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New York Mortgage Trust Inc. Message Board

  • lbreitfelder Dec 8, 2013 12:49 PM Flag

    Longer Term Perspective: What Happens After QE?

    I understand NYMT has been diversifying. That's the main reason I bought more when it took its most recent big dive. I like to think all of us have been vindicated.

    Nothing lasts forever and I am mindful that NYMT conducted business and made a profit long before QE. However I would like to ask those smarter than I am to share precisely how you think NYMT will be positioned when QE is over.

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    • I think most of the fear of tapering centers around Agency Mortgage REITs that invest in a portfolio of mortgage backed securities (MBS) that are directly or indirectly backed by the government. Although the credit risk for agency mREITs is minimal, they are highly exposed to interest rate risk; therefore the Fed's monetary policy actions are of huge significance to this sector.

      NYMT on the other hand is a hybrid mortgage REIT that acquires and manages primarily real estate related assets such as Agency ARMs, Agency Fixed Rate RMBS, Agency IOs (interest only) including TBAs, CMBS, distressed residential loans, residential securitized loans, and CLOs (collateralized loan obligations).

      The Fed is currently buying $40 billion worth agency mortgage-backed securities and $45 billion worth long-term Treasury bonds per month for a combined $85 billion stimulus per month. These are pretty huge numbers so to prevent a sudden shock to the financial world, the ending of bond buying will be very gradual; thus the term "taper" is frequently used.

      NYMT employs RiverBanc, The Midway Group, and Headlands Asset Management to provide investment management services expertise for certain specific asset classes. And of course the management team is very aware that QE will not go on forever and tapering is just around the corner. And as you say "NYMT conducted business and made a profit long before QE" of which I am in full agreement. I'm confident that as tapering begins, NYMT has a plan in place to compensate of any negative effects that may result.

      However, there will always be panic reactions from investors who do not understand the fundamentals of the securities they own. Therefore I believe as tapering begins, we will see an initial sell off. But as the panic subsides and the dust settles, things should rapidly reach a new point of equilibrium.

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