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American Capital Mortgage Investment Corp. Message Board

  • bbbmmmbbb81 bbbmmmbbb81 Jul 5, 2013 9:35 AM Flag

    Fed's forecast of future growth are far off from reality.

    For 2013 they had a very high forecast of GDP growth but the reality so far is a much lower growth (barely 2%). Again for 2014 we will probably have the same pattern. They have a high expectation of growth but the reality will be most likely different? Eventually after few years probably the forecast will be correct but not now.

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    • The Fed has been notoriously wrong in their economic forecasts. Look at their record. Growth will continue to be sluggish, so the current 10 YR yield at 2.75% is unsustainable. QE is ineffective and should be tapered immediately. Much of our current situation results from the high current account deficit that's draining spending power from our economy and sending it overseas. International trade means that economic conditions in one part of the world are communicated to all countries. The US is boosting the world economy at the same time that the rest of the world is draining strength from ours.

      If you're wondering how I came to these conclusions, the answer is that I taught economics at the college level.

    • All true, but they've put their thresh hold for raising the FFR at 6.5% unemployment regardless of how the real economy is doing. And paradoxically in terms of the real economy, the lower the labor force participation rate is the easier it is to hit that 6.5% target quickly. It's best to avoid hopeful thinking and just take them at their word, accept it, yes they will taper soon, and invest accordingly.

      How am I investing in light of this? I'm STILL buying mREITS, I bought AGNC, MTGE, and EFC today (the latter is not an mREIT). I took realized gains profits on Monday by selling PSEC and MITT on Monday, and if I hadn't I wouldn't have been willing to buy AGNC MTGE and EFC shares today on margin.

      If I accept that tapering is coming then why am I willing to buy more mREITS? Becuase the 10-2 yld curve is fantastic right now, a spread over 2% is historically rare. The spread is great and interest rate risk can be hedged. I trust management to hedge and pay keep paying divs.

    • And my understanding is that they need 3% growth to reach their goal of 7% unemployment by mid-2014 which is the unemployment level where they foresaw QE3 ending.

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