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Subject:  Re: WSJ: Regulators Worry Mortgage REITs Pose Th Date:  4/20/2013  1:10 PM
Author:  yodaorange Number:  74147 of 83812

One quote from the article caught my attention:

Three Federal Reserve officials have singled out mortgage REITs in recent weeks, saying the industry merits watching.

This quote makes Yoda turn from his usual orange color to BRIGHT RED. Yoda has done a little editing on how the quote should read:

“The Federal Reserve having punished prudent savers for many years by forcing negative real interest rates is SHOCKED that investors would seek higher yields in higher risk investments. Three Federal Reserve officials, all with PHD’s in economics, do not understand how investors could act so imprudently, casting caution to the wind.”

Yoda is on record as saying that MREITs with a broad brush will blow-up as an asset class. It is only a matter of time. It is not like it would be a black swan event. It is a white swan that flies by on a regular basis. The blow up mechanism is very simple. WHEN, NOT IF, the yield curve gets inverted, i.e. short term rates >= long term rates, MREITs are toast. Yes, I understand all of them will talk about how they are hedged. Just like all of the MREIT tombstones that read: “I thought I was perfectly hedged.”

Maybe it is different this time. Maybe the yield curve will never, ever flatten or be inverted. Maybe all of the hedges will 100% work. Maybe Yoda could beat Tiger Woods at the Masters. Maybe Yoda could beat Tiger’s girlfriend Lindsey Vonn on the St. Moritz downhill . . .

Thanks and good luck,

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