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More from CYS Investments at KBW (previous): The speed (page 9) with which mortgage rates have...

More from CYS Investments at KBW (previous): The speed (page 9) with which mortgage rates have increased in unlike anything seen even during the financial crisis, says CEO Kevin Grant. He muses over whether Bernanke's May testimony (taper) was confused messaging or an intentional market test. The punishment inflicted on mREITs (MORT) is well-known, but don't forget: Refinance activity will crater - gain on sale windfall to banks may be over, home affordability is now diminished, banks will be pushed to Treasurys over credit risk as the ROE on government paper is now improved. Grant's talk (webcast) is one all mREIT investors will value.
Comments (25)
  • Aikman
    , contributor
    Comments (122) | Send Message
    Could anyone break it down for me why this is positive for the mReit owners (like me)? Honestly I don't understand the underlying message.
    4 Jun 2013, 09:44 AM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (543) | Send Message
    Whether recent events prove positive or not for the mREITs remains to be seen. Grant thinks it's positive (, as spreads have blown out and he's a buyer. Prepayment risk has also disappeared.
    4 Jun 2013, 09:55 AM Reply Like
  • Aikman
    , contributor
    Comments (122) | Send Message
    Thanks for your reply. Could you also share why prepayment risk has disappeared?
    4 Jun 2013, 10:09 AM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1033) | Send Message
    Because after a calamitous drop net interest margins will theoretically improve.
    4 Jun 2013, 03:30 PM Reply Like
  • youngman442002
    , contributor
    Comments (5131) | Send Message
    I think it was intentional....a shot across the see the potential damage..Bernanke has no idea how to get out of what he is doing so he tried to see what the effect would be for "tapering"....and its not good...
    4 Jun 2013, 09:50 AM Reply Like
  • Micro_Cap_Maven
    , contributor
    Comments (97) | Send Message
    Bernanke is going to begin to understand (if he doesn't already) that QE is a one-way ratchet, which cannot be undone -- the minute he tries to reverse course (or as we've seen, even hints at this) the wind comes out of the sails and unemployment numbers (etc) begin going in the opposite direction.
    4 Jun 2013, 10:01 AM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1033) | Send Message
    If that's the case logical thing to do would be to ignore the unemployment rate and reverse course slowly, with plenty of trial balloons to test market response while the Fed waits for investors to get over their panic attack and remember that higher rates don't become a factor for most investment decisions until around 4%+.
    4 Jun 2013, 03:35 PM Reply Like
  • Onegrndude
    , contributor
    Comments (44) | Send Message
    The networks are building the story, for their own benefit. Look at the Greek Crisis and the domino effect, Fiscal cliff and Sequestration, all basically non-events. Sure eventually America needs to come to a conclusion on the QE. Look beyond the CNBC hype. Now just may be a good time to buy those over sold REITs and high interest rate stocks.
    4 Jun 2013, 10:12 AM Reply Like
  • R.Fitz
    , contributor
    Comments (440) | Send Message
    I was OK with your comment -- until you said "buy".
    I agreed w/ everything before that
    4 Jun 2013, 10:38 AM Reply Like
  • geofan1
    , contributor
    Comments (3) | Send Message
    Can someone explain why mREIT is fine in a long term, thanks
    4 Jun 2013, 11:00 AM Reply Like
  • Aikman
    , contributor
    Comments (122) | Send Message
    Basically because in a rising rates environment the spread for mReits enlarges. Read this one:
    4 Jun 2013, 12:07 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
    Friedman was very clear on rate targeting by a committee: it doesn't work. Don't mess with the markets.
    4 Jun 2013, 11:47 AM Reply Like
  • Dividend Living
    , contributor
    Comments (262) | Send Message
    If Mr. Grant is responsible for todays rebound in mREIT prices, Thank you, and its about time.
    4 Jun 2013, 12:03 PM Reply Like
  • Yorick
    , contributor
    Comments (513) | Send Message
    Taper in my estimation is a both trying to set the table for action as well as to see if what happened the last 2 times the Fed tried to stop, happens again. At best, I think this summer is a sideways move until the numbers are poor enough again that "taper" is off the table. Friday's job report is shaping up as a real inflection point. If it is 200K or above, taper is on...150K or below and taper is heading off for this year.
    4 Jun 2013, 12:20 PM Reply Like
  • Charles12345
    , contributor
    Comments (120) | Send Message
    I'm on the fence....the worst place to be.
    I want to hang onto my mREITS, but the recent and rapid decline has caught me off guard... and I hesitated.
    My dividend income strategy has always been to hold on through the troughs, adding more shares to my portfolios via DRIP.... but if the downturn will be long and hard, and if dividends will decrease significantly, then I will want to get out.
    Unfortunately, my magic 8 ball is not giving me the answer!!!!
    What is the wise choice here?
    I've trimmed a bit - got rid of AGNC and cut back on CMO and NLY... and I'm still not happy with where I think things are going.
    The thing is, I do not believe we are out of the economic woods..and I don't believe interest rates are coming to a big increase any time soon...
    BUT ... I do believe we are in for a market correction, which could really damage the value of these REITS....
    Got my finger on the trigger....
    Any thoughts?
    4 Jun 2013, 12:49 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
    If you have cash to put to work and don't want to wait to deploy it, diversify in oversold sectors. If you have capital losses already in your mREIT positions, average in, but if that makes your portfolio even less diversified, that is an issue. I read two comments elsewhere on here recently posted by retired persons with all their savings in mREITs, and one or two narrow names at that. They had taken on significant capital losses (one was down 17%). Drawdowns like that are not good if you don't have extra cash to deploy to offset the losses.
    4 Jun 2013, 04:31 PM Reply Like
  • Jason Burack
    , contributor
    Comments (1728) | Send Message
    Market test. Part of the Fed's open mouth committee as they try to hedge their bets. Fed members are talking both sides. Totally full of you know what!
    4 Jun 2013, 01:34 PM Reply Like
  • jbbson
    , contributor
    Comments (737) | Send Message
    This is one of the most dramatic crashes I have ever experienced. It is a reflection of BV which is a reflection of interest rates, in this case the long side of the portfolio. The short side seems to be stable as of yesterday.


