Tightening spreads, divergence: widening spreads in high yield versus riskless yields. What is really disturbing is that when FED does raise FED FUND rate in April - June, even 1/4% or 1%, the long term treasuries 30 year won't change much. The SPREAD COMPRESSION is going to cut dividends on M-REIT's by 50%, maybe even more dependent on the investors reaction. This could be only 2-3 months away from New Years day, be very careful. The next trauma comes when spreads tighten, (for whatever reason), which may be just around the corner. If this happens, share prices could drop 50% of agency backed REIT's in a heartbeat, almost just like May-June 2013, remember when AGNC was 33-36 and was down to $18, it was only several months.
Your right, I was looking at the wrong chart. But raising the FED FUND rate has nothing to do with what they have on their balance sheet, they don't have to mark to market just like the big banks, they can make believe they are whole. Money is flowing to Europe and China and soon Russia, as real growth is occurring their. In our economy, we are up to 49% of the working population depends on the government to support them, this is the highest of any country on earth. Hence, when you borrow that much money, the risk of default is being covered up. M1 and M2 money supply is at all time highs, and money is just sitting earning 0 percent because no one trusts the FED, no business is investing in expansion, they are only interested in manipulating their asset prices higher. As oil prices plummet, from artificial manipulation the past 6 years with low interest debt supplied by the FED, people are starting to wise up, that risk-free assets should have a lower rate, but HIGH RISK assets like stocks, high yield bonds, etc. should have a much higher rate (i.e. lower asset price). This divergence has been going on all year. You see it in defensive stocks like UTE's rising in value and yields approaching 10 yr. treasuries, because UTE's are relatively safe. M-REIT's aren't safe at all, HIGH LEVERAGE, tightening spreads, etc. Hence yield should be higher, same with oil stocks, yields should be 10% +. Exxon is still yield around 3% along with MBS, good shorts.
No. In fact the Fed Balance sheet has actually increased by almost $100 billion over the past quarter. Maturing MBS are being rolled over. Here are the numbers:
For the December 17 week, the Fed balance sheet rose $13.4 billion after rising $2.7 billion the prior week.
In the latest week, Treasury holdings increased $12.1 while mortgage-backed securities were unchanged.
Total assets for the December 17 week came in at $4.502 trillion.
Reserve Bank credit for the December 17 week gained $16.1 billion after expanding $1.8 billion the December 10 week.
Sentiment: Strong Buy
I believe they sold 1/3 of a trillion in November or early December. I don't believe it is anywhere near $4 Trillion. Your statement that FED is not allowing maturing MBS to expire, I do not think this is accurate, where did you read that, it wasn't from the FED.
The problem is that your facts do not take into account the fact that the Fed now has a $4 trillion plus balance sheet. All of your "facts" are fine but none take into consideration this fact. Unless and until the Fed's balance sheet is reduced to historical norms your legacy "facts" are completely irrelevant. The Fed has changed the paradigm and put itself into this box and it will take a very long time to unwind. And, in support of this, the Fed is not allowing their maturing MBS to expire but is rolling them over and not reducing their balance sheet. This tells you quite succinctly that they do not want rates to rise and they can "change the language" of their minutes all they want but rates are going nowhere. I expect they may do a token hike of .25% sometime in the summer and nothing more this year at best.
Sentiment: Strong Buy
Simple Simon analysis. First of all, keeping rates low is costing the FED money. You left out the M1 and M2 money supply analysis. What the FED pays on treasuries and notes is income on the M2 money supply amount. Interest Income, which is taxed at regular income tax rates for individuals and at ordinary income tax rates (higher than indiv.) by corporations, partnerships, and institutions. Work the numbers out, and raising rates actually brings more money into the FED, and the deficit is reduced. PROOF: 2013 when rates went from 1.2% on the 10 yr. treasury to 3.0% then backed off to 2.7%, the deficit went down due to more tax money coming in. YOUR OPINION IS FLAWED AND COULD DO YOU SIGNIFICANT DAMAGE.
