Any thoughts on how Bernake's speech affects AGNC Friday? I'm thinking he doesn't announce QE3 because it's currently not needed. Yet, the market's been moving up today, I'm thinking it's priced in and when he doesn't announce the market drops. Does this mean AGNC goes higher as a flight to safety?
What if he does announce? Market rallys and AGNC drops? glta! Roy
Sentiment: Strong Buy
The Fed is constantly buying and selling short-term paper through its rate-setting mechanism. And it's already at near-zero interest, so buying more would imply taking that rate negative. The economy isn't anywhere near needing that.
QE3 is about long bonds. 10s and 30s and Agency paper. Buying more of those will push long-term interest rates down.
But look at what happened last week when they merely reiterated intent to resume QEs: the rates that had been rising for a month dropped back by half in days.
The market is taking care of the rate reductions that the Fed uses QE to enforce, without the Fed having to spend a dime.
Bernanke will keep his hand on the butt of his colt, but he won't unholster it. Just give the market a good, hard staring down.
Well first you have to assume he is going to do QE3, as in buy short term bonds. In which case it would just raise the whole market including AGNC, as the yield curve would widen.
What he may do, though, is buy MBSs. This would be complicating because it would open the FED up to losses and prepayments would inject money into the economy permanently. A lot of things that could determine what happens to AGNC in the long run. Things you need to pay attention to are what they are buying exactly. Will they be Agency MBSs will they be ARMs will they be HARP and so on.
If they bought the same exact thing as AGNC the Book Value would sky rocket, but the income from operations will plummet. Short term this would be amazing for us because AGNC could potentially go much higher in PPS. The long term is that AGNC would have trouble maintaining their dividend.
If he doesn't announce it I think the market won't react at all. The last 3 weeks the DOW and S&P have been flat. I actually think the market will grow regardless until November, when it will tank. Haha