Buzz on the Street: Fed Says No Taper, More Candy
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Mind the Dollar
Aussie dollar futures (AUD/USD) are breaking below their 20-day moving average, which could be a sign of trouble ahead for commodities. In fact, we are seeing the majors drop across the board -- even the yen is falling. This dollar strength is probably catching a few traders off guard and could be sending a signal for tomorrow's FOMC. The yield on the ten-year has not made a new low in five days; has the no-taper trade bottomed out?
The biggest shock to the system would be to have an opposite reaction from the one we had on September 18. The boat is loaded up on the obvious trade, but to paraphrase Granville: "If it's obvious, it's obviously wrong."
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Santa Brings Coal for Mortgage REITs
I wanted to get this preliminary post out there since the mortgage REITs were under pressure early.
American Capital Agency (NASDAQ:AGNC) reported earnings last night and the entire mortgage REIT sector is getting hit in response.
The bottom line is that given the deleveraging during the quarter and the spread they were able to earn, the optimistic case that the mREITs will be able to bump their dividends higher is not a possibility. So the market is repricing a much lower dividend yield than the mREITs were priced for yesterday. AGNC earned 45c in the quarter after an accelerated rate of realized amortizations, and had to pay out 80c. That's obviously not a sustainable combination.
For example, after repo and hedging costs, AGNC earned 1.37% in net interest (annualized) at quarter end, the most favorable time of the quarter. Their average for the quarter was 1.2%. Leverage was down to 7.2x including TBA agencies, down from 8.5x at the end of 2Q. So in a best case scenario with the current asset mix and leverage, I think they can earn 11.06% on the portfolio. The trust is currently priced for 14.54%. So there will be more dividend cuts in the future.
I do know that mREIT's stopped deleveraging in August, so I suppose that they can get more leveraged as things go forward. Judging by the comments of AGNC's press release, that does not seem to be their strategy as they rolled down to 15-year maturity agency MBS from the 30-year. I'm going to listen to the conference call (starts at 11 a.m. ET) to see what else I can find out. I'll be back with a further detailed post this afternoon.
A Major GDX Bottom in Progress?
The enclosed big picture of the Market Vectors Gold Miners ETF (NYSEARCA:GDX) suggests strongly that the price structure is attempting to carve-out a significant double-bottom low in the 22.00 area.
That said, however, the GDX must climb above 31.35 to confirm the double bottom, and to trigger projections into the 38.00-39.30 target zone.
Given the "up-trend" that has developed in weekly momentum, my suspicion is that the GDX is transcending from a "short the rally" market into a "buy the weakness" market, unless of course, 22.87-22.21 is violated.
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