Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1321.7 | 1.9 | 0.14% |
| Eurostoxx Index | 2474.0 | 3.2 | 0.13% |
| Oil (WTI) | 96.59 | -1.0 | -1.04% |
| LIBOR | 0.5306 | -0.007 | -1.21% |
| US Dollar Index (DXY) | 79.078 | 0.216 | 0.27% |
| 10 Year Govt Bond Yield | 1.83% | 0.00% |
Stocks are flat this morning, with a lot of data. Productivity was up .7% and unit labor costs were up 1.2% for the 4th quarter. Productivity was below expectations and costs were above. Initial jobless claims were 367K vs 371K expected. Continuing claims were slower than expected as well. Stocks rebounded modestly on the numbers.
Corelogic reported its December Home Price Index and full year 2011. Home prices fell 4.7% nationally during 2011. The worst states were Illinois, Nevada, Georgia, Ohio, and Minnesota. Montana, Vermont, South Dakota, Nebraska, and NY reported the highest increases.
Today is the first Thursday of the month, which means retailers are reporting same-store sales. The winners so far appear to be Gap and Kohls. Ann Taylor and Abercrombie and Fitch (Abercrumble) are bringing up the rear.
Facebook filed its registration statement last night. I have only skimmed the document, but a few things stand out. First, there are two classes of stock – the B shares which have 10 votes per share and the A shares which have 1. Facebook is selling 5 billion of the A shares. They did 3.7 billion in revenue in 2011 and have roughly 62% EBITDA margins. Given the $100 billion price tag, this works out to 27x sales and 45x EBITDA. Revenues are roughly doubling per year. It will no doubt make zero sense on any sort of reasonable valuation metric, but iconic companies like Apple and Google always trade rich.
Pulte Homes reported earnings this moring. They are echoing the sentiment of the other homebuilders – noting reasons for optimism regarding profits, and a “growing sense of optimism” about the housing market in general. 4Q earnings were light, though.
Filed under: Earnings Announcements, Economic data | Tagged: Facebook |
All Things in Moderation 
Hi, Brent –
This morning Johnny Isakson and Barbara Boxer were on NPR.
http://www.npr.org/blogs/thetwo-way/2012/02/02/146214885/freddie-macs-conflict-is-unsavory-shocking-stunning-key-senators-say
One implication of Isakson’s remarks was that if a performing loan was FHA conforming when made its refinancing now, at a lower rate [even under current bad ltv] would still conform. He did say that was because no “new” risk was being incurred. That has a certain logic. Is it true?
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I guess John Carney had some pushback on the Treasury story yesterday, so he did a follow-up piece:
“Beyond the Zero Bound: Why Treasurys Can Go Negative”
http://www.cnbc.com/id/46226302
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Good morning.
The debt deal between Greece and the private lenders, which has been just ‘hours away’ for a few days now, is still a work in progress.
Should you crave something mind-numbingly boring but don’t have a phone book to read, I offer you the recall petitions from Wisconsin. All but the Lt. Gov.’s are now available online here.
http://webapps.wi.gov/sites/recall/default.aspx
Punxsutawney Phil saw his shadow this morning, so six more weeks of winter.
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I am waiting a few days before I contact my lender to see exactly what they know. I have held off from doing a refi because I thought this was in the works.
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One implication of Isakson’s remarks was that if a performing loan was FHA conforming when made its refinancing now, at a lower rate [even under current bad ltv] would still conform. He did say that was because no “new” risk was being incurred. That has a certain logic. Is it true?
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Yes, that is true from the government’s perspective, provided we are refinancing a FHA loan. There is no increase in risk – they are already on the hook guaranteeing the higher principal amount.
That would not be the case if the government is refinancing a non-FHA mortgage.
It also does not address the originator’s issues regarding put-back risk, which IMO is the fatal flaw of the plan.
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Six more weeks of winter? We haven’t had any winter yet in the DC/Baltimore area.
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yello sed: Six more weeks of winter? We haven’t had any winter yet in the DC/Baltimore area.
Pretty much the same thing in The Windy City. A year ago today we got a huge snowfall. Today the ground is clear and the expected high will be 17 degrees above average.
Thurston Howell Romney III?
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Joe Weisenthal makes clear the obvious to savers and pensioners. You’re not suffering from paranoia. They really ARE out to get you, and nobody has your back!
“DEAR SAVERS AND RETIREES: Stop Whining About Those Lousy Rates You’re Getting From The Bank”
http://www.businessinsider.com/dear-savers-and-retirees-stop-whining-about-those-lousy-rates-youre-getting-from-the-bank-2012-2#ixzz1lEkP1gcB
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Brent, why would the originator have put-back risk if it were a FHA refi? I have obviously misunderstood the nature of that risk, even ‘though I thought I followed it when you explained it before. I thought the originators were recourse lenders for non-conforming loans but not for conforming ones, and that was the extent of the problem. Please educate me and be patient.
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“I am waiting a few days before I contact my lender to see exactly what they know. I have held off from doing a refi because I thought this was in the works.”
you think rates are going to drop further? pardon my ignorance, but I’m not following you.
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no, not rates. I presume the usual time lag between the announcement of a program and the dissemination of info to the people actually doing the work
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Mark, AFAIK, FHA is not modifying the guidelines for a conforming loan. As of now, (and of course all this can change once the fine print is released), FHA doesn’t distinguish between new originations and refis. It is either a conforming loan, or it isn’t. So, if it is underwater, it is by definition, not a conforming loan.
