Let me first say I am fairly new to CIM, owned for only a few months and will be getting my first Div this month. I do have a substantial position in CIM and other mREITS (ARR & NLY). I am long and reinvest all Divs. My question is, what do folks think will be the impact on the share price once the Fed stops its interference, aka QE? Let’s assume that this will not take place for another 15-21 months from now.
Thanks for your thoughts, opinions.
When the unemployment rate gets closer to Uncle Bens target rate of 6.5% I will start to worry about it. Keep in mind there will be intense pressure from the Gov not to let interest rates climb much at all. With 16.6 trillion in debt, it will bankrupt the country.
What continues to amaze me is that there's one thing that the talking heads on CNBC believe they know for sure that interest rates will soon or eventually rise to a more "normal" level. However, none of them defend their expectations with logical arguments. Investments in plant and equipment to expand industrial production in the USA can tolerate 10 year treasury rates of 4%, and 30 year rates of 6%, but consumers can't. Since the USA economy is increasingly driven by consumer activity, the yield curve must accommodate that activity, which will begin to suffer at a 10 year treasury rate of 3%.
Low short-term interest rates will continue for a very long time. The USA has moved into a phase very similar to that which Japan entered in the late 1980's. There's a lack of opportunities to make investments in plant and equipment, which necessitates deficit spending by consumers and government to support and grow the economy. Interest rates must remain at a very low level to maintain consumer demand and increased consumer debt. Any attempt to raise interest rates even slightly will have a strong, immediate, and negative effect on the economy.
QE is a misguided attempt to alter the yield curve, and I don't expect it to survive 2013. Once it ends, interest rates at the long end of the yield curve will increase, reducing the market value of the riskier bonds held by some of the mREITs. Unfortunately, prior to QE's demise, there will be periods of fear of the consequences of an end to QE, which will cause downward pressure on mREITs, and thus increased volatility.
A long-term investor in mREITs will have to accept the volatility with the belief that high dividends and a slow rise in the book value will continue for the long term .
Yes and remember interest rates in the good old USA in 82 were around 20%....people forget they were so high back than...thats why i rented a house for ten years could not afford 18% rate on a house loan....and it can happen again....inflation has already started if you dont think so you never go to the store....
To difficult to compare a direct relationship. The real question is what happens to the economy and housing when the fed stops... what will that do to the stock market and how will that affect CIM. I feel comfortable saying I have no idea. I use CIM as a financial speculation play in my portfolio. Make sure you are diversified away from financials in case it all goes badly. GL