The more stock they buy back, the more profitable for stockholders. If they buy back everything and dissolve the company, it would be great for stockholders, but pretty bad for the management staff. That's why they don't ramp up buybacks.
There's always noise in the data, so you should look at a running average.
Over two trillion of excess reserves means there's a great deal of money to purchase longer dated securities. Any uptick in government insured MBS caused by a Fed rate increase could be met with buying, flattening the yield curve. This would compress the net interest margin enjoyed by mREITs, making them less profitable. There's a reason that AGNC, which has previously been exclusively invested in government backed securities, is now moving into uninsured MBS.
MREITs perform well when rates are dropping. Short money to finance MBS is available at a lower rate, and the MBS increase in value due to the drop in rates.
When rates are heading up, it all gets bad. Higher long rates mean that the MBS currently held drop in value. Short money to finance the MBS becomes more expensive, narrowing the net interest margin. Keep in mind that when long rates increase, the mREITs do not benefit because they are already maxed out on securities, so have to live with the low rates paid by their inventory. Low rate MBS can only be replaced with higher rate MBS over a long period of time.
As the USA entered the great recession, shoppers migrated to Walmart to make their money go farther. Walmart stock climbed as a result. The same thing seems to be happening now with respect to Macy/Nordstrom, and retailers generally considered to have lower overall prices, such as JCP.
Bernanke was in the chair for almost two years when the GR began to appear. It took him months to realize there was anything wrong. Crediting Bernanke with a recovery is like crediting the arson for putting out the fire. He was, unquestionably, the worst, most ignorant, Fed chair in the last fifty years.
The markets now must live with the hangover of three episodes of QE, leaving behind over two trillion dollars of excess reserves. This has the potential to destabilize the markets because it adds a dimension of variability which weakens the Fed's ability to control the money supply. The Fed needs some training in process control theory.
Oil prices are determined by market interventions and politics. In the event that Russia decides to play ball with Saudi Arabia, prices will rise. If they continue their conflict, prices will drop.
Yellen's credibility is on the line in December. Failure to raise will be viewed as just another "wolf" cry. An actual raise will be met by a sliding economy in 2016, and accusations of bad judgement.
By the time we reach the end of 2016, the short rate will be essentially zero, and the 10YR will be at 1.8%. The mREITs will be hard pressed to maintain a net interest margin of 1%, but we should be at the bottom, and MORL will be a reasonable investment.
As data continues to pile in ahead of the next Fed meeting, the chances of an increase will move toward 50%. MREITs will continue to purchase expensive hedges, not knowing what the Fed will do, which will continue to depress operating earnings.
The most truly unfortunate aspect of this is that the Fed is completely wrong regarding its view of the economy, and is destroying mREITs in the process. Since we are truly in a world economy, the USA can not possibly tighten the supply of labor and capital resources sufficient to encourage inflation. All this rise will do is to raise the value of the dollar, making USA products more expensive, reducing exports, increasing imports, and throwing more people out of work. There will only be one rate increase because the folly of the Fed thinking will become immediately apparent.
Unfortunately, poor economic conditions are first expressed in long rates, so the 10 yr will begin to drop, and fall below 2% within a few months of the increase. MREIT book values will increase, but net interest margins will drop, reducing operating earnings. At that point, MORL will have dropped below $10.
The business models of all the mREITs that are reflected in MORL will under perform during the current phase of the economic cycle. It always happens, without exception. MORL will likely go below $10 before this is over. When the stock price and book price begin to move toward each other, it will be time to buy. But that is probably at least a year off.
Fracked hydrocarbons are less CO2 producing per BTU than oil from the tar sands because they have a much larger percentage of light ends. Coal should also be avoided in favor of oil. If global warming is the concern, our energy needs should be met with gas and oil until renewables are available in sufficient quantity.
MREITs are heading into a perfect storm. Increased short rates combined with a loss in book by virtue of increased long rates are going to trash the income statements and balance sheets. Today's employment report was a disaster for those companies that rely on borrowing short and lending long to make money.
A price for MORL below $10 is looking quite likely.
Inflation will remain very low for the foreseeable future, at least 20 years. Inflation results from employment of additional resources at diminishing returns, which is impossible under conditions that exist today. As soon as workers in Peoria request a raise, production moves to Shanghai or Taiwan. Five or ten years from now, India will become a more important factor in world production. After India, it will be all of Africa. Until resources throughout the world are fully utilized, inflation is impossible.
The Federal Reserve is clueless. Long rates remain low because of the abundant amounts of money available to invest long, but few opportunities to do so. A perfect storm is created for AGNC due to pressure to raise short rates, creating a margin squeeze for all that rely on lending long and borrowing short. Just the threat of an increase in rates increases the cost of hedges to AGNC.
Doubtful. OPEC would have to alter their strategy. However, Saudi Arabia is having some minor, internal political difficulties. If such became worse, a change could suddenly occur.
The bonds are unsecured. If SD goes into BK, unsecured bonds will not recover 100%, but much less. During the period of 2009 untill 2011, many companies which had a negative common equity and bonds selling for 25% of par recovered successfully without BK.