Outlook For MORL, Reasons to Buy and Reasons For Caution

Summary

The February 2018 MORL dividend will bring, on a monthly compounded annualized rate, the MORL yield to 23.8%.

Since June 2017, MORL and the mREITs have generally underperformed the benchmark FNMA mortgage-backed security.

From November 2016 to June 2017, MORL and the mREITs far outperformed the benchmark FNMA mortgage-backed security.

June 2017 turned out to be a poor time to buy MORL and the mREITs; that could suggest that the recent weakness could signal a buying opportunity.

The Federal Government shutdown, or subsequent shutdowns, could have impacts on economic activity and financial markets.

Outlook For MORL, Reasons to Buy and Reasons For Caution

On June 26, 2017, the UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (MORL) closed at $19.45. Since then, it has on balance fallen and closed at $15.83 on January 19, 2018. This was a decline of $3.62 or 18.6%. On June 26, 2017, the yield on the then benchmark 10-year Treasury note closed at 2.135% and closed at 2.661% on January 19, 2018. This was an increase in yield of 53 basis points. On June 26, 2017, the benchmark 30-year mortgage-back security issued by Fannie Mae (OTCQB:FNMA) closed at $103.28 and closed at $101.27 on January 19, 2018. This was a decline in price of $2.01 or 1.9%. This indicates that MORL and the mREITs that comprise the index upon which MORL is based have generally underperformed the mortgage-backed agency securities that many of the mREITs hold, since June 26, 2017. This is in sharp contrast to the period from the November 8, 2016, election to June 16, 2017, as I described in REM And The mREITs Outperform, But Risks Are Lurking published in Seeking Alpha on June 19, 2017: