Posts Tagged ‘Calculated Risk’

Where Do Mortgage Interest Rates Go Absent The Fed Training Wheels

Where Do Mortgage Interest Rates Go Absent The Fed Training Wheels?

Courtesy of Tom Lindmark of But Then What

foreclosure

No one covers the residential housing market like Calculated Risk and he has been doing a great job of following what appears to be mounting concern about the Fed withdrawing from the MBS market. Tonight he has a compendium of thoughts on the subject, all verging more or less on terror at the prospect.

I’ll let you click over there to take a quick glance at the various concerns. For his part, the blog’s author has been pretty steadfast in his belief that when the Fed does withdraw the impact on interest rates is going to be in the neighborhood of 35 basis points. Disagreeing with him is perilous business but in this case, I think he might be too optimistic.

Obviously, the impact is not one that will occur in isolation but will be influenced by the general state of the bond market, inflation expectations and the general state of the housing market, particularly the outlook for further foreclosures. Having said that, I think that it could easily push rates up by 50 to 100 bps.

There hasn’t been an established market for residential MBS since the bottom fell out of everything and there seems little reason to suppose that investors, especially overseas investors, are going to rush back into the market absent some fairly generous risk premium. It’s not like there is a dearth now or for the foreseeable future of US government securities which carry less baggage than MBS.

Specifically, the value of the implicit guarantee could be substantially diminished were the economy to start heading in the wrong way thus necessitating further deficit accumulation. It’s an Armageddon scenario that the US would find itself so strapped for financing that it stopped honoring anything other than direct obligations of the government but, if we’ve learned anything the past couple of years it is that what once seemed beyond possible isn’t necessarily so.

I do agree with Calculated Risk’s assessment that the Fed will at least try exiting the program and will bounce right back in if things go awry. At the very least, it’s going to be a great test of the degree to which the markets have returned to normal and give us


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Mortgage Backed Securities – What Happens When The Training Wheels Come Off?

Mortgage Backed Securities – What Happens When The Training Wheels Come Off?

Courtesy of Tom Lindmark at But Then What

training wheels

Calculated Risk points to an interesting but short article at Bloomberg by Meredith Whitney in which she postulates that once the Fed withdraws its support for the mortgage backed securities market, mortgage rates will move up and the banks will be faced with more writedowns.

CR plots the historical spread of of the 30 year mortgage versus the ten year Treasury and comes to the conclusion that the Fed’s intervention has amounted to somewhere around a 50 BP subsidy so far. He then postulates that we could expect to see rates increase by this amount once the Fed exits the market.

Now let me say that I bow to no one in my admiration for CR. When stretched for time, it’s the only blog I read and it’s always the first blog I turn to. The author gets the data and then reaches well thought out conclusions and doesn’t seem to let personal bias intrude on his analysis. Having said that, I think he may be underestimating the potential effect on rates that may occur when there is no more Fed support.

If you read me often you will have seen this quote before. From George Will, “History tends to repeat itself until it doesn’t.” That is the problem that I have with CRs chart on this one. It presupposes that the world hasn’t changed and that the historical relationship between Treasuries and mortgage rates will persist.

Maybe it will and maybe it won’t. It might not because the world has changed. We’ve not seen before the unprecedented political interference in the market for mortgage securities that we have witnessed over the past 18 months. Contract law has been stretched to the point of breaking and what was normally considered standard procedure for resolving mortgage defaults has been turned on its head.

I have no idea as to whether or how much investors have been harmed by government actions and I suppose that no one at this point in time can generate any verifiable numbers. I’m not sure that, in fact, that makes much difference.

When the Fed does withdraw, the risk premium that investors demand is once again going to be subject to market discipline. Now it might not


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Zero Hedge

These International Borders Have Become "No Rights Zones"

Courtesy of ZeroHedge. View original post here.

Authored by Simon Black via SovereignMan.com,

On June 15, 1215, King John sat in a field in Runnymede, England, surrounded by angry nobles.

His Barons - the big landowners throughout England - had rebelled and seized London, forcing King John to sign an agreement guaranteeing certain rights to the people of England... and restrictions of his power.

This agreement was called the Magna Carta. And it would become one of the most important documents in hist...



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Phil's Favorites

The Senate is set to approve it, but what exactly is the Trans Pacific Partnership?

 

The Senate is set to approve it, but what exactly is the Trans Pacific Partnership?

Courtesy of Pat Ranald, University of Sydney

These days it is called the TPP-11 or, more formally, the Comprehensive and Progressive Agreement for Trans Pacific Partnership.