Low interest rates or zero interest rates is costing the government net wise. They are doing this in order to help the private sector, big businesses to absorb HUGE losses from the real estate bubble and to recapitalize. This zero policy has distorted asset values and public opinion so bad, that small investors think this is good. Look at the facts, only the top 10% are profiting off this low interest policy the lower income and middle class are loosing big time. If they raise rates from 0 to 1%, it brings in 70-80 Billion in new tax revenue on the income. If they raise from 0 to 2%, they bring in 120-140 B. Back to 4% they bring in 500 Billion. which they will need as baby boomers cumulative retirements soar.
It was originally $15. Rahm backed down a notch, but reduced the implementation period. It really did its purpose, because
Costco in the Suburbs raised their minimum wage to $20, this year after the McDonald's strike. Also, McDonalds has been taken to court, and judge has ruled against McDonalds, large franchisors are considered LARGE COMPANIES, hence, franchisee's and McDonald's can be held liable for anti-employee tactics against workers trying to increase pay or get a union. It is over in Chicago, everything in the suburbs and the city is going $15-20 minimum wage this year. Some small McDonald businesses raised their wages $10 min., but they are loosing workers and employees not producing, go check out the service in a $10 and hour place, horrible and if you are a bus. owner, the looting by $10 and under is rampant. WAGE INFLATION IS HERE, THAT IS A NO-BRAINER. WAKE UP BAD OPINIONS CAN BE VERY COSTLY IN THE STOCK MARKET. I survey small, medium and large companies, everyone is raising wages and benefits, I MEAN EVERYONE. A mistake here could cost me money, but if I here someone say wage inflation is zero, THEY ARE CRAZY....Interest rates are zero, wage inflation is double digits, in the city, suburbs, etc. in Chicago.
The Fed makes $60 billion per year on the MBS spread. They borrowed the excess deposits from the banks, bought $3 trillion of MBS at 2.40%, pay the banks .25% and give the profits to the Treasury. If short rates even go to 1% banks will withdraw excess funds from the Fed or force the Fed to pay the 1%. This will cut Fed profits by $30 billion. If they rise to 2%, profits drop another $30 billion to zero. If they "normalize" the Fed rate to 3% they lose $30 billion. Or, they start selling off the MBS to pay back the banks and drive the MBS rates up to 5% - and take a huge hit on the portfolio - $trillions.. There is no way to "normalize" rates in nine months without the Fed bankrupting itself.
Sentiment: Strong Buy
I MUST AGREE. Goode for you Dr. Klumps....Fun chatin' with ya....snapper yum. My buddy has a boat and goes out of our Harbor and within' a couple hours I get a knock on the door. AAAhhh fresh black snapper and ling cod. Sometimes salmon.....or canned salmon and tuna.... home canned. He's a Nam vet disabled, got to close to the jetty a couple years back and a guy up front ended up being pulled outta the water, then died of a heart attack. Over weight like me... old. thrill seaking fishing freaks....look for yeild... but get to close to the rocks ( russia) and calamity. I see China in best spot to win. As more stable, and growth, rewarded. We still have hope, but better git wif da program...GLTY
Why is the government so far behind in modernizing and using the latest state of the art processes? This is another big bubble in America. We don't need $12,000 hammers. We don't need to sell the Chinese the Hummer Division of General Motors. We don't need 50% fraudulent medicare bills from doctors and hospitals. We don't need to waste or spend all this money and keep taxes this high on corporations and individuals. The Government Bubble can be pricked by using computers and software. Congress isn't needed. The people don't need representation, that is how George Washington developed Congress to represent the people with representatives because it was too costly and time consuming for everyone to go to Washington and be heard. NOW EVERYONE IS CONNECTED TO THE INTERNET THROUGH VARIOUS WAYS, laptop, ipad, iphone, etc. etc. etc.........when something comes up for vote, let everyone vote we don't need any representatives, the computer will tally and implement the changes.