    It will take a quarter or two for the mREITS to recover. Dividend can be cut because income is down. This will help the companies by freeing cash as they flip the portfolios into the new environment.


    I don't see any way I can make these losses up as fast as I can by simply staying put. They will adjust, not disappear, imho.
    Of course I could have bought Ford at 9!
    4 Jun 2013, 01:48 PM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1033) | Send Message
    One thing most people forget is that by raising rates, the Fed is also "re-loading the gun", i.e. that rate increases which damage the economy are inevitably accompanied by slashed rate, a fiscal policy tool that is much more effective when rates are higher vs. a ZIRP environment.
    4 Jun 2013, 03:40 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
    The Fed has not raised its target rate, yet rates are rising on expectations. Some of this is due to an expectation of better economic conditions, a positive. The Fed keeps emitting pessimistic/negative signals, not good for growth. Manipulation of markets and economies doesn't work out that well. Yield curve steepening is what will bring broader economic gains - sound credit with broader ownership is what this economy needs. The Fed should not fight this positive; ZIRP and a flattened yield curve for extended periods embeds its own series of risks, including heightened interest rate risk.
    4 Jun 2013, 04:20 PM Reply Like
  • caupachow
    , contributor
    Comments (377) | Send Message
    This is only a test, in the event of a real emergency all Ben would have to do is bump the monthly QE to $185 billion.
    4 Jun 2013, 03:54 PM Reply Like
  • dhdhoora
    , contributor
    Comments (396) | Send Message


    Uh, there is not enough supply to support $185 billion /mo. Somebody is going to have to start putting the fed printing presses on overdrive -- and raising the debt limits. Me thinks this is not going to happen...


    All the very best,
    4 Jun 2013, 11:38 PM Reply Like
  • caupachow
    , contributor
    Comments (377) | Send Message
    @dhd That was sarcasm; get it "this is only a test but in the event of a real emergency...etc." yeah I guess your right, it wasn't very funny.


    On the serious side Me Thinks debt limit will be raised and to save this hyped up sinking ship QE will have to increase, NOT taper as Bald Head Ben mumbles.


    Ditto Don, All the very best with you and yours :-)
    5 Jun 2013, 12:03 AM Reply Like
  • archie2
    , contributor
    Comments (5) | Send Message
    I think most know that QE will end and will likely do so in several steps, each reducing ("tapering") the amount of buying. One way to taper without causing a rush for the exits might be to announce the reduced amount of buying on a future date, say 90 days hence, and also announce that the next "taper" would occur subsequently some addditional 90 days later if conditions warrant. This approach would also clarify that tapering and ending QE is not the same as raising rates. Hope Friday's job report is "crappy".
    5 Jun 2013, 03:13 AM Reply Like
  • wzkelley
    , contributor
    Comment (1) | Send Message
    mREITs are simply an arbitrage objective. The short term rates being pushed up while long rates remain low simply narrows the profitability. This is not something to own with principal needed in the short term. It is still a good cash flow position for the long term.
    5 Jun 2013, 09:47 AM Reply Like
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