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American Capital Agency Corp. Message Board

  • instantwinbutton instantwinbutton May 19, 2013 2:26 PM Flag

    Interest rate scare. A deeper look

    This is an little tid bit from MITT's Q1 CC.

    " Like clockwork, it seems every spring, we have a growth in interest-rate scare but the facts tell a different story. Each year at this time the government, with more complete data to work with, recalculates the job estimates it made in the previous year. What the revised figures show is not encouraging. At the beginning of 2012, jobs grew at approximately a 1.9% annual rate.

    But since then, there has been a steady erosion to roughly about 1.5% in March 2013. The employment participation rate continues to deteriorate with people exiting the workforce at roughly the same pace as people are joining. The long-term implications of this increase in structural unemployment do not bode well for our Social Security system and the deficit.

    Although, I’m painting a pretty tepid economic picture here, we do not believe that this tepid economic picture will stop the recovery in housing. We expect that housing will increase by approximately 5% to 8% this year and 3% to 4% in 2014. It will then moderate the speed of further increases because of basically stagnant personal income levels."

    Is the fed really going to be ending QE Infinity anytime soon? The answer is most likely no, not for at least 2 more years, and at least another 3 years until we see the first rate increases. So we are at least 5 years out from a shrinking spread from the bottom up. Kinda sad when you think about it... negative real interest rates and our economy is barely growing at all.

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    • Thanks for the quote, that's an excellent economic summary from WMC.

      I Listened to Dallas Fed President Fisher today, who is the most hawkish of the bunch, on CNBC this morning. He stated that MBS LSAP would only be slowed someday rather than outright ceased because ceasing altogether would be too "violent" a shock for the market. The Fed now buys the majority of new MBS production and if they continue at this pace in a few months they may be buying all new production. He was against starting MBS purchases in the first place, but now that they buy so much that they dominate that market he recognizes that sudden cessation isn't an option. Looking even further down the road Fisher is very concerned about whether an orderly unwind of the fed's balance sheet can be accomplished some day.

 
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