Markets start to fall in earnest as the reality of a tapering and then ending in QE sinks in -...

Markets start to fall in earnest as the reality of a tapering and then ending in QE sinks in - even as the chairman is at pains to prove it's anything but a tightening move. The DJIA (DIA -0.8%) is off 145 points as the 10-year Treasury yield soars 15 bps to 2.33%, its highest level in 2 years. Reversing sizable early gains is the mREIT sector (REM -2.3%) - a leveraged holder of the paper the Fed will no longer be buying - with American Capital (AGNC -2%), (MTGE -1.5%), Annaly (NLY -2.2%), Invesco (IVR -2.5%), Two Harbors (TWO -3.5%), and Anworth (ANH -2.2%) leading the way. The greenback (UUP +0.9%) continues to fly higher.

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Comments (21)
  • tstreet
    , contributor
    Comments (1035) | Send Message
    So much for the morning bounce for AGNC due to their higher than expected dividend.
    19 Jun 2013, 03:16 PM Reply Like
  • SOAT
    , contributor
    Comments (27) | Send Message
    just another piece of evidence that market is so irrational.
    19 Jun 2013, 03:18 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2862) | Send Message
    $AGNC $NLY $CYS $WMC "a strong majority" of Fed officials now believe the Fed won't sell MBS as they normalize policy - WSJ


    Fed is still buying MBS, and won't sell them. Should be good for the mREITs business over the long term.
    19 Jun 2013, 03:19 PM Reply Like
  • SivBum
    , contributor
    Comments (2710) | Send Message
    Fed is still buying MBS but tapering by Q4 and end in mid-2014. Think REITs are bad, home builders are whacked.
    19 Jun 2013, 03:26 PM Reply Like
  • june1234
    , contributor
    Comments (4350) | Send Message
    Fed might not. Market participants are dumping em. Nobody wants em but the Fed
    19 Jun 2013, 04:31 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1571) | Send Message
    Too many wanna be Soroses out there trying to play the Fed. People should realize that if you drive up the dollar then the Fed will just keep the stimulus going and will not taper. Or, in other words, if everyone bets on tapering, tapering is unlikely to happen. There is no way to win this game.


    I know it is much easier to just sit back and bloviate about monetary policy than go through the hard detailed work of evaluating individual investments. I know that because so many SA contributors choose the former path. But, again, it is with individual investments that you will make money.
    19 Jun 2013, 03:27 PM Reply Like
  • pi-muon
    , contributor
    Comments (49) | Send Message
    Two weeks ago mreits were going down because tapering was coming, now they are going down because tapering is not coming soon. Fear and greed will make you loose.
    19 Jun 2013, 03:40 PM Reply Like
  • jlynchslu
    , contributor
    Comments (14) | Send Message
    If I remember right, did not MREIT owners sell when the FED announced it would began buying MBS? Now they are selling because the FED is talking about cutting back on these purchases? Does tampering not just take us back to where we were before they started QE infinity? Does anyone else think that too many MREIT owners are just plain afraid based on fear and not logic or facts?
    20 Jun 2013, 01:33 AM Reply Like
  • CzechMale
    , contributor
    Comments (32) | Send Message
    AGNC is fine, just have a look at the chart since inception, and at their quaterly dividends. They oscillated between $0.85 (Q1/2009) and $1.50 (Q2/2009). We are now at $1.05. Considering the current ultra-loose monetary policy will gradually come to an end and the rates start rising, the dividend can still go lower. However, even if it is cut in half, with current market price we would be getting approx. 8.5% yield per annum.
    Now, AGNC's goal is not just pay quaterly dividends, but also increase book value over time. Again, look at the chart, it tells me this investment may be volatile, but also quite a reliable source of quaterly income.
    In a worst case scenario, AGNC will be forced to continue cutting the dividend. However, the share price would continue plunging if that was to happen. If you believe, as I do, that AGNC is a good long-term bet, you can buy the other half of AGNC shares later, after the possible drop in price. If there is no significant drop in share price, you will do fine with AGNC over the long term and grow your wealth.
    It is not that Fed will plunge this industry, on the contrary, the Fed will listen. If there is something the Fed doesn't want to see, it is destroying investing public's savings. Enough harm has already been done by QE unlimited, right? Well, even this can prove to be exaggerated, if other countries do the same, ie QE. Like Eurozone and now Japan also. I mean, with this "neutralization", the effect of QE may be much smaller than you think.
    20 Jun 2013, 06:08 AM Reply Like
  • Reg Mig
    , contributor
    Comments (11) | Send Message
    Or make you completely crazy !!!
    19 Jun 2013, 03:46 PM Reply Like
  • The_Hammer
    , contributor
    Comments (5046) | Send Message
    The Bernank will be gone and janet in charge. Easy Janet likes to print even more than the bernanke. Do not underestimate.
    19 Jun 2013, 03:50 PM Reply Like
    , contributor
    Comments (94) | Send Message
    Don't understand the market reaction today. I watched all of Bernanke's testimony and everything he said was 100% logical, and IMHO had been telegraphed well in advance. If the economy is improving (and they said downside risks had reduced) then that has to mean interest rates normalizing and improving prospects for companies. That should be positive for the stock market (and has been throughout history)
    19 Jun 2013, 03:57 PM Reply Like
  • Gosho
    , contributor
    Comments (61) | Send Message
    Can someone try to explain to me why the markets are going down?Everyone was whining about the QE and how the QE is going to ruin the U.S. economy and now when Mr. Bernanke is trying to slow down the stimulus everyone is crying about that.What are you(Americans) asking the FED to do so you can stop crying?You want QE or you don't want QE?You want a better economy or you want a ''fake'' better economy?I really don't understand you guys.Have fun figuring out what you really want.
    I apologize for my English.
    19 Jun 2013, 04:24 PM Reply Like
  • XTigerX
    , contributor
    Comments (311) | Send Message
    reflexive response by burned out traders. Unwinding of overzealous positions on both sides of the trade. Automatic trading set off by computer programs. All of the above.
    19 Jun 2013, 05:21 PM Reply Like
  • tstreet
    , contributor
    Comments (1035) | Send Message


