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 | 1455.6 | 2.7 | 0.19% |
| Eurostoxx Index | 2557.9 | 4.5 | 0.18% |
| Oil (WTI) | 94.87 | -0.4 | -0.44% |
| LIBOR | 0.376 | -0.003 | -0.79% |
| US Dollar Index (DXY) | 79.39 | 0.141 | 0.18% |
| 10 Year Govt Bond Yield | 1.78% | -0.02% | |
| RPX Composite Real Estate Index | 194.3 | 0.7 |
Markets are higher this morning after the Bank of Japan increased monetary stimulus. This is in spite of a disappointing report on housing starts. Bonds are up half a point and MBS are up 1/4.
Housing starts climbed to an annual 750k pace in August, still roughly half of the pre-bubble average since we started keeping records in the late 50s. To put that number in perspective, in 1959, we had just over 1.5 million housing starts with a population of 177.8M people. Fast forward today, starts are down 50%, while the population is up 75%. Low household formation numbers combined with underwater homeowners is keeping demand low. That situation will not last forever – the low household formation numbers are creating pent-up demand that eventually gets released. Even in a lousy economy, people still get married, have kids, and will need housing. We have underbuilt new housing for the past 10 years.
Chart: Housing starts (1959 – Present)
The recent QE-driven bull run in stocks has left many people skeptical, given that profitability may have peaked and Taxmageddon may usher in an early 2013 recession. Professional short-seller Jim Chanos is finding value traps in nat gas, iron ore, HP and Coinstar. Doug Kass mentioned Dell and Microsoft as short ideas on Bloomberg radio this am.
WaPo has an article accusing the banks of price gouging in the latest round of QE. Basically so much capacity has been taken out of the mortgage banking industry that banks cannot handle the amount of business coming their way, especially as GMAC sits in bankruptcy and Bank of America pulled out of correspondent lending. Much of this new business is refinancing, which the banks view as temporary. As a result they are reluctant to hire, knowing that the refi business is going to disappear once rates start backing up. Also, guarantee fees are increasing, which is working against what the Fed is trying to accomplish.
Filed under: Morning Report |
All Things in Moderation 
One correction, GMAC is not in bankruptcy but is back in business as Ally Financial.
It’s Res Cap subsidiary is going through a structured bankruptcy to get rid of the debt that it was saddled with in 2009. GMAC Mortgages is still in business making loans even while the court case is ongoing, but as to the volume it’s still top 5 in the country in loan origination I believe.
I think the confusion may be that they pulled out of Massachusetts over difficulty with correspondent lending as you brought up.
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banned. GMAC still originates, but has more or less left the correspondent business and isn’t in the top 5 anymore – I think the top 5 roughly is Wells, JP Morgan, US Bancorp, B of A, and Citi.
Rescap should be sold sometime in Q113, I hear.
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I like Doug Kass, but with MSFT raising their dividend, I’m not sure how great a short this is. I tihnk it will trade with the S&P generally.
Nat gas plays have risen over the last 3-4 months but I’m not sure that’s a trap. If your horizon is the next three months maybe, but at $2.80, you’re still well below the cost of pulling it out of the ground. This suggests that in any scenario not including recession, the price of nat gas has to rise considerably, either under an improving economy, inlfation, or a stronger winter than last year.
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Yes this ResCap deal will be sweet for those picking up the bones. They’ll get rid of the debt and jump on the expanding mortgage market (if we don’t fall off the cliff of course)
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I think Chanos has a different style than Kass. Kass likes to short companies that have a secular story – and the MSFT / DELL theory is based on tablets and mobile replacing the PC.
Chanos likes to short value traps
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And Coinstar has been one of those “you either love it or hate it” stocks for as long as I can remember.
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Here’s a little ray of sunshine:
http://gonzalolira.blogspot.com/2010/10/coming-middle-class-anarchy.html
That link it dated, but I found it on a bunch of stuff linking to this:
http://globaleconomicanalysis.blogspot.com/2012/09/baby-boomers-and-strategic-defaults.html
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coinstar owns redbox I believe which I personally love, but how long can they keep that business model going?
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what’s the appeal with redbox? I’ve never used it.
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And they have high customer concentration. If Kroger or WalMart dump them, they are screwed. However, their story of “dominating the front wall of the supermarket” is one that a lot of people find compelling.
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brent:
I think that’s based on a misunderstanding of MSFT’s current business model. Their profits by division are everywhere but based on selling more PCs, now.
I think Ballmer has been a poor CEO and has held back the stock price, but right now I would say they are in the old GM mode where the money was made in the finance division, not in selling the cars.
