In an offering that could more than double MTGE's shares outstanding at a post-ex-date price that is nearly a dollar north of then-likely NAV, American Capital Mortgage Agency has announced its intention to sell shares under its registration mentioned by the Jaded Consumer at Seeking Alpha. The updated proposed price of the latest 1.5m share registration is $21.86, though the price is "[e]stimated solely for purposes of calculating the registration fee" rather than posing a hard limit. The recent registrations and amended registrations combine to over 11.5m shares.
MTGE's wild price range – recently past $24 – makes an ultimate issuance price hard to pin down. However, MTGE's last-published NAV was less than $21 and its last-quarter NAV increase was nearly a dollar per share – increasing shareholders' value per share 91¢ after paying an 80¢ dividend. With a 90¢ dividend about to go ex-, MTGE's NAV would be near $22.68 near quarter-end if its results were (other than the dividend increase) exactly the same this quarter as last quarter. Of course, MTGE's performance would have to decline to return the exact same result as last quarter, as it began the quarter with more invested capital this quarter than it did last quarter.
Today's close of $22.47 doesn't leave much room for above-NAV issuance if buyers are to receive a discount to market. When is this issuance, exactly?
Tuesday, March 13, 2012
Thursday, March 8, 2012
MTGE past 24
MTGE's meteoric rise – from trading at a NAV discount to trading both above its last-published NAV but also above the intended offering price filed with the SEC on February 23 (but thankfully subject to amendment) – has been stunning. The stock, which took a couple quarters of demonstrated performance to claw its way back to the IPO price of $20, just passed $24. It's been barely over half a year.
At the recently-announced dividend of 90¢ per quarter, the current price presents an annual dividend yield of about 15%, but 18% of the IPO price. Since the investment underlying each share has been growing quarterly, ACAS' ability to get MTGE to produce future income seems solid.
At the recently-announced dividend of 90¢ per quarter, the current price presents an annual dividend yield of about 15%, but 18% of the IPO price. Since the investment underlying each share has been growing quarterly, ACAS' ability to get MTGE to produce future income seems solid.
'Chrome' Exploit Windows-Only? Another Flash bug?
The headlining Pwn2Own crack suggests Chrome was cracked within a few hours of the contest's open. But was Chrome cracked at all? Just as purported Safari cracks historically included what amounted to cracks of Adobe Flash, it seems this new crack is a Windows 7 exploit, functional on 32-bit and 64-bit Windows 7 with Flash installed, but not otherwise accessible.
The real culprit may be the incomplete sandboxing of Flash under current versions of Chrome.
The real culprit may be the incomplete sandboxing of Flash under current versions of Chrome.
Tuesday, March 6, 2012
New Orleans Violence: Something In The Water?
New Orleans, frequent murder capital of the United States, is home to a well-known professional sports team. Nobody would describe American football as a gentle sport, but the Saints have been outed for taking their violence to levels inappropriate even to football. The Saints paid players a bonus when they succeeded in causing play-finishing injuries to opposing players.
Why did they pay a bounty to players injuring opponents? It turns out New Orleans fans have the same bloodlust in their sport taste as they do in their street life.
Maybe the end of the bounty is related to the larger move to stem the flow of blood in New Orleans.
Why did they pay a bounty to players injuring opponents? It turns out New Orleans fans have the same bloodlust in their sport taste as they do in their street life.
Maybe the end of the bounty is related to the larger move to stem the flow of blood in New Orleans.
Monday, March 5, 2012
Holder to U.S.: No Rule Of Law Needed
Eric Holder, who called his fellow Americans "cowards" a few years back, has no qualms about telling them they aren't entitled to what the Constitution of the United States plainly guarantees persons the government suspects of treason. The Attorney General of the United States has gone on record backing summary killings of Americans abroad under something at least as specious as the "enemy combatant" theory so lambasted when advanced by George Bush when he sought to deny due process to Guantanamo detainees.
