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Western Asset Mortgage Capital Corporation Message Board

jackhiller 74 posts  |  Last Activity: Jul 24, 2014 3:13 PM Member since: Jun 23, 2010
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  • Reply to

    Unemployment vs housing report.

    by jackhiller Jul 24, 2014 2:29 PM
    jackhiller@ymail.com jackhiller Jul 24, 2014 3:13 PM Flag

    Nick, The current financial environment is actually Goldie Locks for MREITs. Low paid foreign worker competition and job automation continue to distress manufacturing here, with new jobs being predominantly in low paid service sectors of retail and restaurants, so ZIRP, as Yellen testified, is the lesser evil than raising short rates that would raise business costs and further hurt employment. But the long rates, mortgages, while in demand by institutions, are feeling the effects of moderate inflation, so they are holding about where they are--which creates a healthy profit spread for the MREITs.

    Market action show most folks are clueless about the financial system dynamics, but improving earnings reports and dividends will educate them. In the meanwhile, WMC is nearing the bottom on its XDiv dip, with the earnings report due in a few weeks, and it ought to be very good.

    Sentiment: Strong Buy

  • jackhiller@ymail.com by jackhiller Jul 24, 2014 2:29 PM Flag

    The media paint decline in unemployment filings as an improvement on jobs, but unfortunately the new jobs are low paid, part time. If any doubt, the house buying drop confirms that the job picture has not improved, just the opposite (with the implication that ZIRP remains a Fed fixture). For those who missed the new-house-sales report:

    U.S. new home sales post biggest drop in almost a year
    Reuters July 24, 2014
    By Lucia Mutikani and Akane Otani

    WASHINGTON/NEW YORK, July 24 (Reuters) - Sales of new U.S. single-family homes fell sharply in June and the prior month's data suffered the biggest downward revision ever, casting a cloud on the housing market recovery and helping to send homebuilder stocks lower.

    The Commerce Department said on Thursday sales dropped 8.1 percent, the largest decline since July 2013, to a seasonally adjusted annual rate of 406,000 units. May's sales pace was revised to 442,000 units from a previously reported 504,000 units....

    Sentiment: Strong Buy

  • Reply to

    So much for the housing recovery

    by jackhiller Jul 17, 2014 9:06 AM
    jackhiller@ymail.com jackhiller Jul 18, 2014 3:20 PM Flag

    It's useful that you clarified your thinking. Stocks do indeed trade day to day on an apparently random basis, and at time on rumors and misinformation (such as may be found in The Street, Motley Fool, and some Seeking Alpha blogs), and so Technical Analysis may have some utility over a few days or even months.

    But it's proven by history that fundamentals drive the longer term trajectory of a stock's pricing (thus the utility of a 200 day moving average, and Value Lines multi-year graphs).

    You may feel yourself a competent day trader, but the studies of day trading by retail folks find they are on average losers.

    Best of luck with your day trading.

    Sentiment: Strong Buy

  • Reply to

    So much for the housing recovery

    by jackhiller Jul 17, 2014 9:06 AM
    jackhiller@ymail.com jackhiller Jul 17, 2014 12:34 PM Flag

    Not based on fundamentals, but trading for many unknowable reasons, such as folks scared by the headline reported drop in unemployment applications which was terribly misleading, reports that Fisher and two non-voting Fed Board members think the unemployment reduction is moving faster than expected, the drop once begun scaring those on margin for high yield to sell, mutual funds selling as some investors liquidated over concern that the market is due for a correction...

    Regardless, the fundamentals are great, and actually getting better. The reason is that, while mortgage rates have come down again, inflation, if modest, will keep them from going much lower, so the profit spread ought to be good, while book value holds firm.

    Sentiment: Strong Buy

  • Reply to

    So much for the housing recovery

    by jackhiller Jul 17, 2014 9:06 AM
    jackhiller@ymail.com jackhiller Jul 17, 2014 12:33 PM Flag

    Not based on fundamentals, but trading for many unknowable reasons, such as folks scared by the headline reported drop in unemployment applications which was terribly misleading, reports that Fisher and two non-voting Fed Board members think the unemployment reduction is moving faster than expected, the drop once begun scaring those on margin for high yield to sell, mutual funds selling as some investors liquidated over concern that the market is due for a correction...

    Regardless, the fundamentals are great, and actually getting better. The reason is that, while mortgage rates have come down again, inflation, if modest, will keep them from going much lower, so the profit spread ought to be good, while book value holds firm.

