Annaly 1Q15 Earnings Call Notes

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Policymakers have been very successful in creating both debt and equity market bubbles

“Despite their noble efforts, I believe policymakers have failed to foster the conditions for a credible sustained recovery. They have, however, been very successful in creating both debt and equity market bubbles, however reliant they may be on zero interest rates.”

Wages have not kept pace with asset price appreciation

“Since 2009 when the experiment began, global bond markets have increased in value by roughly $17 trillion, or the size of the U.S. economy, while global equity markets have increased in value by a staggering $40 trillion. Yet the American wage earners have gained a relatively paltry $722 billion in comparison during the same period. Or to put it more clearly, for every dollar gained by the American worker, the global equity markets have the gained $55.”

Policymakers will need to maintain their monetary stance for longer than desired to avoid asset price deflation

“I understand the need to inflate away the previous cycles over indebtedness. But I fail to see how encouraging greater indebtedness at inflated asset prices will translate into future sustainable growth. Unfortunately, if policymakers truly hope to avoid the negative economic menace of asset price deflation, they will need to be in a position to maintain their easy money stance for longer than they currently desire.’

So called free markets

“We look forward to the day the central banks permanently retreat from actions that distort the so-called free markets.”

Fixed income markets have exhibited significant volatility

“As we have all witnessed, fixed income markets have exhibited significant interest rate and spread volatility over the recent past given the debate over the timing of Fed lift-off amidst continued global central bank stimulus and its impact on U.S. markets.’


“Regarding our market views going forward, we do believe that the Fed will raise rates later this year but we expect the pace of Fed hikes will be very gradual, consistent with current market expectations. Agency MBS spreads are likely to remain somewhat tight given continued demand for the sector and again we are considering the possibility that rate volatility may persist and, as such, we expect to continue to operate with lower leverage over the near term.”

We have to make sure our liquidity is liquid

“we’re mindful of trying to make sure the composition of the portfolio is as liquid as it can be. And one of my sayings is make sure your liquidity is liquid. And what we try and do is make sure whatever vehicles we’re using to hedge or whatever vehicles we’re using to offset potential moves in interest rates, we want to make sure that we are thinking about holistically in what kind of response the market will have as things start to change.’