It is what was left of the 12-nation Trans Pacific Partnership after President Donald Trump pulled out the US, after a decade of negotiation, in 2017.

Still in it are Australia, New Zealand, Canada, Mexico, Peru, Chile, Japan, Brunei, Singapore, Malaysia and Vietnam. It’ll cover 13% of the world’s economy rather than 30%.

What’s in it for us? ...

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Kimble Charting Solutions

Commodities attempting breakout off 7-year support!

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

Its been a rough 7-years for Agriculture ETF (DBA) as it has created a series of lower highs and lower lows while declining 50% inside of falling channel (1).

The decline this year has it testing channel support of late, where a double bottom might be in play at (2).

The rally of the past couple of weeks has DBA attempting a breakout above falling resistance at (3), while momentum is very low and could be attempting to turn higher.

While DBA is attempting a breakout, yields and Commoditie...



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Chart School

Weekly Market Recap Oct 14, 2018

Courtesy of Blain.

Wednesday and Thursday finally brought some fireworks to a very complacent market.   The S&P 500 had not had a 1% move in 74 days until Wednesday’s drawdown.

Rising yields were nailed as the culprit but months of rallying eventually require some sort of shake out – whatever the catalyst.  Wednesday’s sell off was the worst day for the S&P 500 since February and the worst for the NASDAQ since June 2016.

The market losses are “a reaction from investors finally realizing we are in a higher interest-rate environment, and given the elevated level of stocks, market participants were likely looking for a reason to sell,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Higher interest rates typically bring on tighter ...



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Insider Scoop

Carl Icahn Doubles Down On Dell Technologies: 'One Of The Best Opportunities I Have Ever Seen'

Courtesy of Benzinga.

Related Barron's Picks And Pans: Apple, Dell, Netflix, Wells Fargo And More Jim Cramer Gives His Opinion On Mastercard, Dell Tec...

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Digital Currencies

A Wealth Management Point of View on Blockchain and Bitcoin

 

A Wealth Management Point of View on Blockchain and Bitcoin

Courtesy of 

I really had a great time discussing the blockchain, my Bitcoin Maximalism, fear and greed, the future of cryptocurrencies and more with the one and only Anthony Pompliano on his Off The Chain podcast. He’s super sharp and we went into so many great topics – I do regret the thing I said about ghosts and aliens though, that sounded dumb in hindsight.

I ...



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ValueWalk

Vilas Fund Up 55% In Q3; 3Q18 Letter: A Bull Market In Bearish Forecasts

By Jacob Wolinsky. Originally published at ValueWalk.

The Vilas Fund, LP letter for the third quarter ended September 30, 2018; titled, “A Bull Market in Bearish Forecasts.”

Ever since the financial crisis, there has been a huge fascination with predictions of the next “big crash” right around the next corner. Whether it is Greece, Italy, Chinese debt, the “overvalued” stock market, the Shiller Ratio, Puerto Rico, underfunded pensions in Illinois and New Jersey, the Fed (both for QE a few years ago and now for removing QE), rising interest rates, Federal budget deficits, peaking profit margins, etc...



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Members' Corner

Why obvious lies still make good propaganda

 

This is very good; it's about "firehosing", a type of propaganda, and how it works.

Why obvious lies still make good propaganda

A 2016 report described Russian propaganda as:
• high in volume
• rapid, continuous and repetitive
• having no commitment to objective reality
• lacking consistency

...

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Biotech

Gene-editing technique CRISPR identifies dangerous breast cancer mutations

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

 

Gene-editing technique CRISPR identifies dangerous breast cancer mutations

Breast cancer type 1 (BRCA1) is a human tumor suppressor gene, found in all humans. Its protein, also called by the synonym BRCA1, is responsible for repairing DNA. ibreakstock/Shutterstock.com

By Jay Shendure, University of Washington; Greg Findlay, ...



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Mapping The Market

Mistakes were Made. (And, Yes, by Me.)

Via Jean-Luc:

Famed investor reflecting on his mistakes:

Mistakes were Made. (And, Yes, by Me.)

One that stands out for me:

Instead of focusing on how value factors in general did in identifying attractive stocks, I rushed to proclaim price-to-sales the winner. That was, until it wasn’t. I guess there’s a reason for the proclamation “The king is dead, long live the king” when a monarchy changes hands. As we continued to update the book, price-to-sales was no longer the “best” single value factor, replaced by others, depending upon the time frames examined. I had also become a lot more sophisticated in my analysis—thanks to criticism of my earlier work—and realized that everything, including factors, moves in and out of favor, depending upon the market environment. I also realized...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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