Question-and-Answer Session
Thank you, sir. [Operators Instructions]. Our first question comes from Mike Widner of Stifel Nicolaus.
Michael Widner - Stifel Nicolaus
Hi. Good morning guys. Thanks for taking my questions, and congratulations on a petty solid quarter. Just two questions, if I may, first one just a comment on leverage. I know you guys raised a little bit of money in the quarter, and just wondering how much that might have had do with where you ended the leverage or if it's just kind of conservatism, given the current environment. And then I guess really, the question is as we build our models after the rest of the year and looking into '09 should we expect you guys down in the sort of below 8 range, which is pretty rare for you guys, should we look for something more in kind of the customary range?
Michael A. J. Farrell - Chairman, Chief Executive Officer and President
Thank you, Mike. Our view of the markets as we have expressed over the past two earnings calls, the fourth and the first quarter, is that the markets continue to create history on the run here. At the end of first quarter you had the merger between JP Morgan and Bear Stearns. At the end of the second quarter you had essentially Lehman Brothers and others being attacked in the markets. And at the beginning of the third quarter on the 4th of July the real fireworks in the markets in our minds was the GSEs. And I think against that backdrop, the wider spread that are out there on the asset side are allowing us to maintain short duration and capture spread in a way that rivals going back to when we first started in the early... in the late 1997. That's the last time that our leverage was this low. With the spread out there we can do a great job of creating spread income and taking advantage of dislocations in the market as people were liquidating things to keep our powder dry, and I think that against the backdrop of an entire financial section that is cutting dividend and is simultaneously taking write-downs on assets, I think that’s the backdrop where we want to be is to be in to take advantage of that and keep our powder dry and pick up pieces that are cheap along the way here as our dislocations work themselves through the system. So the answer is that, with spreads out here we can afford to run lower amounts of leverage and we feel comfortable doing that, and we have done it before, our history would so you that we have done it. Against that backdrop, we are creating a high-teens ROE. If investors can find that elsewhere in the market, I'm sure that they are going to find it, but in our mind if you can do that with short durations philosophy and low leverage you’re supposed to do that.
- To read the full transcript on Seeking Alpha, click here »
