needs to get all necessary things in place to put AGNC on an upward trajectory as quick as possible... When AGNC is rising it means things are good for the nation...
Sentiment: Strong Buy
All the talking heads are now just as certain that taper will be delayed for several months as they were that taper would begin in September. The reason they believe taper will be delayed is that the economy is weak, and may be growing weaker. That makes for an interesting contradiction. What they're effectively saying is that Fed will delay termination of a program that's apparently not working simply because it's not working.
One thing September should have shown is that the Fed is no more predictable now than years ago, when it was not nearly as "transparent." There are many reasons to end QE, and we never know, beforehand, how the balance of opinion within the FOMC will fall at any particular meeting.
I strongly suspect that Larry Summers would have ended QE at the first opportunity, and that's why he was favored by Obama. However, Obama may have had a face to face with Yellen before the nomination and obtained a promise to discontinue monetary experiments as soon as possible. Further, Obama has to place three more governors on the FOMC in the next few months, and those individuals may actually be selected by Summers.
To the extent that the Fed is effective in lifting the economy, interest rates will rise, first long rates and then short rates. Both will be damaging to AGNC. On the other hand, if QE is ineffective but is continued, a greater amount of distortion in asset prices relative to the condition of the economy results. Such will eventually lead to another financial crisis. The real question is whether AGNC drops below $10 in 2014 or in 2015.
The Fed is mistaken in thinking they can get the economy moving at a 3% to 4% rate. Had they been correct, it would already have happened. But as they try pushing on this particular string, it creates distortion in the economy by overvaluing most assets. Such situations can continue for a long time, but invariably end badly.
QE is the only game in town. Yahoo must not like this statement because they censored it when I wrote it before. Fiscal policy is a wreck, In an optimal policy the fed could send money directly to the treasury where it could be spent. This would continue as long as unemployment was over 6%.
This would require the approval of congress of course so it will never happen.
I can't argue that the new Fed chief will not be good for AGNC in the short term as she probably will be. However I think that when most are expressing what is good for the nation the short term view is not what they are thinking about. In the short term I can buy AGNC and make money and then sell it before interest rates go up and then watch it crash and I will be unharmed. I can't sell my country before it crashes and escape harm because I live here and have no immediate plans to leave to another country. So obviously the long term view is the only relevant view in this regard. And I am not convinced that what the Fed is doing short term is going to help us long term.
A lot of people who don't pay a lot of taxes may think that the debt problem is not their problem because they don't pay a lot of taxes but if this is what they think they are wrong. As the money required to pay the interest increases then there is less money left over to spend. When the Fed debases the dollar by increasing the money supply then each dollar spent buys less. There is a cost to everyone. And the debt is now getting so large that it cannot be paid off by simply saying we will have the 1% pay for it. It is now too large for that and the 1% don’t make that much money. Either taxes will have to be raised by taxing lower income people or they will have to inflate the debt away by debasing the dollar which basically is a tax on savings accounts. Anyone who does not own things that go up with inflation like real estate will be losers. This basically hits people in retirement the hardest. So you are causing the people least able to adapt to such adverse conditions to bear the cost of winding down the debt. But then it can be argued that it was them who spent most of the money in the first place so why not? I guess it depends on how calloused you are to their hardship.