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American Capital Agency Corp. Message Board

  • eyesandears51 eyesandears51 Nov 6, 2012 3:51 PM Flag

    MREITS Revisited: Impact of a Romney Victory?

    MREITS today are underperforming on an overall up robust stock performing day. I believe the reason is the misplaced concern that if Romney wins, the accommodative QE1......X of the Federal Reserve will be reversed. Let's take a look at the facts. The current Fed Chairman Bernanke statutorily has two years left in his term. Absent voluntary Fed Governor resignations, it will take at least that long to forcibly reshape the Fed's accommodative monetary policy. Secondly, the underlying reason for QE...X, is the lack of a fiscal policy capable of encouraging our country to regain it's historic 4% growth rate from the anemic 1.7-2.2% that we are now experiencing. Please keep in mind that the difference between the two is $ 1.2 Trillion over the time frame envisioned by Simpson-Bowles. What many are ignoring is that we can not realistically cut spending enough or increase taxes sufficiently to close the budget gap over the next decade, with a growth rate of 1.7-2.2%. Romney is well aware that 4% growth permits a compromise with a presumptive democratic senate, roughly modeled on Simpson/Bowles with a broadening and flattening of the tax base. If this is accomplished, there will be no need for QE...X. Yes over time, without QE...X, interest rates will rise to reflect the underlying cost of capital. Consequently, the MREITS cost of borrowing will increase, as will the interest rate on new or rate adjusted mortgages. MREITS make their money on the spread. There may be some disruptions during the transition, but for the reasons outlined, the process will be gradual. In summary, a Romney win may result in a short term over selling of MREITS that will self correct and provide a buying opportunity.

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