A little background, first. The Constitution is a very short document, enumerating a small number of powers and allocating them across the three branches of the federal government and providing one mechanism for amending the Constitution (whether proposed by Congress or by a convention of the states, an amendment requires ratification by 3/4 of the states). The document grants power to Congress "[t]o define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations", but defines no crimes except treason. Treason is given a definition and a standard of proof that is very specific. To prove treason under U.S. law it is necessary to show that a defendant levied war against the United States or gave aid and comfort to the enemy, and this proof must include two witnesses to the same overt act.
For a firebrand inciting violence against the United States on the Internet, this proof is presumably within the reach of a determined prosecutor: one would presumably gather a couple of readers familiar with the traitor's works to testify – for example – that the works were really his, were consistent with his body of work, that the traitor had taken credit for them, and that the exhibit before the court (exhorting violence against the United States) is a true and correct copy of the defendant's work. In the United States, a defendant has a right against self-incrimination (in the Fifth Amendment), but there exist jurisdictions in the United States in which a trial in absentia is permitted. Surely effort to murder United States citizens in attacks abroad and aimed at the homeland could become subjects of trials in which genuine effort is made to satisfy due process – if through no other method than ensuring public oversight of the decision to kill in the name of the law.
But not for Eric Holder. Today, Eric Holder blatantly said that when a federal agency suspects an American living abroad of plotting to kill Americans, it is A-OK to kill them without trial. His conclusion that government-backed killings under these conditions "would be lawful" without trial is simply mind-boggling.
Has he read the Constitution he's supposedly there to uphold? Has his Commander-in-Chief?
There's a way to do this, and it's got to comport with our written law if the rule of law is to have meaning. Instead, what we get are circular explanations why treason executions are okay without treason proof or even a trial:
Killing an American abroad in an attack against some other war target – like an training camp or communications center identified by intelligence assets during a time of war – raises no special legal bar. The (possibly posthumous) discovery that enemy combatant casualties included a U.S. national is quite different, however, than having CIA contractors fly an attack drone outside of the combat zone of an undeclared war to deliberately pick out a specific target American from among civilians in a community because the target American is accused – on however convincing a pile of evidence – of being a traitor. Treason has a standard of proof, and criminal defendants have well-defined rights, and the United States purports to be a nation led by the rule of law.
When we lose the law, we lose the rights the law purports to protect, and our freedoms cease being priceless because they become for sale at the price of our next election.
(Bonus question: does anyone have a line on whether Eric Holder was ever involved in an effort to prevent an Eastern Bloc defector from obtaining a jury trial after he arrived in the West, and was to be prosecuted for skyjacking (his escape method)? I heard a story along these lines and have become interested in whether there's any veracity to it.)
A little background, first. The Constitution is a very short document, enumerating a small number of powers and allocating them across the three branches of the federal government and providing one mechanism for amending the Constitution (whether proposed by Congress or by a convention of the states, an amendment requires ratification by 3/4 of the states). The document grants power to Congress "[t]o define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations", but defines no crimes except treason. Treason is given a definition and a standard of proof that is very specific. To prove treason under U.S. law it is necessary to show that a defendant levied war against the United States or gave aid and comfort to the enemy, and this proof must include two witnesses to the same overt act.
For a firebrand inciting violence against the United States on the Internet, this proof is presumably within the reach of a determined prosecutor: one would presumably gather a couple of readers familiar with the traitor's works to testify – for example – that the works were really his, were consistent with his body of work, that the traitor had taken credit for them, and that the exhibit before the court (exhorting violence against the United States) is a true and correct copy of the defendant's work. In the United States, a defendant has a right against self-incrimination (in the Fifth Amendment), but there exist jurisdictions in the United States in which a trial in absentia is permitted. Surely effort to murder United States citizens in attacks abroad and aimed at the homeland could become subjects of trials in which genuine effort is made to satisfy due process – if through no other method than ensuring public oversight of the decision to kill in the name of the law.