    The market reaction is programmed and has nothing to do with what people actually think makes sense.
    19 Jun 2013, 08:01 PM Reply Like
  • j-baxte1
    , contributor
    Comments (6) | Send Message
    Markets start to fall in earnest as the reality
    (quote ) -- do you mean you have not been earnest -- mid 2014 is a year off --85 x12 is a trillion 20 billion
    19 Jun 2013, 04:30 PM Reply Like
  • itscalledcommonsense
    , contributor
    Comments (2535) | Send Message
    Don't worry about solvency, the NIM is growing!
    19 Jun 2013, 04:30 PM Reply Like
  • snoopy44
    , contributor
    Comments (1466) | Send Message
    I am confused. I thought I heard that "tapering" is possible later this year IF the economy improves. A rate hike is off the table until 3rd or 4th quarter of 2014. How is any of that bearish for stocks and bullish for the USD? I have no idea what these people trade on. It's all gibberish to me. Certainly not logical.
    19 Jun 2013, 04:31 PM Reply Like
  • Bosshogg55
    , contributor
    Comments (183) | Send Message
    I keep wondering why QE is such a good thing for the market -- or so a lot of people say. Isn't it true that the more dollars you have out there in circulation chasing goods, etc., the less in purchasing power those dollars have in the economy? It goes back to economics 101 in undergrad, where something previously scarce becomes less valuable when you dramatically increase the supply available for sale of that item in the marketplace, without a corresponding increase in demand for that item. Isn't it also true that as the intrinsic purchasing power "value" of that dollar declines, goods become more expensive against the dollar benchmark because it takes more of them to buy something? Maybe the market is reacting to this by going up because of this phenomenon. And, on the other side of the equation, interest rates are near zero because there is a huge flood of dollars in the economy to lend out to borrowers without an offsetting higher demand for those dollars for loans. It seems to me that Bernanke is in effect "monetizing the debt" of the country by issuing freshly printed money conjured out of thin air to "buy" these Treasurys and MBSs (to the tune of $85 Billion/month), even though he denies that this is what he is doing. Cut down on the QE and that implies dollars will become more scarce and it will take less of them to buy a good. Ergo, interest rates should increase and the stock market should fall. Doesn't that reflect why the markets reacted to Bernanke's remarks the way it did? And, the Washington politicos and Keynesians say there is no inflation in the system. Well, technically, they are correct; It's currency devaluation instead -- not inflation.


    But: The $64 question is how will all this effect mREITs? On one hand, their income goes up as interest rates increase and they buy higher yielding MBSs for the book. On the other hand, their inventory of MBSs decline in value, causing their mREIT entity book value to decline. I don't know -- it's "above my pay grade."


    Does any of this make sense or am I missing something here?
    19 Jun 2013, 04:56 PM Reply Like
  • pgstocks
    , contributor
    Comments (110) | Send Message
    Bosshogg55 You are exactly correct. Everything you are saying is by the book. The problem your having is that they burned those books and market driven ideas. The through the looking glass goes like this; countries that need to print money faster convince their allies to print more too to bail out what ever needs bailing out. Moral hazard days are here. If banks fail we print them money, if government runs huge deficits we'll print that too. If we have friends that are political contributors that want their business subsidized we print that too. As long as everyone is printing at full speed nobody gets hurt by their currency skyrocketing. Those of us who understand the principals of how are system really works should drop some acid and maybe it all would become clear. Nobody, not only you and I don't understand how the things that are happening can continue happening and where things will end. This is very sad but true. Go long canned goods and ammunition. Ammo is up 1000%. If interest rates rise, every 1/2 point adds $85 billion to the deficit too. If the fed can print money and give it to the federal government why do we pay taxes?
    19 Jun 2013, 11:18 PM Reply Like
  • richbar
    , contributor
    Comments (1096) | Send Message
    Wait until we see the negative effect that higher long rates will have on mortgage originations, refinancings, new home construction, consumer sentiment, unemployment, retail sales, and GNP growth. The so-called recovery will stall. It will be clear in a few months and the Fed will push tapering back.


    As an AGNC long, I'm more concerned with the eventual increase in the Fed funds rate and its flattening effect on the yield curve.
    20 Jun 2013, 12:38 AM Reply Like
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