    Sentiment: Strong Buy

  • jackhiller@ymail.com jackhiller Jul 17, 2014 12:26 PM Flag

    Of course not what anyone on this mb writes--but pay attention to Yellen and the great majority of voting Fed Board members recorded in the Fed notes. Yellen explained well in her testimony concern, about the weak recovery, by referring to the U6 measure of unemployment at 12%, and by acknowledging Sen Chuck Schumer's concern that the hiring was mostly for low paid part time work replacing full time work, thus lowering consumer purchasing power and the economy.

    Regardless, look at the action in treasuries today. The ten year note has dropped to 2.48%.
    Mortgage rates are gradually adjusting lower, which is healthy for the book value of all of the MREITs who have not over-hedged against rate increases. Stock trading today is not reflecting fundamentals, but the flux of trading.

    Your posts could be better if you used facts and data instead of %$#&$. Hope for an improvement in your posting, and best of luck.

    Sentiment: Strong Buy

  • Apart from the fact that new jobs are low paid but this unhappy fact ignored by the media, this latest unemployment ins applications report was seasonally adjusted, so that an actual jump higher was converted to a drop.

    From he USDL report today: " UNADJUSTED DATA
    The advance number of actual initial claims under state programs, unadjusted, totaled 369,591 in the week ending July 12, an increase of 47,079 (or 14.6 percent) from the previous week. The seasonal factors had expected an increase of 49,945 (or 15.5 percent) from the previous week. There were 410,974 initial claims in the comparable week in 2013.
    The advance unadjusted insured unemployment rate was 1.9 percent during the week ending July 5, an increase of 0.1 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 2,557,108, an increase of 162,125 (or 6.8 percent) from the preceding week. The seasonal factors had expected an increase of 243,119 (or 10.2 percent) from the previous week. A year earlier the rate was 2.4 percent and the volume was 3,146,960. "

    Government data reporting is indeed a wondrous art and news reports swallow like a fish eating bait..

    Sentiment: Strong Buy

  • jackhiller@ymail.com by jackhiller Jul 17, 2014 9:06 AM Flag

    US home construction drops 9.3 percent in June to rate of 893,000, slowest pace in 9 months

    By Martin Crutsinger, AP Economics Writer 6 minutes ago

    " U.S. home construction fell in June to the slowest pace in nine months, a setback to hopes that housing is regaining momentum and will boost economic growth this year...."

    And the ten year note is now trading at 2.49 after the market digested Yellen's testimony. with the 30 year bond also up in value. This bodes well for WMC book value and for a much higher spread for borrowing short term to buy higher yielding MBSs than last year (rate now of 4.21% on the 30 year fixed mortgage vs last year's 3.33%).

    The earnings report due in a few weeks ought to be good, and the outlook even better.

    Sentiment: Strong Buy

  • jackhiller@ymail.com jackhiller Jul 16, 2014 7:06 PM Flag

    You need to understand what the Fed policy is to interpret these individual Fed member "warnings." The Fed has made clear as much as it can that low rates, even at the sacrifice of saver income, continue to be necessary for improving the economy in general and employment specifically.

    When asked about the accuracy of the particular labor report that the Fed typically refers to, the U3 report now at 6.1%, Yellen acknowledged that the Fed also considers the U6 report that has moved down from 14% under/unemployed to 12%, but prefers to talk more about the U3, cueing that it supports the more optimistic view-- the Fed is of course a cheerleader for recovery, not its antagonist. But the Fed takes heat from conservatives (and goldbugs) over the fact that low interest rates lead to highly leveraged arbitrage plays, such as the banks buying mid and long term yield treasuries with leverage, with the leverage creating system risk (this is of course the very business model of the MREITs). The conservatives also complain that the banks are not lending (M2 money velocity is close zero), so the banks are not creating the credit expansion from the additional funds that the Fed created with the QE program, but simply profiting from safe treasury purchases.

    Yellen explained that the Fed works to keep leveraging at a safe level by using regulations, and testing for the lenders' management . What Yellen did not explain, because every one in the financial business knows it, but the public would think the method was disingenuous, was use of warnings and threats that rates might go up sooner and faster than the public thinks. Ben Hunt has well described the use of Fed member warnings in his Epsilon Theory notes, which you can access thru a google search.

    In sum, what Fisher said was pure BS that is contradicted by the U6 data, the wage non-increase data, the fact of part time hires replacing full time, with 500K full time jobs lost when the U3 reported 288K jobs, and M2 near zero.

    Sentiment: Strong Buy

  • Bloomberg article title: Yellen Watches American Paycheck for Signals on Shadow Slack
    Google the title.

