Friday, December 09, 2016

The NCUA Budget: Easy Money... Part 8



So, as we saw yesterday, the NCUSIF investment "managers" (let's begin thinking of a better word ok?) have recently invested $800 million in long-term treasuries and these NCUA "heavyweights" have dropped a quick $50 million from the value of the $13 billion insurance fund. 

We would assume these "portfolio Einsteins" made those investments for a good reason - explainable to our grandmothers! - but an explanation is not an unreasonable request from CU folks, who may have to ante-up $300/$600 million next year to support NCUA's  "investment virtuosos" game plan.

But before we delve further (or "drain the swamp", as our President elect says!), we need to discuss the accounting concept of "unrealized gains and losses" ("UGL").  UGL (this could get ugl-y!) simply measures the yield you are receiving on your investment portfolio vs. the yields currently being offered in the
"I got it!"
"Well, at least good 'enuf
to manage the NCUSIF!"
marketplace. If market rates are falling vs your portfolio yield, you will generally show gains in UGL; equally, if market rates are rising you will show declines in UGL. Lastly, it's key to remember that the gains or losses are noted as "unrealized" - UGL is just an accounting measurement of value and gains or losses are not actually "realized" unless the investment is sold. (Got that Einstein?!?)


So, let's take a look at the UGL on the NCUSIF over the last year...

Remember the NCUSIF is @$13 billion:

Month End                Unrealized gain or loss 

Oct. 2015                      $161 million
Nov. 2015                      $105 million
Dec. 2015                      $ 60 million
Jan. 2016                      $270 million
Feb. 2016                      $340 million
Mar. 2016                      $340 million
Apr. 2016                       $312 million
May 2016                       $273 million
Jun. 2016                      $475 million
Jul.  2016                      $468 million
Aug. 2016                      $372 million
Sep. 2016                      $381 million
Oct. 2016                      $267 million
Nov. 2016                      $??? million  (Not yet available, but take a guess!)

Now don't make the normal mistake of jumping to some delusions

NCUA's portfolio strategy has been wildly successful - all gains!! - right? Well, if you take that position, would you criticize the NCUA if the "gains" switched to "losses"? But, this post is too long already, let's talk about what to make of all this tomorrow....

Be careful of "easy" analyses.... might end up biting you in the lower part of your back (shortly!). 

5 comments:

William Brooks said...

I appreciate your focus on the NCUSIF. I believe part of the problem is when the fund started, the times were different. Treasury yields were significantly higher, the Fund was not a cash cow for NCUA profligate spending, and credit union losses were minimal. Being on the long end of the investment cycle worked great as rates pretty much have gone down since the mid-1980's. Long Treasury portfolios showed gains. The people that gives credit union instructions on ALM seem to misunderstand investing in a changing interest rate environment.

The true problem is that the NCUA steals from credit union members through the NCUSIF to support their lavish spending habits. The concept of frugality has long been forgotten at NCUA.

My question for you Jim, if you are will to figure it out, is how come total credit union assets do not total as much as JP Morgan Chase Bank N.A. and credit union support a regulatory structure which is clearly greater than the regulatory structure necessary to monitor JP Morgan Chase Bank N. A.? Not to mention several other banks that are larger than all credit unions combined.

I find it difficult to understand how credit unions are willing to support this kind of nonsense.

Anonymous said...

The Capital Market Specialists at the NCUA implore the credit unions to stay short on duration. It is all about Safety & Soundness. It is all about Interest Rate Risk (IRR). the NCUA orders the peon credit union they regulate to stay short on investments. And what does the NCUA do with investments? The NCUA goes long. Maybe the title Capital Market Specialist is an oxy-moron, like jumbo-shrimp, happily married, & military intelligence. And the NCUA announced the number of troubled CAMEL 3,4, & 5 credit unions has declined, and toxic waste investment recoveries are UP. And so what is the result. NCUA announces an assessment for 2017. Instead of a rebate to the peon credit unions we get Regulatory Raped.

Anonymous said...

The NCUA staff pays Blackrock ten million dollars for stress testing and they overnight documents to credit unions via FedEx that aren't time-sensitive. There are ways to save money and not have to assess credit unions for their continued mismanagement. They waste money because the NCUA board does not hold staff accountable.

Jim Blaine said...

If I read the NCUA budget detail correctly NCUA only paid Blackrock $2.3 million in 2014 and $1.7 million in 2015 (according to Chair Matz'l written responses to questions asked by Congress after her amazing July, 2015 performance!).

So it is unfair to say that ten million dollars have been wasted... only $4 million has been wasted!

Anonymous said...

Jim, as CEO if your employee(s) had wasted $4 million, what would you have done? Promotion? Reassignment to different position? Reprimand? Termination? Or like NCUA, nothing, because it was not unusual OR unacceptable. After all, as you said, it's not their money.