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nova
$1.25 for an overnight rental, about 3-4 times less than on demand, with the movies getting to you maybe 2-3 weeks later. BUT if you didn’t care about seeing them in the theaters, in seems unlikely that seeing them sooner will be worth 4 times the price to you now, or maybe I’m just a cheap bastard.
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banned,
Not taking a view on Softie, just relaying the rationale.
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“US oil stocks up 8.5 mln barrels, biggest jump since March”
I can see why we need an SPR rrelease with a buildup like that, nothing political about it at all.
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brent;
Of course, I hope I wasn’t being personal with anything I wrote today
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brent:
A naive question. Why should we compare housing starts between decades? It seems that housing starts should be a function of population growth in addition to the economy. 1959 would have been in the middle of the baby boom, no?
Of course, population growth is probably a function of the economy as well.
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Re: Redbox. I’m at the point where I don’t even want to deal with physical media. I still have netflix. but I haven’t bought a DVD or blueray in years — and I can’t remember the last time i bought a CD. and i don’t have cable. if it’s not available online, i’ll wait for the mailed disk that i can send back. don’t want the clutter anymore. and i’ve made digital copies of all my DVDs and blurays, so the actual disks are boxed up and in storage.
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Mike,
Of course. My point at looking between decades is to show how low starts are relative to history. Plus, the baby boomers were born between 45-64, more or less, right? So their home-buying probably didn’t kick in until the 70s.
But even with 75% population growth, we are building at half the rate. Low housing formation numbers have dampened demand as the echo boomers move back in with their parents or room together. But that low housing formation rate isn’t being driven by demographics – it is being driven by the economy, which is creating pent-up demand, while low housing construction is keeping the economy down. So it is easy to think of it as a chicken-and-egg phenomenon. IMO, it isn’t a chicken and egg phenomenon because regardless of how crappy the economy is, people still get married, boot out the roommates, and leave home. And that will be a big catalyst for the economy at some point because we have underbuilt for so long.
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nova:
1%er!
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Brent:
Thanks. In terms of 1959, I was thinking more about Levittown and its progeny as being responsible for a housing construction boom as the Baby Boomers’ parents were looking to buy homes, rather than the Baby Boomers themselves purchasing houses.
I just wonder if there isn’t some “maximal level” of housing inventory that housing starts would approach asymptotically, making a gradual slowing of new construction inevitable.
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banned: working on it.
OT: saw this photo spread. it’s equally depressing and inspirational. mostly inspirational
http://www.buzzfeed.com/txblacklabel/true-love-in-pictures-only-28m7/
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NoVA:
No fair. You made me cry at work.
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Don Juan:
or a stronger winter than last year.
The Farmer’s Almanac is predicting a colder, snowier winter in the east and a mild winter again in the west:
The housing market in SLC is still in fine shape for buyers, so some of you may want to consider getting winter homes here, at least for the short term! 🙂
Oh, and I get $0.99 overnight rentals at Blockbuster when I can’t get them on Netflix. I think I just out-cheap-bastarded you!
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michi:
You’re going to get Romney back come November so that should be good for at least 3-4 more home sales right there.
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Of course, I hope I wasn’t being personal with anything I wrote today
I wasn’t taking it personally – I used to duke it out on Yahoo message boards all the time (hence my moniker Sold2u – it started in the late 90s when I would argue with the day traders that half these internet stocks were worthless)
I love to debate investment ideas with smart people – it has kept me out of a lot of trouble.
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brent
You obviously don’t believe in the “greater fool” theory of the markets.
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Shorting is such an art… You can’t short valuation, crowd favorites, etc. So many smart guys got carried out shorting AOL and the telcos in the late 90s. Stay out of the way until the fizz is gone. Then you can short Lucent down to a buck a share.
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Why I like Gary Johnson:
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jnc (from Johnson):
Foreign policy is supposed to make us safer, not get Americans killed…
This is Johnson being too simplistic. Obviously the two are not mutually exclusive, and often times they necessarily go hand in hand.
I am actually quite sympathetic to Johnson’s isolationist instincts, but even so it is far from clear that such isolationism would indeed make us safer than engagement and active attempts to shape the world in our favor. And it is also far from clear that “building roads, bridges, hospitals and schools half a world away” does not redound to our benefit. See, for example, the Marshall Plan.
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Who could have such a pathetic self-image that they would go trhough this?
“Hazing ‘cries for help’ mounted at Binghamton, report says”
http://news.yahoo.com/blogs/lookout/hazing-binghamton-164724256.html
When I was in college, we laughed at the Greek people, but maybe we didn’t understand the “coolness” of the whole thing!
