Sunday, December 04, 2016

The NCUA Budget: Easy Money... Part 2

So, let's tip-toe forward on the examination of NCUA's "management" of the $13 billion share insurance fund - the NCUSIF. Keep in mind as we move forward Chair Metsger's firm, committed declaration that the NCUA Board has a fiduciary responsibility to manage the NCUSIF prudently - with "the highest standard of care".

"What the... FED"?!
Yesterday we noted that in the face of 99+% certainly of immediately rising market rates, the investment gurus at NCUA have purchased $800 million in long-term Treasury bonds in the last 90 days (... and $1.4+ billion total in 2016). [So much for their self-proclaimed interest rate risk (IRR) "expertise" - heh!]

Of course, it's easy to have 20-20 hindsight, but investing $800 million in 9 and 10 year long-term treasuries in the last 90 days does not meet even an amateur's definition of "the highest standard of care", i.e. fiduciary responsibility.

But clearly, given 1) the FED's "loud proclamation" of imminent rate increases, 2) the results of the November election, and 3) the confirmation provided by economic data of a surging U.S. economy; you at least wouldn't "double down" and...

No way!
... buy long-term treasury bonds in November, 2016 - right?!?
[... or in December for that matter!]


[Whether "fiduciary", or otherwise!]


Anonymous said...

So, NCUSIF invested about 10% of the portfolio LONG in the past few months.
Your prognostication that rates are going up immediately and definitely is also a guess...albeit a reasonable one on its face.
The economy is NOT surging.
Not sure the Fed can afford to raise rates after the next move.
Maybe they will, maybe they won't.
But that's not the point.

The real point is WHY go deep now with $8 let alone $800Million.
The yield pick up is not worth it against the risk of rising rates over the next 10 YEARS!
Why not buy a fnma 10 year pass thru?
More yield than the treasury and half the principal is returned in less than 4 years!

So, why?
Is it bc the overhead at the agency is TOO high?
A shrinking roster of credit unions combines with a larger staff and higher budget over years.
Is this what is behind the 3-6bps assessment range?
Or is it the looming medalliageddon?
Or both?

One thing is clear...
...NCUA continues to be a 5 on accountability, a 4 on competence and a -5 on transparency because WE SHOULDNT HAVE TO GUESS AT THIS STUFF...AT THIS POINT ITS INEXCUSABLE...and why you are wrong Mr. Blaine that the board is a stellar one.
Mcwatters is smart and it appears, THATS IT.
metsger is...well, the less said the better.

Jim Blaine said...

Haven't checked in awhile but believe that the NCUSIF investment authority is limited to treasuries... not sure if that is by choice or statute, but given the current level of investment skill, limitations are very appropriate!

Anonymous said...

If that's true, only ust then THAT should be something they sought change on versus a host of other stuff.

Either way, a 5 on accountability, a 4 on competence and a -5 on transparency.

Sort of like CUNA.
Think of cu a and nafcu as a hmda violation.
Misleading, deceptive and therefore abusive.

We are getting what we are paying for and not holding to account.

Waiting on congress.

Jim Blaine said...

Executing a bad strategy in a "small sandbox" is still a "misdemeanor"... and a previous mis -take on market risk.