RE: Risk/Reward vol.2 Mortgage Reit THIS IS NOT ADVICE.  RELY ON NOTHING STATED HEREIN. Sent: Tuesday, June 29, 2010 4:01 PM

My two plays in this space did ok.   CIM lost about 2% but had gained in the past few days.  NLY actually went up.  ANH went down 2%.  This article paints a rosier picture than virtually any other segment.     JUNE 29, 2010, 4:11 P.M. ET REIT Gains Slow but Still Beat Stock Market Apartment Owners Jumped 11% in Second Quarter, While Residential-Mortgage Sector Revived as Treasury Yields Fell By NICK TIMIRAOS And A.D. PRUITT The bull-run by real-estate investment trusts ran out of steam during the second quarter as broader stock-market concerns, fueled by the European debt crisis, prompted investors to trim their holdings. Overall, REITS eked out gains of 0.4% in the second quarter through Tuesday, as measured by the Dow Jones Equity All REIT index. That was better than the overall stock market, which declined 6%, based on the Dow Jones Industrial Average. But the latest REIT results pale in comparison to the previous two quarters; REITS posted gains of 10% in the first quarter, and 9.4% in the fourth quarter of last year. REIT stocks have outperformed the broader stock market since last year, when investors began betting that commercial real estate would experience a strong recovery starting in 2011. Many investors were trying to get ahead of the recovery by putting money to work early. In the second quarter, roughly half of the subcategories in the DJ REIT index posted modest declines, while the rest saw modest gains. The biggest bright spots were apartment REITS, up 11%, and residential mortgage REITs, which gained 4%. Investors have long expected REITs that own apartment buildings to emerge strong from the downturn because many former homeowners have lost their homes to foreclosure and have renters again. In addition, the lack of new financing has enabled little new construction over the past two years, limiting the amount of new supply. Some of the nation's largest apartment-building landlords have reported a halt to rent declines in recent weeks, and some are even boasting of modest rent increases. While the unemployment rate remains high and shows little sign of falling, household formation could pick up as job-loss concerns ease. Amid an improving outlook for the residential sector on the West Coast, Essex Property Trust, an apartment REIT based in Palo Alto, Calif., led the market in the second quarter, gaining 15.5% for the quarter; Apartment Investment & Management Co. came in second, rising 13.8% as the company benefited from increased interest from crossover investors looking to pick up relatively cheap stocks, said Haendel St. Juste, an analyst at Keefe, Bruyette & Woods Inc. More surprising was the gain in residential-mortgage REITs, a sector that was given up for dead three years ago as numerous mortgage REITS collapsed. Falling yields on Treasury securities have given the survivors an unexpected boost. The gains in residential mortgages were led by so-called agency mortgage REITs that borrow short-term money and invest the funds in mortgage-backed securities guaranteed by government-owned titans Fannie Mae andFreddie Mac. The sector's relative strength contrasted with the first quarter, when residential mortgage REITS posted quarterly gains of 2%, the weakest of all REIT sectors. "We've had a pretty huge rally in agency MBS prices this quarter just with what's happened in the Treasury market," says Bose George, a Keefe Bruyette analyst. "It's the absolute interest-rate environment that's causing this improvement." The mortgage REITs' modest rally has been fueled by lower costs of short-term funding after the European debt crisis sparked a flight to safety in bond markets in the spring. Investors' appetite for safe assets such as government-backed mortgages also boosted the value of the firms' mortgage holdings. The sector has been led by Hatteras Financial Corp., up 15% for the quarter, and Anworth Mortgage Asset Corp., up 8%. The two biggest risks for mortgage REITs remain muted. The first is that the Federal Reserve might raise interest rates, forcing mortgage REITs to abandon their carry trade. But renewed concerns over the weakness of the economy have pushed back expectations of rate increases. "If rates stay low, these guys have a lot of room to buy assets before the Fed raises rates," says Matthew Howlett, an analyst at Macquarie Group Ltd. That would allow the firms to maintain modest dividends for longer than previously expected. The second risk is that low mortgage rates, which have fallen over the past month to 55-year lows, could spur a wave of refinancing. That would allow borrowers to pay off higher-yielding mortgages, stick