But not for Eric Holder. Today, Eric Holder blatantly said that when a federal agency suspects an American living abroad of plotting to kill Americans, it is A-OK to kill them without trial. His conclusion that government-backed killings under these conditions "would be lawful" without trial is simply mind-boggling.
Has he read the Constitution he's supposedly there to uphold? Has his Commander-in-Chief?
There's a way to do this, and it's got to comport with our written law if the rule of law is to have meaning. Instead, what we get are circular explanations why treason executions are okay without treason proof or even a trial:
"Some have called such operations 'assassinations.' They are not, and the use of that loaded term is misplaced," [Holder] said. "Assassination are unlawful killings," while killings under the conditions he outlined would be lawful.The "conditions" seem designed to invoke something like a self-defense defense to the unlawful execution claim, as they turn on a decision by some unknown non-juror working for the government deciding "that the individual poses an imminent threat of violent attack against America[.]" Another condition is circular: a federal agency determination that "the operation would be conducted within the principles of the law of war" assumes that federal bureaucrats are able to determine that the suspect is a member of an enemy body with which the United States is at war, without actually trying the target for treason. Yet, determining that the individual is levying war against the United States is the very essence of treason under U.S. law.
"Holder: Not 'assassination' to target Americans in terror hunt" by Terry Frieden
Killing an American abroad in an attack against some other war target – like an training camp or communications center identified by intelligence assets during a time of war – raises no special legal bar. The (possibly posthumous) discovery that enemy combatant casualties included a U.S. national is quite different, however, than having CIA contractors fly an attack drone outside of the combat zone of an undeclared war to deliberately pick out a specific target American from among civilians in a community because the target American is accused – on however convincing a pile of evidence – of being a traitor. Treason has a standard of proof, and criminal defendants have well-defined rights, and the United States purports to be a nation led by the rule of law.
When we lose the law, we lose the rights the law purports to protect, and our freedoms cease being priceless because they become for sale at the price of our next election.
(Bonus question: does anyone have a line on whether Eric Holder was ever involved in an effort to prevent an Eastern Bloc defector from obtaining a jury trial after he arrived in the West, and was to be prosecuted for skyjacking (his escape method)? I heard a story along these lines and have become interested in whether there's any veracity to it.)
Apollo Investment vs. Berkshire Hathaway: A Response
A comment at Seeking Alpha to Why I Sold Apollo Investment - Part III seems to invite a whole article in response.
OJL13 wrote (and here I paraphrase) that at Berkshire's high price for Class B shares, small investors can afford few shares, which stand little chance of outperforming Apollo when Apollo actually pays a dividend.
When I first noticed Berkshire Hathaway in the early 1980s, it was trading at $3,850 a share and doing an outstanding job of making money. I was attracted, but thought then as OJL13 does now: how many could I expect to buy? What was worse, commissions in the early '80s were in the hundreds of dollars, and there were penalties for what they called "odd-lot" trading – that is, buying or selling a share count not divisible by a "round lot" of 100. So I didn't buy. Shortly after, a news story covered its hitting the $4,000 mark. But what's $150 out of $3,850, right? Not even enough to pay a commission. (At least, in the early '80s)
Fast forward a bit. Those once-$4k shares (now referred to as the Class A shares) have a book value per share of about $100k, and trade above book. A new Class B share – which danced with $4k itself a few years back before a 50:1 split – now allows investors to buy near $80 per slice. And today, that purchase is pretty cheap: buy/sell transactions can now be accomplished at a broker of your choice for under $10 each, at any share count. The odd-lot penalty is dead.
Now, the investor's real questions are:
Investors' choice is simple: will management will make more money with after-tax earnings, or will an investor make more money with what will be left of the after-tax earnings after the investor then pays taxes on receipt of a dividend? If management can make more money with the earnings, investors want management to retain the earnings to provide investors not only the benefit of carefully-selected management (why else would an investor buy?), but the benefit of avoiding avoidable double-taxation required upon payment/receipt of the dividends. Dividends make sense in circumstances such as when (a) a tax-pass-through structure makes double-taxation avoidable if some dividend-payment test is met (e.g., the 90% distribution requirement of RICs like Apollo Investment and REITs like AGNC and MTGE), or (b) management can't think of anything more productive to do with the earnings than you can.
