell us out.
Boehner told a Fox News interviewer what he plans to do: (1) repeal Obamacare; (2) pass another heath care law. You can see the video here. Here is a direct quote:
"This health care bill will ruin the best health care system in the world, and it will bankrupt our country. We are going to repeal ObamaCare and replace it with common sense reforms that will bring down the cost of health insurance."
Big Pharma is not threatened by this. Big Pharma will clean up either way.
If Boehner is politically savvy, he will have the Republicans introduce a repeal bill as soon as he takes over as Speaker of the House. The following will then take place.
1. A straight party vote will pass it.
2. In the Senate, the Democrats will not pass it.
3. Boehner will then begin a two-year campaign:
"The Republican Party is committed to a repeal of Obamacare. In 2012, you will have another opportunity to vote the Democrats out of power in the Senate, and give the Republicans a President who will sign this bill."
He will play to the Tea Party. He will gain their trust. He will throw down the gauntlet on health insurance from day one. He will hammer relentlessly on this for two years.
The goal here is to get the Tea Party voters into his camp. He is a GobGop. But it's obvious that he will score lots of points by doing this.
In 2012, the Republicans will take over the Senate and elect a President. It will repeal Obamacare. Then the Republican GobGops will introduce another huge bill that they promise will cut medical costs.
They will not cut spending. They will not raise taxes. They will preside over a gigantic deficit.
The pork will continue to flow.
The Tea Party people will sense betrayal. Then we will see how committed they are to getting the spending under control . . . in 2015. Too late, I think.
The sell-out is coming. It will be business as usual. The GobGops now control the House. They can posture all they want, knowing the Senate will block their token spending cuts. The GobGops will scream: "If we only controlled the Senate! If we only controlled the White House! Then we could get spending under control!" You know: the way they did under Bush.
It will make great political theater. Punch and Judy will perform a real donnybrook. A good time will be had by all.
The Bigs will get bigger. They always do.
Forward this to friends. Post it on Twitter and Facebook. The troops need to be warned what's coming.