Monday, December 12, 2016

The NCUA Budget: Easy Money... Part 11 1/2

We've talked so much about the NCUSIF "ladder" investment strategy that I thought you might like to see what the actual NCUSIF portfolio looked like at the end of December, 2015:

We discussed a hypothetical 10 year ladder with 10 different "steps" from 1 year to 10 years. You'll note from the 2015 year-end chart that the NCUA investment "robusterians" actually have two additional steps for "Overnight and "1-6 months", but don't worry the  principles are the same - as you see, your NCUSIF deposits are in fact spread over a 10 year ladder! And, you'll note the portfolio balance at 12/31/2015 is @ $12 billion ($11.9B), the average maturity is 4.89 years, and the average yield is 1.90%.

Let's look at how the NCUA investment "mavens" have changed the portfolio during 2016:

Here's how the NCUSIF portfolio looked at October 31, 2016 (the latest published financial). Sorry for the poor quality of the screenshot! [here's the link to the original - page 7].   

Notice anything different? Well, first the portfolio size has grown to $12.6 billion (from $11.9 B), the average maturity has increased to 5.00 years, and the average yield has declined to 1.82%.

You should also note that the portfolio increased by $700 million (from $11.9 to $12.6 billion), while the balances in the > 5 year steps increased from $5.75 billion to $6.3 billion - up $550 million, or 78% of the growth in the portfolio! The "step" with the largest balance ($1.550 billion) is now the longest, 9/10 year maturity!

Wonder if the NCUA Board thinks that this "going long" by staff is fiduciarily responsible?


[If so, why not buy the Brooklyn Bridge, also!]


Anonymous said...

You're getting caught up in the weeds.
Too much robusterian thinking.
Going to help you here.
Step 1, go back to "Easy Money Patt 8".
Go ahead, then come back.
See anything you want to change about your robust ideas?
Simple, staring right back at you.
See all those unrealized gains?
Why not make some of them realized, over the years?
Any idiot can buy a treasury ladder.
Taking profits the market gives you and reinvesting into a 2 year treasury is a much better approach...and when THE REINVEST IS AT A GAIN, DO IT AGAIN!
If rates go up, stop selling and let the short treasury mature.
Btw, Ralph Cramden wouldn't sell the Brooklyn Bridge, especially to NCYA.
Just the F ACTS ma'am.
NCUA doesn't wants feedback.

Jim Blaine said...

Well, of course! You've just let the cat out of the bag on the series... Part 12!!! ... and how NCUA Board needs to ACT now to increase earnings by $100 million, etc! There goes that "contingent fee"... shucks!

But since you're ahead of the game here, how would you respond to the robusterians at NCUA who firmly state we only "hold to maturity", we never "trade" the portfolio ...? Seriously that's our situation here... plus the simple obtuseness of why anyone would have made the "trades" they have made in the last 90 days.

Anonymous said...

The reason they extended duration in a low rate environment is bc of the C of F ACT.
The reason they don't change is due to the lack of F and T, feedback and transparency.
Which is why there is NO A, accountability.

Btw, ANY semblance of C would have enabled the payment of the 23% by use of the proceeds, instead of our MEMBERS capital.

Which is why Berger, nussle, Hampel CUNA nafcu in total should be fired.

Which is why we don't participate with them anymore.

Waiting on Congress, unfortunately.

Anonymous said...

Q: How would you respond to the robusterians at NCUA who firmly state we only "hold to maturity", we never "trade" the portfolio?

A: HTM = EASY button. AFS = Hard work; it's not in my "union" (credit union) contract.

Jim Blaine said...

What's absolutely maddening to me is that personally I'm an advocate for a strong, independent NCUA... believe it or not! And, as stated, believe the current Board is our best hope to create that strong... viable... Agency!

But... this type of inaction in the face of clear, repeated unthinking by the staff is going to seal the fate of NCUA... to the detriment of credit unions.

Absolutely maddening...

Jim Blaine said...

The robusterians "made up" internally the position that they "hold to maturity, it is not in the NCUA Board approved investment policy - approved Feb., 2013! They made it up... of their own volition... it is not approved Board policy!

And, BTW the robusterians have the entire NCUSIF portfolio classified as "Available for Sale" not "Held to Maturity" under GAAP specified accounting rules.