I think that the comparison of AINV against lower-overhead leveraged debt investments such as AGNC and MTGE shows that AINV isn't the best place to put money. Over the last year, the market has agreed:
Losing over 40% of investors' share price (to about $7) is not a small price to pay for a dividend that's been cut to $0.20 per quarter (~11% of the remaining $7 share price). This performance was lambasted not long ago by Selena Maranjian, who singled out AINV among high-paying stocks whose equity decay rendered investment pound-foolish.
Unless there is some underlying reason AINV should be thought erroneously undervalued by the market, AINV is a sell. Period. Its expensive management is producing net losses for shareholders, with no remedy in sight. The only question is where to invest sale proceeds. So, let's have a look at the Berkshire Hathaway Class B shares over the last year:
As discussed in Why I Sold Apollo Investment, Part III, Berkshire turned in this blah-looking share price performance while beating the S&P 500 in book value per share growth and acquiring outstanding companies with terrifically growing – and in 2011, record-setting – operating earnings. Berkshire's price is an erroneous undervaluation of its true value. Apollo's assets per share and dividend have – as discussed in Part I of the series – declined awfully over the period. The fact that Apollo's management is charging a huge fee to produce subpar results explains why it's a sell, whereas Berkshire's outstanding returns coupled with its paradoxial price decline explains why it's a buy. Of course, maybe it's not a buy for you. A near-term investment horizon would, for example, make it hard to sit patiently waiting for the market to properly value derivatives whose true value may remain a puzzle until the last of them expire in the late 2020s.
In a tax-deferred account, I've suggested MTGE as a replacement for AINV as a leveraged debt investment. American Capital Mortgage Investment shares the tax-efficiency of a tax-pass-through structure, and in a tax-deferred account this allows reinvestment without the irritation of taxes nibbling at one's reinvesting annual returns. In a regular (taxable) account, some investors will find their tax burden (as low as 0%, depending how broke one is and what tax credits and deductions are available in a given year) to be lower than that of corporations (35%), providing a diluted version of the same benefit.
In a taxable account, Berkshire's post-tax results are hard to beat for long periods of time, and the company has some real basis for a conclusion it is undervalued. Maybe not as undervalued as ACAS (manager of AGNC and MTGE), but that's a different article. As discussed in the original article, the Berkshire recommendation is based on (a) free leverage, (b) equity exposure, and (c) mispriced assets (the derivatives, float, and tax liabilities are all systematically overstated by GAAP in comparison to their real present value as liabilities). It is also based on something seemingly utterly absent at Apollo, which is quality management.
OJL13 wrote (and here I paraphrase) that at Berkshire's high price for Class B shares, small investors can afford few shares, which stand little chance of outperforming Apollo when Apollo actually pays a dividend.
When I first noticed Berkshire Hathaway in the early 1980s, it was trading at $3,850 a share and doing an outstanding job of making money. I was attracted, but thought then as OJL13 does now: how many could I expect to buy? What was worse, commissions in the early '80s were in the hundreds of dollars, and there were penalties for what they called "odd-lot" trading – that is, buying or selling a share count not divisible by a "round lot" of 100. So I didn't buy. Shortly after, a news story covered its hitting the $4,000 mark. But what's $150 out of $3,850, right? Not even enough to pay a commission. (At least, in the early '80s)
Fast forward a bit. Those once-$4k shares (now referred to as the Class A shares) have a book value per share of about $100k, and trade above book. A new Class B share – which danced with $4k itself a few years back before a 50:1 split – now allows investors to buy near $80 per slice. And today, that purchase is pretty cheap: buy/sell transactions can now be accomplished at a broker of your choice for under $10 each, at any share count. The odd-lot penalty is dead.
Now, the investor's real questions are:
- Does the investor require liquidity (currently spendable money) that you don't want to realize by selling a partial stake?