Don't underestimate Putin.....He always wins....that is why his popularity is so high over 70% approval rating. If the DOW dropped 60% in six months and the Fedl. Treasuries went from 3.5% to over 17% in 9 mos., our Presidents popularity would decline vertically, oh wait, our Prez. popularity is already down big, it may not drop much further, because some people just vote their color not performance. But, back to Putin, WHO IS NOT STUPID, I think he is in the process of making the West look like idiots (US, Europe) and turn Russia into one of the fastest growing and most powerful country on the Globe. Right now, he is stabilizing his currency and using China currency for his peoples flight to safety, instead of US t-bills. It has been long thought about on why China does not become the worlds safe haven currency, well now it is happening. With China, you get more yield, more real growth and very little debt compared to USA or Europe. As soon as Russia's currency stabilized, capital will flow to the highest yields, resulting in lack of demand for US treasuries and higher rates. And just in time, Old people need higher yielding safe investments for their retirements.
YES, DR. KLUMPS,
the russians have declared financial war
they are paying 17 times the ROI
many bigs will shift capital
the fact that putin has seized billions from within his country may-be worrisome.
Intl. law is not very effective against commie countries. as they laugh.
Sanctions have power.....This will be interesting to watch.
I think global shifts of large capital very likely. But I wouldn't. GLTY flame
Your recipe sounds like my Louisiana, blackened corn husks which I like to do with my Louisiana blackened Red Snapper with lots of pepper and butter. I gave those descriptions of old people not driving and corn to illustrate what the 80% do. You say you live in a wealthy coastal town, small and secluded........WELL the 80% don't normally live there and follow that life style.
Your observation "I've noticed many oldsters drive all day", I see that too. I see old people, every single day, I see old people driving every day. I see old people in the stores, at the drugstores, at the prescription counters, I SEE OLD PEOPLE EVERYWHERE and there are more and more as every day goes by. WHY...DEMOGRAPHICS....not only here, around the world.....THE BABY BOOMERS are getting old, DOB 1950-1965. You have to look at cumulative aggregates and then average those totals, that is where you see the gross declines. Old people on average drive less. Old people on average eat less. Old people on average buy less clothes, shoes, almost every soft good and hard good items. Young people eat more corn than old people. You may find examples of specific towns or individual who don't, but I am talking about aggregates in the economy and averages of those aggregates.
I suspect you are using Treasury rates to determine when to take profits. This is not a good way to sell out of stocks you have gains. You can't listen to the investment media or even to elected officials and people you trust for knowledge and vision.
Example: Janet Yellen, September 2007, "One reason that risk premiums may be low is precisely because the environment is less risky....The Fed has long focused on ensuring that banks hold adequate capital and that they carefully monitor and manage risks.... As a consequence, banks are well-positioned to weather the financial turmoil."
THE LARGEST FINANCIAL AND BANK CRISIS SINCE THE GREAT DEPRESSION STRUCK IN 2008-2009, hundreds if not thousands of small banks closed, and credit availability went to zero. Lehman failed, and many large banks had to be bailed out. Mark to market had to be suspended, thus making the financial statements of a lot of companies like "ENRON's".
Rates have to be raised, not to attract buyers for the debt, but to be used as a tool to cleanse the economy of "ENRON" like companies with overpriced stock prices with very smelly financials. Plus, it will raise the rate of return on investments making it a good investment to invest in companies that make products and hire workers. Right now, with Russian stocks down 60% and interest rates over 17% on Russian Debt., smart businessmen will be going there because the ROI is way larger for the long term than here.
HEY KLUMPS, Howz it goin.....
No offense intended, I like your posts. We differ at times....but You do a lot of analysis...
but allow me to play the flip side.....OK. so as to old folks and driving....I'm old and live in a wealthy coastal town
small and secluded. I've noticed many oldsters drive all day. Every day. seriously. Dr. appt's, shopping, heck One old guy buddy, drives just to get out and about. He drives a big truck 8 mpg. He doesn't care.
So instead of working all day, he's driving ALL DAY. anyways....on to Corn.
