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clearinghouse
Registered: Aug 2010
Posts: 572 |
10-10-12 05:10 PM
mREITs getting crushed today. I reduced exposure there myself.
That 500k share move I saw yesterday was a predictor; I'm a dope. I should have put on some shorts. I'm more of a scalper, unfortunately.
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clearinghouse
Registered: Aug 2010
Posts: 572 |
10-10-12 05:18 PM
Quote from Whistlingleaf:
In theory mReits will go down at an accelerated rate compared to TLT since they're basically just TLT on leverage.
I forget which is which, but NLY/AGNC are 5&10 times leveraged.
Of course it might take awhile to happen ...
Even high dividend plays are at risk moving forward if Treasuries start to rise.... the Fed's interference really has things out of whack, and eventually things will return to a more normalized state (no QE/Twist) and it won't be pretty.
Thanks for the explanation. I really appreciate it. This forum is hit or miss; I like getting concrete answers like this to look into.
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Whistlingleaf
Registered: Nov 2005
Posts: 293 |
10-11-12 05:31 PM
Here's an article with more details on leverage:
http://seekingalpha.com/article/913...he-risks-part-1
I wouldn't touch any of them cause I think long term rates are going up.
If you want yield you're better off in preferred stock - you still have interest rate risk but at least you control when to take gains or losses. PFF makes for a decent ETF but I think it's at a top (along w rest of market.) Or you can pick a bond ETF (also toppy now IMO)
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ralph00
Registered: May 2004
Posts: 2275 |
10-11-12 07:05 PM
Quote from Whistlingleaf:
Market down and TLT down ... LT rates are going up - the Fed screwed the pooch with a premature QE3.
mReits with massive leverage move up when TLT goes up and crushed when it goes down.
Uh, no. The best thing in the world at the moment for the mREITs would be TLT going down (i.e., long rates moving higher).
mREITs are getting hammered because rates are too low, not because they're moving up.
1. These guys basically borrow short, lend long. Low long rates cut their net interest margin. Absent an increase in leverage, they earn less.
2. Low rates (particularly as they lower MBS yields) combined with banks' growing willingness to lend could lead to a refi boom - meaning mortgages on mREIT balance sheets priced at 105 will get called away at 100 - devastating to book values.
Other than that, there's a lot of value in what you said. Carry on.
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newwurldmn
Registered: Apr 2011
Posts: 2628 |
10-11-12 07:29 PM
Quote from ralph00:
Uh, no. The best thing in the world at the moment for the mREITs would be TLT going down (i.e., long rates moving higher).
mREITs are getting hammered because rates are too low, not because they're moving up.
1. These guys basically borrow short, lend long. Low long rates cut their net interest margin. Absent an increase in leverage, they earn less.
2. Low rates (particularly as they lower MBS yields) combined with banks' growing willingness to lend could lead to a refi boom - meaning mortgages on mREIT balance sheets priced at 105 will get called away at 100 - devastating to book values.
Other than that, there's a lot of value in what you said. Carry on.
+1
mReits are short calls on their bonds. The higher rates go the more out of the money they get... those calls are what everyone focuses on in mortgages.
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Bob111
Registered: May 2002
Posts: 6433 |
10-11-12 08:02 PM
Quote from ralph00:
Uh, no. The best thing in the world at the moment for the mREITs would be TLT going down (i.e., long rates moving higher).
mREITs are getting hammered because rates are too low, not because they're moving up.
1. These guys basically borrow short, lend long. Low long rates cut their net interest margin. Absent an increase in leverage, they earn less.
2. Low rates (particularly as they lower MBS yields) combined with banks' growing willingness to lend could lead to a refi boom - meaning mortgages on mREIT balance sheets priced at 105 will get called away at 100 - devastating to book values.
Other than that, there's a lot of value in what you said. Carry on.
judging by volume on pic-looks the refi boom is happening now. and that might explain last sell off in the group.those mortgages at 5% or whatever rate will be called and replaced with cheaper ones and this would reduce their earnings ?
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