- Does the investor desire immediate taxation on dividends paid by a company losing share value that can result in a tax deduction only in the future, at some hypothetical and potentially distant point of exit? (And does the investor intend risking lowered returns as net assets per share dwindle?)
- Does the investor believe that Apollo's management can produce a return – net of its high fees – that beat those of Apollo's alternatives? And here one notes that Apollo's alternatives include Berkshire, which is making broad leveraged bets (using both long-term derivatives and interest-free "float") in favor of the U.S. economy with a back-office overhead of only 24 employees, and is not saddled with an expensive external manager.
Investors' choice is simple: will management will make more money with after-tax earnings, or will an investor make more money with what will be left of the after-tax earnings after the investor then pays taxes on receipt of a dividend? If management can make more money with the earnings, investors want management to retain the earnings to provide investors not only the benefit of carefully-selected management (why else would an investor buy?), but the benefit of avoiding avoidable double-taxation required upon payment/receipt of the dividends. Dividends make sense in circumstances such as when (a) a tax-pass-through structure makes double-taxation avoidable if some dividend-payment test is met (e.g., the 90% distribution requirement of RICs like Apollo Investment and REITs like AGNC and MTGE), or (b) management can't think of anything more productive to do with the earnings than you can.
I think that the comparison of AINV against lower-overhead leveraged debt investments such as AGNC and MTGE shows that AINV isn't the best place to put money. Over the last year, the market has agreed:
Losing over 40% of investors' share price (to about $7) is not a small price to pay for a dividend that's been cut to $0.20 per quarter (~11% of the remaining $7 share price). This performance was lambasted not long ago by Selena Maranjian, who singled out AINV among high-paying stocks whose equity decay rendered investment pound-foolish.Unless there is some underlying reason AINV should be thought erroneously undervalued by the market, AINV is a sell. Period. Its expensive management is producing net losses for shareholders, with no remedy in sight. The only question is where to invest sale proceeds. So, let's have a look at the Berkshire Hathaway Class B shares over the last year:
As discussed in Why I Sold Apollo Investment, Part III, Berkshire turned in this blah-looking share price performance while beating the S&P 500 in book value per share growth and acquiring outstanding companies with terrifically growing – and in 2011, record-setting – operating earnings. Berkshire's price is an erroneous undervaluation of its true value. Apollo's assets per share and dividend have – as discussed in Part I of the series – declined awfully over the period. The fact that Apollo's management is charging a huge fee to produce subpar results explains why it's a sell, whereas Berkshire's outstanding returns coupled with its paradoxial price decline explains why it's a buy. Of course, maybe it's not a buy for you. A near-term investment horizon would, for example, make it hard to sit patiently waiting for the market to properly value derivatives whose true value may remain a puzzle until the last of them expire in the late 2020s.
In a tax-deferred account, I've suggested MTGE as a replacement for AINV as a leveraged debt investment. American Capital Mortgage Investment shares the tax-efficiency of a tax-pass-through structure, and in a tax-deferred account this allows reinvestment without the irritation of taxes nibbling at one's reinvesting annual returns. In a regular (taxable) account, some investors will find their tax burden (as low as 0%, depending how broke one is and what tax credits and deductions are available in a given year) to be lower than that of corporations (35%), providing a diluted version of the same benefit.
In a taxable account, Berkshire's post-tax results are hard to beat for long periods of time, and the company has some real basis for a conclusion it is undervalued. Maybe not as undervalued as ACAS (manager of AGNC and MTGE), but that's a different article. As discussed in the original article, the Berkshire recommendation is based on (a) free leverage, (b) equity exposure, and (c) mispriced assets (the derivatives, float, and tax liabilities are all systematically overstated by GAAP in comparison to their real present value as liabilities). It is also based on something seemingly utterly absent at Apollo, which is quality management.
