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  • China Containerized Freight Index Plunges To Multi-Year Low, Shanghai-EU Rates Totally Collapse, U.S. Rates Morose [View article]
    "Decision makers had been bamboozled into thinking that QE and interest rate repression would stimulate actual demand!"

    Only well diffused real income growth can stimulate demand in an over-indebted consumer sector, and the trend has been the opposite for 30 years, including the seven years during the much vaunted "recovery" from the Great Recession.
    May 23, 2015. 07:30 AM | Likes Like |Link to Comment
  • Failing Friday: China Defaults Keep Adding Up [View article]
    Love the whole article, but especially these gems:
    1. "global markets, led by China, just hit $75Tn - a new record. This is really amazing since global GDP is still lower than it was in 2007 so that means that the ratio of stock valuations is now at an all-time high - isn't that special?"

    2. "...the bottom 90% are forced to go deeper and deeper into debt to finance their lifestyles (or just to feed their children) which maintains the ILLUSION of prosperity and keeps the profits flowing up to the top 1% who collect them all and then refuse to pay taxes and vote down reform or anything that might actually fix the economy and the bottom 90% sink deeper and deeper into debt while the top 1% accumulate more and more of the wealth."

    Unfortunately, that tells the tale, and now there's no easy repair since corporations and billionaires can now legally buy the politicians and laws they like with whatever amount of money it takes. There must be an ultimate endpoint to this trend, but I have no idea what it will look like. Perhaps the race to the bottom will get so ugly the 0.1% will see the wisdom of a new approach. Especially when you consider the problem of the robots, I'm beginning to think that at some point the 0.1% will see the wisdom of a livable guaranteed income. George McGovern where are you? Makes me wonder about competition. Is it really true that there must be winners and losers, or is it possible to have all winners?

    The biggest question for investors is when will be the next big short. Is Chinese financial meltdown the key?
    May 22, 2015. 11:30 PM | Likes Like |Link to Comment
  • Williams Goes The Kinder Morgan Route, Higher Dividends Ahead [View article]
    How can they meet those big goals with their 1.1% ROI? I do see 24% ROE, but then there's the 2.74 debt/equity. What's their cost of capital? What if the expected big growth in Iraq and Iran oil output slows the whole US oil industry and pipeline volumes fade?
    May 17, 2015. 01:02 PM | Likes Like |Link to Comment
  • Prospect Capital: Why A 22% NAV Discount Won't Trigger A Buyback [View article]
    Thanks for a very interesting and educational article. So many commentators seem obsessed with high management fees and the lack of capital gains via stock price increase. No argument that lower management fees would increase net NII and increase dividends, and I guess it's management greed versus stockholder greed with no convenient means of resolution. If you don't like the PSEC yield on today's cost of 12%, don't buy. If you don't like your personal yield on cost for current holdings, sell and buy something else. If you're worried about capital safety, hedge with puts.

    Personally, I don't see very many opportunities to buy a stock at 21% discount to NAV with a 12% current yield and reasonably safe dividends and which are also readily hedged with exchange traded options, particularly ones that pay monthly (AGNC has very similar 19% discount, 11.5% yield, pays monthly and is readily hedged). I'm inclined to buy more PSEC and AGNC at prices near today's.

