Knowing PSEC will benefit from rising interest rates inspires confidence
I do feel sorry for those poor saps that stayed in mREIT's over the past several months. I wonder when it will be safe to start back into reit's? Please chime in unless your ID starts with jade or wisejman
I now have to proclaimed xrated thief to be the DUMBEST pumper in this board. PSEC will benefit from rising interest rate? You really have a negative investment IQ. Nothing will benefit from rising interest rate, in the short term, when the whole market tanks. With such a low IQ, you should not be allowed to post. LOL
I respectfully disagree with your statement; "Nothing will benefit from rising interest rate, in the short term, when the whole market tanks", for a number of reasons:
First, if your borrowing costs are "fixed" and you are able to lend at higher rates, your Investment Income should increase as also you profits. (This is the business model used by PSEC)
Second, longer term rates are increasing at a much higher rate than short term rates, (an increasing yield curve), which will benefit many companies that make their profits from the spread between short term and long term rates. (see above)
Third, the Fed Funds rate is not the rates that have been increasing. Prime is where it has been for a couple of years or more and it is prime that is the basis for much business lending not the 10 or 30 year bonds
Forth, the rise in medium and especially longer term rates is signaling a return to "normalcy". The low rates we have experienced over the past couple of years are the exception and reflected an economy emerging from a significant recession. The reason we are coming out of the recession is because business is improving as reflected by rising interest rates. (There have been a number of articles recently about returning to "normalcy", which remind us that 4% for a 10 year bond and 6% for a 30 mortgage is not that high from a historical perspective and that businesses and the housing market can operate very well at higher medium and long term rates.)
There will be adjustments to higher rates, but to say the "market" is going to "tank" suggests that the market reflects interest rates rather than interest rates reflect the market.
A return to normalcy is not a bad thing and any dislocations that occur or adjustments that will need to be made in the process of returning to normalcy should not be feared.
I would be happy to discuss anyone or all of these reasons more fully with anyone who would like a meaningful, responsible discussion on fundamentals.
Well, I am watching the MREITS daily. When treasuriy rates rise (like today) they get clobbered. Therefore, either rates have to not rise for an extended period or MREITS have to change their business model to adapt to a rising rate envirement. Until then they are doomed.
Slick, NLY started doing what an Mreit must do which is back away from leverage, reduce portfolio exposure and risk, and reduce dividends. Over the past year NLY has reduced its quarterly from $0.60 to $0.40 and they still got clobbered having lost over 40% of their value from peak stock price a year ago. And NLY was the leader while other Mreits stood pat.
Now, all other Mreits have been hit with forced liquidations and we will soon start to see lower dividends and then stock prices will go lower because investors are still looking for a 19% yield from AGNC and will adjust stock price accordingly. Naïve investors sit on those message boards saying everything will be OK if investors settle for a 15% yield meaning a higher stock price. What these investors fail to recognize is yield is a recognition of risk of ownership and most Mreit investors that held through are down 2+ years of future dividend income.
Mreit investors missed the biggest tell ever.... when AGNC and MTGE reported horrible results at the end of q1 that was the moment I dumped all my Mreit shares. Those two Mreits signaled the end of the historic low interest rate cycle. This also happened in the 1980s with GNMA funds and individual $25K GNMA securities.
Bottom line, you have to know when to fold them, run away, and hide. As far as a new entry point goes...... my own belief is economic activity including reports of 16M annualized car sales means the ten year will work its way back to 3.5%..... it is now at 2.9%. There is a lot of pain ahead for anyone thinking we are anywhere near a re-entry point into Mreits. Personally, I think the ten year has to get to 4% over the next 12-18 months so you tell me if Mreits make sense anytime soon.
BDCs benefit from short/long spreads still because they are not forced to liquidate levered portfolios like Mreits when rates rise.