    Testimony was clear that the Fed is not about to raise rates while labor participation rate is low, wages are barely keeping up with inflation, part time jobs are not healthy for the economy even though they reduce the "unemployment" statistic and USA employers find it too easy to ship work over seas for US workers to bargain for higher wages. Thus, there is no wage-based inflation in sight. Furthermore, Yellen admitted hat the .low fed interest rates have powered stocks and commodities higher, while sacrificing income for savers, but explained that higher rates would damage the recovery, and so low rates continue to be justified. She also expressed worry about an inadequate housing recovery, so keeping mortgage rates low remains a policy objective.

    The Fed's low interest rate policy and plans to change rates cautiously, and slowly are ideal for MREIT portfolio management and good earnings. The next few years ought to be a time of MREIT prosperity.

    Sentiment: Strong Buy

  • Reply to

    Wizard of Oz has nothing on yellen

    by a0002604 Jun 18, 2014 2:48 PM
    jackhiller@ymail.com jackhiller Jul 16, 2014 4:48 AM Flag

    Mauldin just circulated a recent Lacy Hunt article that shows again that high gov debt leads to decreasing economic productivity, as gov use of income from taxes is much less productive than non-gov use; good evidence comes from Japan's multi-decade recession.

    The USA is yet better than the EC and Japan with lower debt, but is approaching their high levels of debt. His conclusion is that our economy is set for multiple years of decline as the gov debt grows, and that this makes the thirty year bond a bargain (by inference 30 year mortgages) whose interest rate will be declining as bidders seek safety from a poor economy with low inflation.

    Hunt's analysis is consistent with Bill Gross' for long bond yields moving lower over the next few years. The Fed will not raise the short rate while inflation remains relatively low and the economy performs poorly, with middle class wages declining. This creates an ideal earnings environment for the MREITs.

    Sentiment: Strong Buy

  • jackhiller@ymail.com by jackhiller Jul 15, 2014 12:28 PM Flag

    In depth awareness and concern over unemployment, with full recognition that the 6.1% unemployment statistic does not tell the whole story, such as very low job participation rate even with BB cohort retirements discounted, low wage growth at about inflation (so no wage inflation pressures), and part time vs full time a serious problem. Recognized that the jump of student debt, from the billions to now over a trillion, is an anchor on the economy hurting housing and living standards for college age workers, especially when good paying jobs are not being created, only part time at low pay.

    Recognizes measurement error and noise in the data they get, so extreme caution on shifting policy, such as raising the short rates.

    Good answer to the Q about low rates fostering bubbles and hurting savers (such as reflected in money market funds yield zilch)-- raising rates may simply do more harm than good while the economy is performing below capability and unemployment and wages are problems.

    Re the MREITs, the testimony is that interest rates are going to be managed low b y the fed, and if and when they decide to raise rates, the shift will be gradual. Not mentioned during the hearing was that higher rates would also increase the cost to the treasury for servicing the debt that is climbing toward $18 T, placing pressure for raising tax rates and hurting the economy, but this is an issue the Fed knows well.

    All in all, the testimony ought to be reassuring to the MREIT sector, as maintenance of low rates, and promise to adjust higher cautiously and slowly facilitates use of leverage and hedging for good income generation.

    Sentiment: Strong Buy

  • jackhiller@ymail.com jackhiller Jul 14, 2014 12:30 PM Flag

    rr, Low hanging fruit, the best, is from the Street. No analysis of SPO and portfolio, just backwards reference to 2013 which was hard on all the MREITs. It's interesting that each of thes three dumb recommendations (along with Zacks making the same silly mistakes) has no visible market effects, except on foolish posters.

    Sentiment: Strong Buy

  • jackhiller@ymail.com jackhiller Jul 13, 2014 9:44 AM Flag

    That over looks the levered purchase of 30 year and 20 year mortgages from the $214 SPO in early April when yield levels were higher than now, so the April portfolio addition can drive BV higher, if not over-hedged.

    Sentiment: Strong Buy

  • jackhiller@ymail.com by jackhiller Jul 13, 2014 9:12 AM Flag

    CNBC/Lewitinn: " Retailers are having problems, only this time, they don’t have cold weather to blame.

    During the first quarter of the year, retail companies were pointing fingers at the Polar Vortex, saying unusually cold weather was keeping shoppers home. But, though temperatures got warmer, retailers were still having trouble getting customers to walk through their doors.

    Bill Simon, CEO of Wal-Mart U.S., said despite improving employment data, it hasn’t translated to more sales at Walmart stores, America’s largest retail chain. Rent-A-Center says its consumers are financially constrained because of macroeconomic pressures.

    “We thought our sluggish sales were all because of weather and calendar shifts that began last November and continued into the spring, but now we’ve come to realize it’s more than weather and calendar,” said Kip Tindell, CEO of The Container Store, in a press release. “Consistent with so many of our fellow retailers, we are experiencing a retail ‘funk.’”