    Regarding the issue of stock price and capital gains, I prefer that stock prices decrease for high yield BDCs and mREITs as long as NAVs and dividends don't, since that provides an opportunity to buy at a higher yield on cost and greater discount to NAV. They are not the types of stocks to buy primarily for long term capital gains since they must pay out most earnings. Your return on a stock is via either dividends or capital gain, both driven by earnings. With high payout ratios of BDCs and mREITs your return is going to be mostly dividends.
    May 17, 2015. 11:19 AM | 4 Likes Like |Link to Comment
  • Hilsenrath: Growth hiccups vex Fed yet again [View news story]
    Gee, could it have to do with the fact that real median income is DOWN from 2008, and isn't growing, continuing a 30-year trend. All the income gains are at the very tip top of the income distribution, and the folks there don't spend much of it, they invest it. Most folks with high marginal propensity to consume haven't seen any significant recovery and are also still buried in too much debt.
    May 16, 2015. 07:57 PM | 6 Likes Like |Link to Comment
  • ARMOUR Residential REIT Is A Total Return Nightmare [View article]
    I used to hold this beggar with put options to protect capital, which worked OK for a while, but now the price is so low it can't even be efficiently hedged with puts since the strike prices are so far apart in percentage terms. I gave up and sold April 4 puts at 0.85 and stock at 3.21. Will shift funds to AGNC, CMO, HTS and maybe some JNK with hedges. AGNC seems to do better managing things. CMO and HTS hold agency ARMs and will benefit a little from extra earnings with a rise in LIBOR (if that ever happens again!), assuming defaults don't spike as a result. No longer confident that the small extra yield from fixed rate Agency mREITs is worth it. They seem to dissipate earnings trying to hedge long bonds at the wrong times. Also, PSEC yield is almost the same as ARR and it's easy to hedge with puts, although they also have issues regarding falling earnings, the management take, and general stockholder friendliness.
    May 9, 2015. 03:28 PM | Likes Like |Link to Comment
  • Where In The QE Have We Seen This Before? [View article]
    QE's are mainly to fund government deficits in absence of sufficient private demand for debt at low interest rates. A QE program helps prevent a bigger rise in interest rates that otherwise would happen, and to that extent helps promote or sustain economic recovery. The Fed's QE taper coincided with a big drop in the US federal deficit.
    May 9, 2015. 08:05 AM | 1 Like Like |Link to Comment
  • Treasury Bond Bull Runs To At Least May 2015 [View article]
    Terrific work.
    Apr 28, 2015. 08:41 AM | Likes Like |Link to Comment
  • A Shocking Dividend Cut At American Capital Agency [View article]
    The big question is whether we get in the not too distant future a 10-year Treasury yield of 0.5% or lower and the spread goes away entirely.
    Apr 28, 2015. 08:12 AM | Likes Like |Link to Comment
  • Feed Your Family With These 4 Monthly Paying REITs [View article]
    Brad, thanks for another helpful article. I'm surprised you included a newcomer like ORC but left out AGNC, JMI and OAKS, all monthly paying mortgage REITs.
    Apr 25, 2015. 03:05 PM | 1 Like Like |Link to Comment
  • The Costs Of Deflations: A Historical Perspective [View article]
    Well said!

    "...we are fighting a new disease with false ancient prescriptions for an entirely different disease." Wonderful phrase.

    What's really needed is a higher equilibrium of output via real wage and income inflation for the middle and lower income tiers, but that's not in the immediate financial interest of the powers that be. You cannot raise the equilibrium output by just stimulating over-investment via QE and zero rates when the demand is inadequate because of deflated incomes, although reduced household debt servicing certainly does help. New money will just compete for existing assets. Ben's helicopters never flew much over Main Street. Too bad aggressive fiscal policy for the middle and lower classes is always off the table these last few decades. Tax cuts or, perhaps, guaranteed minimum income indexed to inflation? Where's George McGovern when we need him?
    Apr 20, 2015. 08:01 AM | Likes Like |Link to Comment
  • Oil: What Does Stronger Oil Mean For Storage And Tanker Rates? [View article]
    Thanks for an illuminating article.
    Apr 20, 2015. 07:41 AM | Likes Like |Link to Comment
  • The Housing Market: Myth Vs. Reality [View article]
    In 1991 Q3 the delinquency rate on residential mortgages was 3.36%. It dropped almost continuously and bottomed in 1994 Q4 at 1.39%. From there it gradually rose to 3.08% in 2007 Q4, and then it rose sharply to 11.27% in 2010 Q1. It held in the 10%'s through 2012 Q4 and then has dropped gradually to 6.63% in 2014 Q4. That's still double the peak rate in 1991 Q3, and almost five times the trough rate of 1.39% in 1994 Q4. That is anything but a healthy housing market. Meanwhile, beginning in 2014 the legacy 10-year interest-only first mortgages and home equity loans from 2004-2007 have begun to go into 20-year full amortization (or faster) with payments more than doubling. I'm talking prime loans and Alt-A loans, not subprime. So, here we go again with delinquency and default problems and the default rates could go up again along with distressed inventory.

