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No. of Recommendations: 12
RW,

over the past ten years people who bought NLY when below book have done very well.

I would quibble with this only in that NLY hasn't traded below book often (at all until late).

Starting in 2003, NLY traded in a range from ~1.25 to >1.5X book. At least until the fed tightening inverted the yield cure starting at the end of 2005, and through 2006. At the end of 2005, NLY traded 'at book value' $10.73), but not below. However book continued to drop into 2006, reaching a nadir at the 6/30/2006 report at $9.48/share, but the low in that quarter was $11.57 at 1.22X BV and in the quarter that followed book began to increase and the low was $12.17. In mid 2007, the yield curve returned to normal (uninverted?). As 2007 played out, book mostly improved (3 out of 4 quarters) and NLY traded normally at least 1.3X.

As the financial crisis hit in 2008 and 2009, NLY benefitted from the dropping rates response. Book value improved all but one of those 8 quarters, but at the depth of the crisis, at the end of March 2009, NLY did close the quarter for the first time below book value (95%), but with a value up to $15.6 per share.

However, since the financial crisis, NLY has traded much tighter to book value. Rarely closing a quarter much above 1.2X book and only periodically popping much above that level. So I think it reasonable, given the last 5 years, to consider jumps to 1.2X book as likely near short term highs.

Only in the quarter ending 12/31/2012 has NLY dipped below 90% of BV. I think it likely there now, but we'll see on report. While that could well be opportunistic, it is tempered by noting that BV has mostly been dropping, albeit modestly, since mid 2011. Since I consider dropping values to be a warning sign of investments that could be value traps, I would call it only a cautious opportunity.

Ralph
Helical Investor

P.S. - Pasted a copy of my spreadsheet that covers this into a google doc.
https://docs.google.com/spreadsheet/ccc?key=0AgVNmu4tg62AdG9...
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