Bimini Capital Management, Inc. (BMNM)

[alexander77]

"After Wednesday's beige book (available here), I am more optimistic this scenario could play out. Over the past three weeks, expectations have grown tapering could start in December or definitely March. This belief has sent yields ever higher, sending Annaly's shares (and presumably book value) ever lower. The beige book changes the calculus. The beige book read "the economy continued to expand at a modest to moderate pace." This phrasing was the same as the October report, and if the Fed was unwilling to taper then. Would it taper now?

However as I dove deeper into the report, I realized the beige book actually downgraded the Fed's assessment of the U.S. economy. The beige book used the word (or a derivation of it) "weak" 29 times, up from 18 times in October. Similarly, "strong" (and its derivations) was used 69 times down from 99 times. The strong to weak spread dropped to 40 from 81. With a more dovish Chairman taking the reins in January, tapering would seem unlikely with the Fed downgrading its assessment of the economy.

Moreover, the Fed said residential construction remained "subdued." Improving the housing market is a critical goal of quantitative easing and the mortgage bond purchases. This language makes me more inclined to believe the Fed does not see the house recovery as self-sustaining just yet. Housing, of course, is an extremely rate-sensitive asset class, and higher mortgage rates could torpedo the recovery. It is even less likely that they taper when they have concerns over housing. With rates already creeping higher, I do not see the Fed tapering purchases and letting rates soar even higher.

This beige book was the Fed's way of telling investors that tapering in December is off the table. Unless there is a noticeable acceleration in economic activity, I would start to doubt that in Janet Yellen's first meeting as chair the Fed tapers its purchases. This would suggest there is now a substantial likelihood of tapering beginning in June of 2014. This revised baseline is excellent news for Annaly and the other mREITs as the Fed's decision to push off tapering will give NLY the time it needs to adjust its portfolio to shore up book value.

I believe the Fed has said rates should rise no further and will not taper for several months. I do not expect the 10 year to consistently trade above 3% over the next four months, which will be great for Annaly. With the upside move in rates over, I do not foresee NLY book value per share dropping below $11.50, which means that shares are a steal here. Then as the Fed begins to taper and rates resume their march higher in the second half of 2014, Annaly will be perfectly positioned to add to its portfolio and increase funds from operation. Below $10, Annaly offers a great margin of safety with a likely increase in the dividend in the back half of 2014. While tax selling could pressure shares through the end of the year, I think Annaly is a buy here thanks to the dovish beige book.

Source: The Beige Book Is Bullish For Annaly"

http://seekingalpha.com/article/1879041-the-beige-book-is-bullish-for-annaly?source=yahoo