I'm an excellent chef. I've owned restaurants...and so on...Corn is far better fresh off the cob. Old people learn to use a knife. Now just fill your sink with warm water. 1/2 cup of sugar, Throw in the corn on the cob, in the husks...SOAK 20 min. Throw directly on your flame.....THE FLAME..he he... grill or webber.....
let the husks burn a bit. but not to FLAMING....just enough....wait......blackened husks are normal...but don't cook to fast... this ain't steak. it's veggies... so moderate rate. wait....10-15 min. NOW....GRAB MOUNTAINS OF REAL BUTTER( same with lobster) and dig in...oh beware the husks should sit for about 10 min. before attack. hot hot... GLTY Klumps. FLAME
You don't have to offer a low rate to sell US debt. People use that as a safe haven. Putin was talking to the people's representatives last year, which was over 3 hours long and televised around the world. He actually talked about US treasuries and Russian Gov. treasuries (the equiv, Russian Bonds) and actually made some really "Warren Buffet" type comments. When I heard his rambling for 3 hours during question and answers, I was amazed how educated and smart in investing, economics and finance he was. I tried to envision our President, I couldn't....there is no comparison, some people don't need speech writers and can talk for hours. Others, can't talk for a few minutes without showing their ignorance.
Putin said: Russian roubles are down, but interest rates on Russian debt went up over 17% and Russian stock market is down 60% and may bottom at 70% off. The Russian people will have to temporarily get hurt on any foreign trips they make because the Ruble declined in value and inflation rose to 7% and foreign goods will cost more, BUT ALL TEMPORARILY. He urged his people to buy Russian stocks, and Russian Treasury Debt, because prices are low and nobody wants it. He quote Warren Buffets mantra "Buy when nobody wants it, and Sell when everybody is buying it". He said all this was temporary and the Russian people can make a gold mine from buying equities yield 17% or more at these low prices. He also said that people buying US treasury bonds at near 0% interest rates will be loosers in the long run. He also compared Russian stocks to US stocks, and said Russian investments will yield a lot more over the next 2-3 years than anything currently for sale in the US. In USA, the S&P and DOW are at all time highs and the treasuries can barely hold above 2% for the 10 year. I think he is right on.
Think about this scenario...... I am the U.S. government and I need to sell debt to pay my bills.
Why would I need to raise the interest rate on 10 year treasuries when there are
buyers lined up willing to accept 2% or less for my bonds?
Woulsd you sleep better at night knowing you money is invested in Russian roubles
or U.S. treasuries?
When the treasury buyers go away, then rates will have to rise to attract more
buyers. When will this happen? probably not for some time
Sentiment: Strong Buy
What if oil prices drop to $20 a barrel due to oversupply, dropping demand from around the world. Then what?
What $20 oil means.....I remember when oil was $10/barrel and under......I was 16 years old and I bought gas for my Dad's 1962 Black Starfire Oldsmobile, 425 or 450 Quadrajet V8, with the stainless steel stripe along the side for quarters. I would ask my two brothers for 2, 3 or 4 quarters for this weeks gas allowance. I would take what they gave me and put it in my leather, hand stitched coin purse I made in Boy Scouts class when I was 12 years old. I usually took out 6 - 9 quarters for a weeks worth of gas, in the mid-late 1960's, about $3.00 to $4.50 a fill-up for the week. That was about 6 - 9 gallons of gas. In those days we measured miles per gallon in MILES PER QUARTER. We only averaged 6-8 miles per quarter, we loved to burn rubber with the Starfire Rocket V8.
I believe we are headed back in time, Oil wise. This is demographics. A working person used 10,000 - 15,000 miles to commute to work or self employment per year on average. As 90 million boomers retire, they will drop to 1,000 - 1,500 miles to go grocery shopping, and non-work activities may add another 1,000 - 2,000, hence their will be a 80-90% reduction in gasoline consumption by baby boomers. I believe that is one of the major factors that is not talked about, why I don't understand, because it will lead to a tsunami like drop in demand in not only gasoline, but everything else that seniors typically reduce when they get older. Corn on the cob munching will drop along with corn on the cob prices, which we saw this year which actually led the Oil decline by 6 months. LOTS OF CHANGE COMING. Seniors do a lot less, but they also need a lot more yield to earn enough to retire comfortably. I think Yellen will raise rates for the BABY BOOMERS, she is one herself.
this is a dog. under-performer. KEEP UP THE HYPE. S $ P UP 18%. div 11% you lose 7% simple math.
Sentiment: Strong Sell
please don't ever stop. Don't be bullied peon55. Just keep right on posting. Those rude fools don't run the show. Don't be pushed away. Your posts are just as good as theirs. Yea, peon55. poster of the week AWARD !!! .....weeeeee....i love this board.