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Have you been to Binghamton?
This makes a lot of sense if you have.
I went to school close by. but we just drank instead.
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nova
Same thing went on at PSU, we just thought they were idiots.
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Have you been to Binghamton?
This makes a lot of sense if you have.
I went to school close by. but we just drank instead.
Where did you go? I went to grad school at UR, and can attest to what a dismal place Rochester NY is during the winter.
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Ithaca — not cornell
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brent:
We looked at Rochester for my daughter but when they said that some of the bulldings had tunnels between you could use to walk in winter time, that was the end.
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If she is in scitech, GaTech is a great school and there are more guys than women by maybe 3-1. No snow tunnels, either.
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You don’t have to be Greek to be stupid — see the FAMU drum major.
We had an instance of alcohol-induced death during hazing at my alma mater the year after I left (I think). But the hazing described in the Yahoo article is foreign to my experience in a fraternity.
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Mark
too late she’s in Boston
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the girls would sunbathe when it hit 50. and the beach boys were right about northern girls.
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banned: I used those tunnels all the time to bring my coffee from the student union to Schlegel Hall. Winter meant you always had 3-5 inches of snow on your car every morning.
Rochester is beautiful during the fall and summer though. I used to love running along the Erie Canal.
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the girls would sunbathe when it hit 50. and the beach boys were right about northern girls.
Sounds like Madison when you get that first sunny 45 degree day in Spring. People would be in shorts.
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brent
Too bad that doesn’t work with the academic calendar.
nova
when we visited cornell they tolld us they had the longest winter break in the country in order to make up for the snow. I think they said they didn’t start back until February.
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“Gates, Buffett are still richest Americans; Zuckerberg falls by most on Forbes 400 after IPO”
Nova almost makes the list at number 401. maybe next year when zuckerberg falls off completely
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“ScottC, on September 19, 2012 at 1:15 pm said:
jnc (from Johnson):
Foreign policy is supposed to make us safer, not get Americans killed…
This is Johnson being too simplistic. Obviously the two are not mutually exclusive, and often times they necessarily go hand in hand.
I am actually quite sympathetic to Johnson’s isolationist instincts, but even so it is far from clear that such isolationism would indeed make us safer than engagement and active attempts to shape the world in our favor. And it is also far from clear that “building roads, bridges, hospitals and schools half a world away” does not redound to our benefit. See, for example, the Marshall Plan.”
One thing about the Marshall Plan is that Europe wasn’t an active war zone at the time of the reconstruction with a German resistance movement committed to blowing up the things we were constructing as we were building them. There are cultural differences between the West and the Muslim/Islamist world. Bush was wrong that all people aspire to democracy and the Western conception of human rights.
Also, believing in “active attempts to shape the world in our favor” ascribes to the Federal government a level of competence that you usually assume it is lacking in things such as tax and economic policy, based on previous posts.
I’d argue that things like this quote is why the debates would be better with his presence.
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jnc:
One thing about the Marshall Plan is that Europe wasn’t an active war zone at the time of the reconstruction with a German resistance movement committed to blowing up the things we were constructing as we were building them.
Very true. But if this is a distinction Johnson would make, then he doesn’t really oppose such reconstruction in principle, as his remarks suggest.
Also, believing in “active attempts to shape the world in our favor” ascribes to the Federal government a level of competence that you usually assume it is lacking in things such as tax and economic policy, based on previous posts.
I don’t think so. I definitely wouldn’t argue that the government is capable of shaping the world to its desire, and not only, or even primarily, because of incompetence. There are lots of forces beyond its control. I am just pointing out that it is not obvious to me that retreating from active attempts to do so will leave us in a safer, more advantageous position than not. It might, and again I am highly sympathetic to such isolationist inclinations. But I think that such isolationism could well prove to be as, or even more, ineffective.
I’d argue that things like this quote is why the debates would be better with his presence.
They might make for better entertainment and more interesting to political junkies. But I guess if I am honest, I’d say that I don’t much care about the debates beyond how they might effect future policy, and I think Johnson’s presence can only have the effect of making liberal policies more likely. I do not view that as a good thing.
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JNC makes the key point. Rebuilding a modern society is one thing. dragging illiterate goat herders into modern society is something else.
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I don’t know anything about Sherrod Brown, other than he must be one complete idiot.
“Sherrod Brown Tries to Jump-Start Languishing Currency Manipulation Bill, Which Covers More Than Just China”
http://news.firedoglake.com/2012/09/19/sherrod-brown-tries-to-jump-start-languishing-currency-manipulation-bill/
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