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.
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.
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.
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.
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.
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.
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.
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.
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.
The Saudi objective is, and has always been, participation by Russia in oil production controls. Oil prices are in the hands of Russia, not Saudi Arabia.
ISIS will never be brought under control without destroying the oil fields that they control. And when that is done, ISIS will begin destroying oil fields under Shia control in Iraq.
OPEC has surrendered control of the oil market to economic forces.
The time that it takes for production from existing wells to whither has been longer than generally expected. More drilling probably continued over the past year as a result of expectations for OPEC to reassert its influence, thus reducing the rate of production decline. A large contango in the futures market also contributed to higher production levels.
My guess is that players will now look toward market forces rather than depending on OPEC. Production declines in the higher cost areas are likely to accelerate. Looking at production cost estimates for crude from various sources, it appears likely that $70 oil will return within six months if only those producers with costs of over $70 will stop kidding themselves.
Keep in mind that crude oil production has never been cheap, has generally been very profitable, and must be maintained at a very high rate to satisfy existing demand. Oil prices of $40 are unsustainable for much longer, and all the countries that refused to cut production to quickly prop up prices understand that very well.
I'm very confident that ATW will survive and prosper under conditions in which crude prices are controlled by market forces, and not by OPEC. World prices will be governed by the incremental cost to produce the last barrel necessary to satisfy demand. If the market were in equilibrium today, a price of $80+ would be in effect. But it takes time for production based on legacy investments in high cost areas to tail off.
Gun ownership should be restricted to muskets, which would have been the only kind of gun referred to in the constitution.
Print media and pictures were around when the constitution was written, so the internet, which is basically another form of print media, is obviously covered by the constitution. TV is simply picture after picture, in rapid fire.
However, the second amendment talks about, "A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed." So arms are linked to the functioning of the Militia, a matter that the Supreme Court has dismissed as unimportant. So the second amendment has been rewritten by the judiciary, but unfortunately in a manner that jeopardizes the security of all.
I know more than a little bit about rayon, and I can see why JCP felt justified claiming the clothes were made from bamboo. On the other hand, something processed to the extent necessary to convert the cellulose in bamboo to rayon fiber doesn't generally claim to be made from the original material source. Dish wash detergent doesn't state that it is made from crude oil, though it is. Aspirin doesn't claim to be made from crude oil, thought it is. However, I wish the federal government was as diligent in going after financial fraud as it is with JCP.