Saturday, March 3, 2012
Apple's Enterprise Push Gets Government Momentum
Despite reports that the Air Force had backed off an iPad deal, that branch of U.S. military awarded a $9.36 million contract to Executive Technology Inc. to supply up to WiFi-equipped 18,000 iPad 2 devices. The Air Force will use iPads to replace paper flight manuals, checklists, and log books in the manner approved last year by the Federal Aviation Administration for commercial airlines. The Air Force move places it in the footsteps of existing adopters of iPads for this purpose at the commercial airlines Alaska, American and United. The article on Alaska Air's deployment suggested that some customers would use the iPad to replace as much as seventy (70) pounds of paper manuals and charts, presumably a source of fuel savings on flights that would charge customers a small fortune to add a 70-pound bag to every leg of every flight. Other commercial aircraft have tested the iPad, and the ultimate extent of eventual deployment remains unknown.
Thousands of pages of paper will be replaced with a searchable, more easily-carried, easily-updated, and much more lightweight tablet. If this proves a positive value proposition at commercial airlines and in the military, Apple's push to become the backbone of next-generation textbooks may have real potential even without dramatically revamping the content of the books to include multimedia experiences and user feedback.
The Air Force deployment follows U.S. government deployments of iOS by the National Oceanic and Atmospheric Administration and the Bureau of Alcohol Tobacco and Firearms (both to adopt iPhones to replace previously-standard Blackberry devices). The U.S. Forest Service and the Bureau of Land Management are known to be evaluating iPads as replacements for notebook computers. Foreign government iPad adoption has been noted. Commercial deployments have moved beyond evaluation and testing: in an unusually pro-Apple move, MS-Windows shop Halliburton is dumping Blackberry for iOS. Halliburton historically had 4,500 Blackberry-wielding employees. Over the next few years, all these Blackberry devices and their server infrastructure will be replaced with Apple products.
This large-scale move to iOS in government and enterprise has created an environment in which users will experience that they can share documents and conduct business without needing Microsoft Office, which is not available for iOS devices. With this knowledge, will Office's lock-in endure as well as if it did while users everywhere could buy MS-Office and thus never learn they could work without it? The trend also raises questions about the relative competitiveness of various hardware makers in selling hardware into enterprise.
A Jaded Consumer article submitted to Seeking Alpha explores pro-Apple trends in government and enterprise as the basis for a long/short trade to bet on what appears to be a tectonic shift underway in enterprise mobile technology. (The article Apple: The Long and the Short of It went live Monday 3/5.)
Thousands of pages of paper will be replaced with a searchable, more easily-carried, easily-updated, and much more lightweight tablet. If this proves a positive value proposition at commercial airlines and in the military, Apple's push to become the backbone of next-generation textbooks may have real potential even without dramatically revamping the content of the books to include multimedia experiences and user feedback.
The Air Force deployment follows U.S. government deployments of iOS by the National Oceanic and Atmospheric Administration and the Bureau of Alcohol Tobacco and Firearms (both to adopt iPhones to replace previously-standard Blackberry devices). The U.S. Forest Service and the Bureau of Land Management are known to be evaluating iPads as replacements for notebook computers. Foreign government iPad adoption has been noted. Commercial deployments have moved beyond evaluation and testing: in an unusually pro-Apple move, MS-Windows shop Halliburton is dumping Blackberry for iOS. Halliburton historically had 4,500 Blackberry-wielding employees. Over the next few years, all these Blackberry devices and their server infrastructure will be replaced with Apple products.
This large-scale move to iOS in government and enterprise has created an environment in which users will experience that they can share documents and conduct business without needing Microsoft Office, which is not available for iOS devices. With this knowledge, will Office's lock-in endure as well as if it did while users everywhere could buy MS-Office and thus never learn they could work without it? The trend also raises questions about the relative competitiveness of various hardware makers in selling hardware into enterprise.
A Jaded Consumer article submitted to Seeking Alpha explores pro-Apple trends in government and enterprise as the basis for a long/short trade to bet on what appears to be a tectonic shift underway in enterprise mobile technology. (The article Apple: The Long and the Short of It went live Monday 3/5.)
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