Now, FHA can change the definition of conforming loans to include underwater mortgages and that would negate the put-back risk. But I can’t imagine they are doing that. I believe that originators will have to take it on faith that FHA won’t require them to buy back these loans on these refis.
Now, for some originators, that may be good enough. But anyone with grey hair remembers the supervisory goodwill fiasco from the S&L crisis where the government changed the rules to encourage mergers and then pulled the rug out from under everyone a few years later. So I can’t see most originators being willing to accept that risk for no compensation. Especially since the only thing preventing originators from making more loans is warehouse capacity. Originators can make a great living right now underwriting the good stuff.
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brent:
Do you think that the overall numbers are sufficient to cause a loss to banks from the diminution of earnings on the mortgages being refi-ed?
Thats’ what I was pondering yesterday, as I have been looking at investments in the financial sector.
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John,
No, I thing it would be a huge boost to their earnings. The banks SHOULD be marking their outstanding mortgages at the lower of unpaid principal balance or the value of the underlying collateral. In other words, a $100,000 mortgage on an $80,000 house should be marked at $80k. So, if the program works, the banks get taken out at par and will recognize a mark-to-market gain. It all depends on where banks are marking these loans. Problem is, nobody really knows where the banks are marking their portfolios.
Who gets screwed? Pension funds (again). They hold a ton of MBS that will now have accelerated prepayments and they will be forced to reinvest those funds at the paltry yields on offer now.
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Thanks, Brent. Very clear to me now.
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thanks banned — got it.
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FYI all, Bernake is testifying in front of the house right now.
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Precious little winter here in the Memphis area. Doesn’t bother me, the houses down here are not built for frigid temperatures. When it dips <20° F, I had to keep an electric heater blowing on the toilet intake in the master bathroom, and spend time pouring salt and hot water down into the washing mating out take to thaw out the ice in the curve, so we can do a load of laundry. Haven't had to worry about that once this year, so far.
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brent:
Thanks for your answer. I don’t think the banks have been using mark to market on these loans. I think that is one of the issues in their reluctance to foreclose on many loans. As I understand their accouting system, until they actually foreclose, they can maintain the nominal valuation. I could be wrong though. Damn, that’s one thing we are missing here is a banker. Everybody go recruit today.
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“Rising federal budget deficits are posing a significant threat to the U.S. economy and are likely to cause a crisis if not brought under control, Federal Reserve Chairman Ben Bernanke told Congress Thursday.
Calling the situation “unsustainable,” the central bank leader pointed out that surging health-care costs, along with the high level of government spending used to pull the economy out of recession, are creating fiscal hazard.
“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the House Budget Committee. “Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth.”
At the same time, he also warned Congress not to pull the reins too tightly so as to threaten growth.
“While conditions have certainly improved over this period, the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed,” he said. “Moreover, the sluggish expansion has left the economy vulnerable to shocks.”
I can’t decide if Ben’s trying to talk down the stock market from overheating too fast, OR is continuing to lay the grornd work for QE3.
Any opinions?
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To me, most of what Bernake said was boilerplate. I don’t think a dog and pony show in front of the House Budget Committee is where you try and communicate market moving information.
I definitely don’t think Bernake is trying to talk down the market. If anything he wants asset reflation. He wants you out of commodities and Treasuries and in stocks and real estate.
Plus, stocks have an 8% forward earnings yield. According to the Fed model, when the forward earnings yield equals the 10 year Treasury yield, stocks are correctly priced. I realize that Fed model has issues and probably never contemplated interest rates at the zero bound, but still, I can’t imagine the Fed thinking stocks are overpriced, if anything they are dirt cheap compared to Treasuries.
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At guaranteed low interest rates until the end of 2014, you will need a gun to get me out of commodities, and it will have to be bigger than those of mine and my friends. LOL
I will put you down as prepping for QE3 then?
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Somebody’s got to buy all of these newly originated mortgages. Aint gonna be me…
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Well, if you can’t bring home prices down to where there’s an actual market with buyers and sellers, THEN the next best thing is to buy about one trillion of MBS so that you reflate home prices to where there is a market for the paper, no? LOL
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Interest rates and house prices are too important to be determined by a mere market, don’t you know?
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Brent:
Interest rates and house prices are too important to be determined by a mere market, don’t you know?
Heh.
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scott:
don’t know if you saw it but a follow up link to the Treasury one in the second post of the day.
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These guys just don’t get it: Geithner a few mintues ago:
“Much of the excess risk-taking and careless and damaging financial practices that causes so much damage have been forced out of the financial system,” Geithner said.
“These gains will erode over time if we are not able to put our full reforms in place,” he added.
He said key elements of reform will be coming in 2012, including making nonbank financial institutions such as hedge funds and insurance companies subject to the same financial regulations.
Money-market funds will also come under new regulations.
The administration also plans to wind down Fannie Mae and Freddie Mac as part of its housing reform.”
Maybe the President thinks that the key to his re-election is to oppose the economy in his campaign, but that seems a highly doubtful strategy for a sitting president.
It’s a damn shame.
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“Money-market funds will also come under new regulations.”
Money market funds can’t cover their costs with rates this low. They will be the first casualties of ZIRP
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