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MFA Financial reports earnings as jobs turn the corner

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MFA Financial reported earnings

Mortgage REIT MFA Financial (MFA) reported earnings last week, beating numbers by 3 cents a share. Book value per share decreased, however. MFA adjusted its portfolio to acquire more non-performing and re-performing assets.

We’ll hear from Hatteras (HTS) this week as well. As an investor in adjustable-rate mortgage-backed securities, it should be better-positioned than the REITs that focus on 30-year fixed-rate MBS—like American Capital Agency (ANGC) and Annaly Capital (NLY). The big fear is that these mortgage REITs will get stuck between big prepayments if rates continue to fall and big capital losses if rates back up.

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The JOLTS report was very strong

The JOLTS job openings report topped 5 million for the first time since early 2001. The labor market certainly appears to be turning the corner. However, we have yet to really see the big layoffs in the energy sector. Ironically, this could be good news for the real estate sector, as one of the biggest bottlenecks in the sector has been a lack of skilled labor. After the real estate bubble burst around 2006, many skilled construction workers moved to the energy sector. As the energy sector contracts due to low oil prices, many of these workers will probably return to construction. Since construction employs a lot of people, it has a big multiplier. This is good news for the economy.

The downside is that the Fed could begin tightening earlier than people think. As of now, the market consensus is that the Fed will begin to raise rates at the June meeting. If the labor market is truly healing and wage inflation is beginning, the rate hikes will be larger and more frequent. Investors who want to bet on interest rates directly should look at the iShares 20 year bond ETF (TLT).

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