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Agency-Backed Mortgage REITs at a Crossroads

Given that NLY is a buyer of fixed rate MBS their risk stems net interest margin compression that results from the repricing of liabilities. NLY's proactive approach to managing/heding this risk is therefore sensible and stratgeic. Also, their running lower leverage while awaiting assets to become available at lower prices/higher yields addresses the asset risk.

In a way I do not see Strategy 1 and 2 as being mutually exclusive -- Strategy 2 simply may just have less duration mismatch risk stemming from shorter duration assets that does Strategy 1. Thus less of a need for liability management.

As for Strategy 3 which is based on stretching for yield -- that one seems most like picking in front of a bulldozer. I say, in the words of Monte Python, "run away".

Disclosure: long NLY.

Wall Street Pay Cuts: The Sacrificial Seven

Buckoux is, of course, correct. The list doesn't stop there, however. What about the regulators who didn't regulate? Or the politicians who implemented their social agenda without regard to simple economics? No mea culpas from this crowd. What can we expect going forward? Aggressive blame-laying in an attempt to divert attention from their own material contribution.

The "bailed out" ex-Bear Stearns and Lehman workers paid dearly as their own personal net worths were wiped. Fine. But Franklin Raines retains his $100+mm for driving a quasi-governmental organization into insolvency (on your dime). Barney Frank's influence has increased. Nancy Pelosi seeks improved fixed-wing transportation and drives to take over 16% of the nation's GDP.

And the President, after riding a global media love-fest into the white house, reveals his thin-skinned self by attacking Fox news for having the temerity to see things differently. Perhaps he didn't read any of Maureen Dowd's mean-spirited, weekly ad hominem attacks on our last president. Sometimes fair but never balanced.

You wanted change, you got change. Sort of.

Condo prices remain fairly cheap, but it's nonetheless alarming to hear a Miami real-estate broker say: "It's really been a crazy, hectic time in South Florida. It sort of reminds you of 2005 all over again."

Sorry. Make that a 40 CENT on 60 cents is a 66% gain.

Condo prices remain fairly cheap, but it's nonetheless alarming to hear a Miami real-estate broker say: "It's really been a crazy, hectic time in South Florida. It sort of reminds you of 2005 all over again."

Take a breathe Danny Boy and THINK through the math implicit in Moody's assumptions. I'll tell you what, let's do it together. It really is not hard:
- a 40% reduction in a dollar leaves 60 cents (Moody's claims such a drop in value)
- a 40 percent increase (or 40 cents in this example) on 60 cents is a 66% gain (math)
- Moody's says this will take 10 years (assertion)
- a 66% percentage gain over 10 years takes about 6.6% a year uncompounded (math)
- ergo a 100% purchase price returns (if Moody's is right) 6.6% per year (more math!)
- if you put down half that amount your return doubles less interest (alert - this is tricky)
The math is sound, at least for the mathematically literate. Perhaps you quibble with Moody's assertion. OK. But that assertion was submitted as evidence as to why NOT to by real estate. There may be 100 reasons not to buy real estate buy Moody's prognostication is not one of them.

Condo prices remain fairly cheap, but it's nonetheless alarming to hear a Miami real-estate broker say: "It's really been a crazy, hectic time in South Florida. It sort of reminds you of 2005 all over again."

So Moody's says it may take 10 years for a property to regain its 40% drop in value. Let's see. That means today's 60 cent property will rise 40 cents (66%!) over the next 10 years. That appears to be a 6.6% gain per year (excuse me on the fast lap past compounding). Not terrible. If you borrowed 50% on that home your return on equity would be 13%. Borrow 80% and I eyeball it to be about 20%. Not bad for the "new normal". As always it pays to buy low and sell high. And that end is best achieved, as Mr. Buffett famously said, when you get greedy when everyone else is fearful. Look again at the "bad news" Moody's delivered. The time to buy has arrived -- do it now before the blindly pessimistic finally awaken.

Welcome to the New Normal

The data shows that we have 1.5 million new would-be-workers on average each year to employ. The question has already been raised about the impact of the impending boomer workforce exodus. I too am curious of this impact.

Another variable to consider concerns the composition of the 1.5 million figure. What percentage of that number comes from immigration? And how reasonable is it extrapolate constant immigration growth into a markedly less favorable employment picture? Seems to me that with the negative backdrop well articulated above the US population and by extension labor force is not immune from the forces currently at work in Ireland. Ireland is said to be experiencing an exodus of workers who are headed to more promising locales. Labor mobility seems to work in both directions. This likely can be true in the US as well.

Funding a Rally Extension

Interesting analysis. Well done. I think you may be on to something.

But it must be said that the posts following the article are so consistent in their vitriol and cynicism for this rally one could be forgiven for concluding that they find themselve among those who have missed this move (or have even played it from the short side) and are experiencing an associated emotional reaction. It reminds me of the emotional outbursts that the longs expressed on the meltdown. Perhaps melt-ups provoke the same responses.

Could it be that the posts, as a contrarian indicator, suggest that the rally may indeed have some way left to run?

Kinder Morgan's Dividend Payout Rate Is Unsustainable

Like many SA articles, there is learning to be gained from reading the posts. I, for one, am impressed at the knowledge of the those commenting. So, once again there is wisdom available. It simply resides in the comments section. Fair enough.

3 Commodity ETFs with High Probability of Near-Term Success

The fundamentals are well represented here. But consider this: from April 1989 to March 2009 EIA data run through a regression analysis reveals a correlation coefficient of .8775. That is a correlation that is not so easy to dismiss out of hand. Is everything that different now? (Leading and lagging of of the data by six months reduced the R-squared to .77) My view: as soon as traders begin looking forward to fall/winter the nat gas bid will grow. The base builds in the interim.

Will Natural Gas Be the Next to Rally?

I concur with 1980XLS. Natgas will participate in the inflation trade irrespective of fundamentals. Just not until everyone looks past summer to the fall. Until then the base builds like a spring. Long Jan 18 calls.

Will Natural Gas Be the Next to Rally?

Demand side comes in two forms: fundamental and technical. An economic bottom/nascent recovery will stimulate the first. Concomitant inflation fears will drive the second. All while the rig count continues to plummet. Sounds like a risk worth taking to me.

U.S. Jobs Propaganda Gets More Desperate

Most of this thread is breathless, emotional and, dare i say, desperate in tone. We are in danger of zooming past critical thought, breezing by cynical thought, and stopping firmly in the realm of paranoia. I, for one, am uncomfortable extrapolating an otherwise interesting perspective this far. Did anyone note the two references to Hitler?

That said I am appreciative of the several measured posts as well as the author's highly interactive style.

Global Water ETF: Investing in Rising Water Usage

VE is another way to play water.

After Banks Raise Capital, What's Next for Financial ETFs?

Funds are underweighted financials just as better banks several begin to eclipse their 200 dma. In my view there will be a growing source of technical, if not fundamental, demand for financials. Asset quality problems are well documented and have been priced in. This concerns me less around well reserved banks. Banks who have taken on large amounts of distressed assets from other banks (e.g. JPM, BAC) likely put them on at conservative levels. This will provide the fuel for gains in coming quarters. Fundamental demand will follow.

The Impact of Sidelined Cash in Disequilibrium on Stock Market

Thoughtful analysis. Thanks.