The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Should You Invest In Mortgage-Backed Securities? –


YES YOU SHOULD. The Distressed prices can recover quickly once there is liquidity in the market, as it has already done for those that were TARPed with the real cash. Also the debt market is in the best place for a rebound right now and it’s easy money for you, no Madoff

NO, NEVER: US could fail in the next 12 months if you think so..because without this debt coming back, you couldn’t print enough money..That said, however, the underlying documentation is incomplete, sold multiple times and if there is default, no one is paying..

YES, YOU SHOULD: Mortgage prices will recover once the real estate market recovers from the bottom. Cherry pick if you can..don’t touch UBS or any other bank that has already failed. Ask for the end user mortgage in each case and be convinced about it.

Remember Fink(Blackrock) is the king!

WSJ here:

Who wants to buy some toxic assets?

It may not sound like the most tempting offer—but don’t be shocked if you hear this same pitch from your financial adviser sometime soon.

New York-based fund giant BlackRock is launching a closed-end mutual fund aimed at allowing ordinary investors to put their money into the kind of toxic mortgage-backed securities that nearly brought down the financial system a few months ago. Shares are expected to go on sale in about a month.

In June, BlackRock announced plans to buy the investment unit of Barclays in a $13.5 billion deal that includes the British bank’s market-leading ETF business, iShares.

The BlackRock Legacy Securities Public-Private Trust will be sold through brokers and advisers. It will try to buy mortgage-backed securities at distressed prices from banks looking to shore up their battered balance sheets. The fund will invest alongside the U.S. Treasury as part of the Public-Private Investment Partnership, or PPIP, launched earlier this year. BlackRock is among a small group of firms picked to take part in PPIP.

Should you invest?

It’s hard to make a compelling case at the moment. But the fund is worth watching.

For one, it goes against the herd. Some of the best investments come from assets that everyone else is too scared or uncertain to buy. Financial salvage can be very profitable for the brave.

Some of the banks holding these securities may be eager to sell because they need the money. Other banks already have written down the value of these securities on their books to very little. If they can sell them for more than that, they have an incentive to do so and book a short-term profit.

The fund will also benefit from helpful financial engineering courtesy of the U.S. government. PPIP was set up to encourage private investors to help bail out the financial system. So for every dollar invested, Uncle Sam will provide another $2—$1 in equity and $1 in debt. The debt’s cheap, too: about two percentage points over the LIBOR interbank rate. That should boost returns.

Sources are hoping that, when you factor in the financial engineering, the fund will be able to earn maybe 10-12% annually over its ten-year life. That would be a pretty good return.

via Should You Invest In Mortgage-Backed Securities? –

One comment on “Should You Invest In Mortgage-Backed Securities? –

Comments are closed.


%d bloggers like this: