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American Capital Agency Corp. Message Board

  • dannylau328 dannylau328 May 28, 2013 9:34 PM Flag

    Is QE good or bad for AGNC? I'm confused!

    I have heard contradictory comments.

    Some said AGNC is falling because of the end of QE, and some said it's falling because of more QE.

    Which is correct?

    Is QE or the end of QE good or bad for AGNC?

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    • QE is bad and raising the funds rate is bad because both lower the spread. QE lowers the spread on new loans making them riskier to buy and raising the funds rate lowers the spread on old loans. Lowering the funds rate is always good for REITs. QE is never good.

    • Most people don't understand Bernake's QE twist........He's not pumping inflated dollars into the economy......he's buying debt at a lower rate..............
      Its like refi-ing a mortgage..............If you'll notice, the dollar has actually gained value since 2009.....making the foreign treasure bond holders happy

    • I agree that stocks continuing to go higher, it will eventually end up badly, but that will not be for awhile. I saw 6 or more scenarios starting after QE3 that could have crashed the market, but instead it was just an impetus for stocks to go even higher.

      Once the Dow, S&P, Russell broke out of its 10 year resistance, this is the beginning of a secular bull market, and institutions knows this (whether it was due to the Central Bankers pumping funny money can be argued in another segment). Every minor dip I noticed was only returned with buying. True, the market might have a coming correction this summer or early fall when ppl want to take their gains, but institutions with free cash will no longer put their money into Treasuries or bonds if such a correction appears. They all know bonds are a bubble ready to be popped with rising rates, and they would much rather put that money into stocks because there is nothing out there that can offer a better yield.

      Precious metals are done, bonds hardly give anything, while cash is debased. So the only alternative is stocks. Even if there is a correction, I believe it would be limited with sidelined money quickly buying it back up. The old corollary of safety trade into bonds no longer applies. The 1.3% in 10 year Treasuries is the lowest yield you and I will see in this decade.

    • The overall stock market continues to be on a high, which is likely to end badly. When it will crash is anyone's guess, but it could happen at any time. Perhaps the upcoming battle over the debt ceiling will be the trigger. When it falls, everyone will be back into treasuries and RMBS. Those that sell mREITs now will probably move their money into stocks that have not yet fallen, so they can enjoy two disasters.

    • The Fed now purchases 50% of all Agency RMBS. Imagine if the Fed stopped buying....that is what the markets fear since real estate prices are rising so rapidly. The Fed may be forced to cut off purchases right away.

      There is a good article in the WSJ. When the BOJ announced it would start buying treasury securities, prices of those securities fell and interest rates rose. That was because the BOJ's objective was to raise the inflation rate, and a higher inflation rate will cause the market to require a higher interest rate for long term bonds. So the bonds moved in exactly the opposite direction that the BOJ was expecting. Pretty smart, huh?

      Bernanke has fooled with the real estate market when it was healing on its own, chasing other investors away. Based on the price changes for Agency RMBS, AGNC lost at least $2 in book value today. Keep in mind that as the prices sink, AGNC is getting margin calls from its counterparties, so the losses are becoming permanent.

      Now do you know if QE is good?

    • Good question. Right now, the way things are, if Bernanke picks up a microphone and announces that he is going to the MEN's ROOM, the MBS and MREIT markets SELL-OFF. Read this to know the answer to your question.

      How Would The End Of The Fed's QE Affect Agency mREITs?

      Sentiment: Hold

    • If you don''t know how AGNC makes its money, then seriously you shouldn't be buying it at all. Know why you are buying it, and how it works. If you need ppl to explain to you, then you should just put that money into blue chips instead of chasing the yield.

      It's not whether QE is good or bad, it is bad when interest rates rise, and you had in your portfolio bonds that gives out lower rates, your portfolio is going to lose its value. The perception of ending QE means nobody big eenough will be able to soak up the RMBS bonds to keep their prices high. When the rates of those rise, there is a change in the spread between the long and short bonds that AGNC uses to make its profit. In order for them to give that 10+% yield, they leverage that to 8:1. So any changes in interest rates will have dramatic effect on their profitability. The drop in share price is reflecting the loss of value in their books.

      • 1 Reply to the_nerdy_guy
      • the_nerdy...
        I would suggest that when the RMBS bonds with the resulting price drop and yield increase that will result, as you point out, that the spread between short term rates and long term rates will increase, ( a steepening yield curve), which will result in increased rather decreased revenues for AGNC and all other mREITS. So it isn't because of the anticipation that the spread will tighten that is calling the sell off but the other factor you pointed out, falling asset values resulting in less margin. This will affect highly leveraged mREITS such as AGNC more than others as you also point out.

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