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Western Asset Mortgage Capital Corporation Message Board

  • jackhiller Nov 24, 2013 4:34 PM Flag

    $17.2 T Federal debt and climbing

    Debt growth has slowed, but our Administration is committed to policy that assures the debt will continue to increase for at least the next three years. When Greece outgrew its ability to service its debt, it could not monetize that debt to pay back with diluted currency-- but we can, and we do.

    Our high level of debt would create a servicing issue if long rates were to climb, so, whatever the Fed says or does, it will act to keep the long rates from going high while the economy is stagnant. The pressure on consumers from household debt at approx. $11.3 T and student loans at approx. $1.2 T, lack of full time job creation with the lowest rate of job participation in around 30 years, and with the large BB cohort continuing to retire and lower economic Demand as they retire-- all of these problems ensure a stagnant economy for years. We are not facing inflation, but have a risk for deflation. In fact, the Fed will have little to do with QE while the US economy and the rest of the world's economies struggle with the same long term structural economic issues

    Management of WMC said earlier this year that they expected lower long term rates toward year's end, and reiterated that expectation for lower rates going in to next year. As a consequence, WMC did not over spend on hedging as hurt the other MREIT earnings, as for example MTGE and AGNC. In contrast, WMC did modest hedging for higher rates, and kept its earnings healthy. We can expect WMC to continue to be smart about interest rate movements and keep earnings and the dividend comparatively high.

    Current yield for WMC is so high, WMC is not simply a good trade, but a good investment too.

    Sentiment: Strong Buy

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