Foolish recommendations for AGNC from economic fools

Here is another glowing article from The Motley Fool CAPS community about AGNC:
http://www.fool.com/investing/general/2011/04/15/4-star-stocks-poised-to-pop-…

These people do not understand economics. The author discounts the risk that interest rates will rise enough in the next few months which would hurt AGNC’s profitability. The Federal Reserve is scheduled to end it’s quantitative easing 2 (QE2) buying of US treasuries this summer. Interest rates are already rising despite the Fed’s efforts. They will go even higher when the Fed ceases to inflate. The Fed has been buying around 80% of the US bonds auctioned since QE2 started. The US government will continue to spend more than $1.6 trillion dollars than they extort in taxes. This is bad for AGNC because risk of US government default increases and the guarantees of agency securities will be an easy target of congress to cut.

QE 2 is Fed chairman Bernanke’s panicked reaction to the threat of a double dip recession. It is inflating like crazy right now. Once QE 2 is over If the Fed ceases to inflate for more than a year like it did in 2010, then a new financial crisis will emerge bigger than the crisis of 2008. Banks will possibly cut off AGNC from cheap short term borrowings (repurchase agreements) or cease lending to the altogether. This would destroy their profitability very quickly. Also their agency securities would lose value which would compound AGNC’s problems. Interest rates go higher than they are now in that situation also.

The party is almost over for all the high dividend mortgage REITs. Their fates are in the hands of the commercial bankers, the Federal Reserve, and the US Congress. I wouldn’t want my high dividend stock portfolio exposed to those assclowns.

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Published in: on April 16, 2011 at 2:56 pm  Leave a Comment  

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