    According to Gina Sanchez, founder of Chantico Global, it’s the lower-end shopper who is experiencing the most difficulty, while those in the upper end aren’t feeling the same pinch.

    “Low-end consumers have continued to remain cautious,” said Sanchez, a CNBC contributor. “Wages aren’t rising fast enough to make the lowest-end consumer feel comfortable spending like crazy. However, you are hearing stories that the higher-end consumer is picking up and is starting to spend. You even heard from the CEO of Kroger’s at the end of June [say] that Kroger’s shoppers were demonstrating less cautiousness buying upscale pet food and more expensive products.”... "

    Since consumers drive this economy, this is yet another sign the economy is not growing, and inflation is not being pressured. Implication is the Fed does not have any reason to be increasing the short rates to combat inflation. In fact, raising rates would hurt consumers as businesses pass along higher costs.

    Sentiment: Strong Buy

  • jackhiller@ymail.com jackhiller Jul 12, 2014 10:50 AM Flag

    For a smart trader, your reference to the Street's nonsense analyses is surprising.

    Current trading price below BV with high yield, made safe by portfolio earnings, simply makes the stock a great buy for both trading and yield.

    Last year was bad for all of the MREITs as mortgages rates shot up on tapering fears and their hedges, keyed to the ten year note, failed to keep pace. After the first quarter this year, its become clear that the Fed tapering was well timed to have minimal market impact, as supply of USA treasuries and other sovereign debt issues are decreasing supply while demand is strong from institutional investors for safety. This demand-supply imbalance is working to keep long rates low in the absence of wage pressures on potential inflation. Dodd Franks reg implementation is also keeping banks from expanding credit, with M2 velocity near zero, so there is also no money inflation.

    Market trading price now simply reflects short term game playing by Longs and Shorts, with such game playing unrelated to fundamentals, whereas earnings performance fundamentals will, over time, guide the share price higher. In the meanwhile, the current price provides a great buying opportunity.

    Sentiment: Strong Buy

  • Reply to

    Ten year note back to 2.51%

    by jackhiller Jul 11, 2014 11:40 AM
    jackhiller@ymail.com jackhiller Jul 11, 2014 4:01 PM Flag

    Nothing wrong, just normal market trading behavior. Take MTGE as an example of another high quality MREIT. It is currently trading at approx. 90% of its last reported BV, while WMC is trading at 89%. High yield stocks sell off after XDiv date, and then recoup, or better, as the next divi approaches. But perhaps you knew that?

    Sentiment: Strong Buy

  • Reply to

    Ten year note back to 2.51%

    by jackhiller Jul 11, 2014 11:40 AM
    jackhiller@ymail.com jackhiller Jul 11, 2014 12:51 PM Flag

    reikreik, pleased to see you posting here.

    Sentiment: Strong Buy

  • Reply to

    Ten year note back to 2.51%

    by jackhiller Jul 11, 2014 11:40 AM
    jackhiller@ymail.com jackhiller Jul 11, 2014 12:23 PM Flag

    Aug ER ought show that well.

    In addition to the Fed's reinvestment, treasuries and mortgages are estimated by economists to have more demand from pension funds and insurers than supply, as gov borrowing and mortgage creation are lower. Increasing recessionary risk in the EC is also attracting US bonds for safety, as Bloomberg reports.
    Yes the fundamentals are real good, but the disinterest in buying WMC after XDiv by traders fits the usual pattern and is disregarding the improvement of fundamentals over last year.

    Sentiment: Strong Buy

  • jackhiller@ymail.com by jackhiller Jul 11, 2014 11:40 AM Flag

    From Bloomberg: " The 10-year yield fell two basis points, or 0.02 percentage point, to 2.51 percent as of 11:01 a.m. New York time, according to Bloomberg Bond Trader prices. The price of the 2.5 percent note due in May 2024 was 99 28/32.

    The yield has dropped 13 basis points this week, the most on a closing basis since the five days ended March 14, and fell to as low as 2.49 percent yesterday, the least since June 2. The move erases a 10-basis-point yield increase from last week. "

    With creeping inflation, interest rates ought not drop much more. But with the EC receding again, China growth slowing, Japan barely holding on, and employment here replacing full time jobs with part time, there is no wage pressures for inflation here or elsewhere. The M2 velocity measure also shows banks are not increasing credit formation, so there is also no money inflation pressure. Expect the mortgage rates to stay about where they are, and that's good for MREIT BV holding firm and profit spread earnings supporting dividends, and even growth..

    Sentiment: Strong Buy

WMC
13.82+0.07(+0.51%)Jul 29 4:06 PMEDT

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