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Strategies & Market Trends : Value Investing
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To: Wallace Rivers who wrote (7031)5/3/1999 6:20:00 PM
From: John Stichnoth  Read Replies (1) of 78915
 
Wallace and Mike. CMO might be a reasonable play, with more upside than most reits--but also with more risk. They invest in CMO's. The risk, as noted in their 10K is to changes in the yield curve. (I'm writing from memory, here, so watch out!) They have a mismatch in their funding. Assets are long term. Liabs are short. So, any flattening in the yield curve can have a strong detrimental effect on their results. Of course, vice-versa for a steeper curve. Added risk is that a general falling of the yield curve will lead to accelerated prepayments, and leave them sucking air. They will do very well with stable long term rates and falling short-term.

It's pretty well laid out in their Annual Report.
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