Not the first time that the senior staff leadership "invents policies" in arrears!

Jim Blaine said...

Anyone have any suggestions what else can be said about the NCUSIF which will change the NCUA' Board's mind? I have run out of "explanations" of the mechanics of the Fund and why it is not being managed prudently....

Will do one last post on the critical need to reposition the portfolio now to do damage control... but the all but assured FED rate increase on Wed. may eliminate the possibility of corrective action... another "pearl" in the sad saga of missed opportunities at NCUA over the last six years.

Current course will assure yearly assessments going forward...

Anonymous said...

Class action against NCUA for breach of fiduciary duty? How about a full page ad in USA Today explaining what the NCUA has cost credit union members via their lack of acumen? Both won't paint the industry in a very good light, but allowing things to continue is accepting defeat.

Anonymous said...

"Fish start stinking from the head".
If the board did not want this, it would not be happening.
Or, they do not care.
Mcw is no dummy and has demonstrated a keen eye for detail.
Yet, he does nothing.
That leaves only one possible explanation.

Congress, waiting on congress.

Anonymous said...

Metsger can't do substance, only posturing.

Anonymous said...

Metsger was Cuna's boy so what else is new?

Anonymous said...

JB -- Correct me if I am wrong, but a ladder strategy, implemented over the long run, will assure you an "average" rate of return and no better. Right? Apparently NCUA has confused the word "average" with the word "excellent". NCUA should replace every instance of boasting of their performance being world-class or excellent with "we strive to just be average." Average is not what people deserve. It's not what this country was founded upon. Credit unions and their members are not second class citizens and should not be treated as such. Average is not acceptable, but at NCUA, average is excellent.

Anonymous said...

Average performance?
Treasury ladder woefully underperforming to the market, to risk and to need.
23% legal fees for contingency lawsuit given to bff of Fenner.
CCU implosion.
RBC cluster --.

Average would not even be a "stretch" goal.

Anonymous said...

You seem to be dead wrong on your Ncua Board evaluation Mr. Blaine.

Nobody expected much from Metsger, but Mcwatters has made a fool out of everyone . SOS!

Jim Blaine said...

May be wrong, but believe the $300/$600 million assessment is your best evidence that performance at the NCUSIF is well below average!

A very expensive lesson...

Anonymous said...

And mcwatters and metsger ok'd the performance.
Think it's time for you to give up on this board.
If you want to hold out for Thursday's board meeting to see if there's a sudden about face on Feedback Accountability Competence and Transparency...

...In case you don't remember from earlier,Transparency is your clue. Transparency is all about will. Willing or not to be truthful. It's a simple decision. Binary. No ambiguity.

Why did Fenner GIVE the 23% fee to a friend (against executive order and a fee that is 12x the market -what FHFA PAID).
What's the true numbers in the TCCUSF (mcwatters, where art thou?).
Why not sell treasuries at multiple MILLIONS of gains to pay for the losses in CCU and the Exhorbitant fees?
Why the wasteful, silly distraction of RBC 1?
Why the CCU meltdown?
And after the CCU meltdown, how does the agency explanation looming Medalliongeddon?
Just to name a few.

Mr. Blaine, this board don't care.
What's missing in these blogs is, why do you and everyone else still pay CUNA and nafcu ?
Their attention the above, their action to the above, their dereliction to the above is indefensible.

Jim Blaine said...

The trades?

1) CUNA has been reformed everything is wonderful...

2) NAFCU has highly focused staff with strong skill sets out to change the power balance among the trades... just might pull it off.

3) NASCUS has to solve the budget/resource/expertise deficits among State regulators... don't count on it.

4) Leagues... depends... varies from amazing to OMG!.. don't buy their stock in bulk.

5) MACUMA - the D.C. based Metropolitan Area CU Managers Assoc. -sets the right standard for a trade working in the best interests of its members with solid educational and superb networking opportunities. And, a salute to MACUMA's long-time professional leaders Connie and Frank Hackney who are stepping down at the end of December - Bravo! Maestro! Maestro!

Anonymous said...

Good luck with that.
Letter writing ad nauseum.

Anonymous said...

and yet CUNA has a supposedly insider congressman at the helm and he can't even get congress to write letters and push NCUA to change. NAFCU and NASCUS are focused. Drain the swamp!