This week's Barron's has a column on how the Fed may try to raise rates. Not the usually stuff in the media that says they will magically raise the Fed funds rate and it will magically stick (because no one knows how monetary policy works, so no sense trying to explain it). The article proposes that the Fed will increase the rate it pays on reserves and then increase the amount of its reverse repos to expand to nonbanks and these actions will "pull" rates up. The article notes this has never been done before.
This should be an interesting discussion. The problem is how to get the price of something (money) measured in interest rates to increase by effecting the two components -- supply and demand. Right now there is too much supply of money (and not enough demand) so the price (rates) stay low. To increase the price,you can reduce supply. If the Fed gets banks and nonbanks to move some of their supply to the Fed in reverse repos, then theoretically there is less available supply to be lent out and the demand for that lower supply will pull rates up. But that assumes that that relationship is linear. What happens if instead of staying the same, demand reacts to the lower supply and decreases instead and rates stay the same? The Fed might then react by trying to reduce more supply. Isn't this the same exercise (in reverse) that they did with QE in which they kept printing money trying to increase demand for money? That didn't seem to work in increasing demand, but it did increase asset prices. So in theory is one of the possible results that instead of raising rates, the thing that winds up being undone is asset prices?
Gracie please weigh in.
FB is now under 20 on the slow stochastics. I've played this once before on the turn up over the 20 level and might do it again. I think this technique works best if the stock is still above the 50 dma, which FB is not.
A real shocker there. I've been saying this for several weeks. Q1 GDP was weak and would have been negative but for the inventory build. The Fed is on hold and the runup in oil will likely get reversed. Even the reaction to Apple's earnings were meh. Yes, it is still relatively cheap, but it is overowned, and the watch is not going to be a blockbuster at this point. The only difference is that the market did not interpret the Fed's dovishness with a run higher, which may mean that yes, it is a tired market. With margin usage at all-time highs, does anyone really think the market must go higher or that money is to afraid to go to some overseas markets.
They had an exec from TD Ameritrade on CNBC and he said that individuals have low balances of cash, meaning that the individual is all in on stocks. Recipe for a correction.
You also must understand how these companies came about in the first place. Most were created by a sponsor, either a C-corp company that wanted to bring about better value of its assets by putting them in this type of structure, or by a private equity company that bought assets and then put them in this type of structure.
Is it the recent spike in interest rates or the lukewarm earnings or the fact that Apple's blowout earnings can't lift the stock to more than a nominal high, nevermind the problems with their watch or their little "material" tax problem, or maybe it's just the record amount of margin. Probably nothing that a 7-10% correction can't cure.
marv, don't forget the GP of EQM which should IPO soon. Same law firms working on the IPO of TEGP.
The rate on the 10 yr has jumped to 2.05% today after Q1 GDP was reported to be almost flat. I don't get it unless the market had already priced in a slow Q1 and is now expecting growth to pick up. The Fed meets today and should put off any interest rate hike until Sept or later. Maybe that causes rates to go back down and possibly a rally in stocks.
Bob, this makes you think if this can happen to AGNC then what about all of the other stocks that pay high yields and depend on spreads? Are they all destined to revert to the mean?
I haven't looked to see what caused the recent blowup at AI but people could be missing something because they are focusing on GAAP earnings and fundamental metrics that are used to judge operating companies. AI is like an mREIT in that they own a portfolio of mortgage bonds (but the are taxed as a c corp). It attracted many investors because of the high dividend and maybe also because the GAAP financials showed that it was trading at a discount to book value. But book value is a GAAP concept and the importance of that discount may have been overweighed.
Keebon, an interesting experiment. If you have pursued that strategy for some time, it would be interesting to measure the performance of each of the groups. Maybe it doesn't prove any point since the returns wlll be highly dependent on the particular stocks in each group.and the time when they were acquired.
The other point worth repeating is that too many people focus on the present yield of a stock without incorporating the growth of the dividend and thus the increase in yield on one's cost basis.
Sarge, I saw $24-27 on one of the IPO calendars. It will pay 62 cents annually (a bit over 2% yield), which is right about in line for GP's of MLPs. No K-1.
I have had good luck with the GPs that I have bought, most noteably ETE, WGP and TRGP, although I sold WGP and TRGP last year.
No K-1 on TEGP. Even though it is structured as an LP they will elect to be treated as a corp for tax purposes. The next IPO of a GP, EQGP will issue a K-1
Now have to find when EQGP comes.
Interesting to see what he was predicting 18 months ago? Did he see the recent drop coming? Seems if he knew the supply and demand dynamics, wouldn't he have been able to predict the large drop that recently occurred? I don't know the answers, but I am always wary of any of these talking heads. $80 to 100 is quite a range (25% variance) and a big difference to the profits that companies may make.
Not to pick on Boone. We also see a lot of calls on interest rates that are almost always wrong. Who had 1.90% on the 10 year Treasury, 6 years into the recovery? Answer: No one.
SBUX has had a nice run this year and is up over 20%, but it is now at the top end of its channel and overbought. They reported last week and went higher. I would expect it to consolidate its recent gains.
SBUX has started to transform into a dividend growth stock as they have been raising their divy by big percentages and will continue to do so, but the stock is selling at a high p/e ratio.
These boards are not just about pumping one's holdings or buying and holding forever irrespective of the changing circumstances of the company or of the economy or market. There are seldom any one decision stocks which are never meant to be sold. And it's not about thinking that one can run a company better than current management. Management is paid by us shareholders and while you can't blame them for every change in the price of oil or nat gas, they are paid handsomely to manage this company and that includes making the right decisions about hedging, debt levels, the right acquisitions and operating the assets that they bought using our capital.
You say you like the company and its distribution, but do you know the risk of the distribution being continued or eliminated, or how it stakes up to other similar stocks? Many posters on this board have offered their opinions on those topics with just a bit more details than a simple opinion of liking or not liking the stock.