    In 2006 a consortium of the Fed, all federal bank regulators and the state mortgage regulators got together and effectively closed down all subprime and Alt-A lending with strict new "guidance" to banks and mortgage lenders (oh, and they didn't bother to regulate the usurious adjusted interest rates on existing subprime mortgages). That led directly to the subprime crisis, the housing crisis, the disappearance of all subprime lenders within six months, the bankruptcy of Lehman (who owned the largest Alt-A lender Aurora), and the financial crisis. Soon home prices crashed and therefore, the home equity loans by banks were all under water. Really nice job by institutions which are commanded by statute to protect banks and promote a healthy economy.

    As long as the regulators continue to forbid any first lien mortgage lending based solely on credit and collateral (e.g. Alt-A no ratio up to a mere 70% LTV), the housing market will remain in a straight jacket. Ben Bernanke was not kidding when he said he couldn't get a home loan without a job; credit, collateral, assets or LTV didn't matter. No job, sorry, no loan. Slightly too high a debt ratio, no loan. High assets, sterling credit and excellent collateral are no longer sufficient. However, you can still get an FHA 97.5% LTV loan with a 620 credit score, almost no assets and any job, if the debt ratio works. Got it?
    Apr 12, 2015. 09:32 AM | 2 Likes Like |Link to Comment
  • American Capital Agency: You Are Next [View article]
    I've been commenting for months that the problem with fixed rate mREITs has been a significantly flattening yield curve since December 2014 so that yield spreads have been declining and so have core earnings. For mREITs that have been heavily hedged against rising long rates that means their book values haven't grown much throughout the bond rally or may have shrunk.

    However, you say "Bankruptcies will be coming for some of these companies." Huh? mREITs are still earning positive yield spread. When bonds rally and long rates tick down, the book values of MBSs go up not down, unless they've over-hedged long rates (ARR and JMI). If long rates go up, book value drops for those with light hedges against long rates, but the spread widens for new investments. Much depends on how an mREIT hedges its MBS. But bankruptcy? You must be expecting a flat or inverted yield curve for a very long time due to dropping long rates and MBS over hedged against price drops while the opposite happens. Wouldn't it take quite some time for AGNC's book value of 25.73 to drop to 0? Nevertheless, it is likely that core earnings and stock prices will erode if the yield curve keeps flattening.
    Apr 12, 2015. 08:40 AM | 9 Likes Like |Link to Comment
  • It Takes Courage To Not Run With The Bull [View article]
    "Conceptually, investing is a very simple task; buy when an asset is cheap and sell the asset when it is rich."

    Actually, for many of us, that's not investing, it's trading or speculating, which are both fine and valid for some folks at some times, but are very different activities than investing. To me, investing is acquiring assets that provide ongoing income indefinitely via interest, dividends or distributions (trusts and MLPs) with no expectation of ever selling unless superior prospects are found, or a problem develops to impair the income. There are many such securities available today at prices well below their record high prices or valuations and at fair prices or lower by certain reckonings. The high levels of stock price averages merely reflects the reach for a better source of income while the safest debt securities pay too little yield and too few investors feel any urgency to sell. For those afraid of stock averages there are good alternatives such as preferred stocks with high yields and which usually trade close to par prices, or one can hedge prices of all or part of holdings of other types.
    Apr 12, 2015. 05:49 AM | 2 Likes Like |Link to Comment