Morning Report 10/17/12

Vital Statistics:

  Last Change Percent
S&P Futures  1453.8 4.6 0.32%
Eurostoxx Index 2557.0 9.1 0.36%
Oil (WTI) 92.48 0.4 0.42%
LIBOR 0.321 -0.004 -1.23%
US Dollar Index (DXY) 78.96 -0.444 -0.56%
10 Year Govt Bond Yield 1.77% 0.06%  
RPX Composite Real Estate Index 193.3 -0.1  

Markets are higher after a strong report on housing starts. The banks reported good numbers while the techs disappointed. Mortgage applications fell, while building permits came in well above expectations.  Signs of strength in housing are pushing yields higher on Treasuries and MBS

Housing starts were 872k in September a rise of 15% MOM and 35% YOY.  Proportionally, multi-family had the biggest increase, which speaks to the strength in the rental market. While this level is a 4 year high, it still is just about the same level as the nadirs following the 82-82 and 91-92 recessions.  So we have a long way to go to get back to “normalcy” which is around 1.5 million, but things seem to be picking up in the housing sector, which has been a major drag on the economy.

Will investors do the heavy lifting of shrinking the TBTF banks? Given languishing stock prices and large discounts to book value, shareholders will be pressuring the banks to exit marginal businesses and either sell them or spin them off to shareholders. For example, Citi’s investment banking division is about the size of Goldman Sachs. Goldman trades at an 11 multiple, while Morgan Stanley trades at a 30 multiple. It would make sense for Citi, which trades at a 9.7 P/E to spin off the investment bank, which should unlock shareholder value.  Maybe they could resurrect the old Salomon Brothers.

The WSJ was out with a story last night which said the CFPB is considering giving lenders safe harbor if they originate a qualified mortgage.  It sounds like this safe harbor wouldn’t insulate the banks from buyback risk, but it would insulate them from lawsuits and penalties from the government. If there isn’t any protection from buyback risk, I am not sure how much this would end up mattering in the end.

Presidential Debate Open Thread

Don’t know if any of you will be interested, but I thought I’d toss this out there.  Open thread, so if you don’t feel like saying anything about the debate, chime in with whatever’s on your mind!

And I totally stole thisfrom Mark

Morning Report 10/16/12

Vital Statistics:

  Last Change Percent
S&P Futures  1442.5 7.0 0.49%
Eurostoxx Index 2527.9 42.8 1.72%
Oil (WTI) 91.98 0.1 0.14%
LIBOR 0.325 -0.006 -1.67%
US Dollar Index (DXY) 79.33 -0.413 -0.52%
10 Year Govt Bond Yield 1.71% 0.04%  
RPX Composite Real Estate Index 193.4 -0.7  

Markets are higher this morning after a slew of good earnings reports and a positive reading on German confidence. Vik Pandit has stepped down as CEO of Citigroup.  The Consumer Price Index (which officially does not matter anymore) came in as expected. Bonds and MBS are down.

Yet another article complaining that mortgage rates aren’t dropping enough in response to QE. At least this one mentions the increase in G-fees, though it implies that it is a minor reason. 

One way of handling the TBTF issue that is being bandied about is to place a cap on bank balance sheets as a percent of GDP. Ohio Democrat Sherrod Brown introduced a bill to cap liabilities at 2% of GDP which went nowhere (JPM has liabilities of 8% of GDP).  But now a Federal Reserve Governor has mentioned the idea as well.  He doesn’t mention a specific number though. 

The first time homebuyer may be coming back.

Morning Report 10/15/12

Vital Statistics 

  Last Change Percent
S&P Futures  1429.1 7.6 0.53%
Eurostoxx Index 2498.5 29.5 1.19%
Oil (WTI) 91.96 0.1 0.11%
LIBOR 0.33 -0.004 -1.20%
US Dollar Index (DXY) 79.66 -0.007 -0.01%
10 Year Govt Bond Yield 1.68% 0.02%  
RPX Composite Real Estate Index 194.1 -0.3  

Markets are higher this morning on lower Chinese inflation.  Part of the recent strength (it seems like almost every day, the S&P futures are up 5 points pre-open) is being driven by the steady drop in Euro sovereign yields. Italy is trading below 5% and post-re-org Greek debt is trading at 17.5% after reaching 30% in late spring. Whether the crisis is over, or merely taking a breather is anyone’s guess. Of course there is the possibility of a hard landing in the emerging markets looming on the horizon.

On the economic news front, retail sales came in at 1.1%, and look even better when you strip out autos and gasoline. Maybe there was something to that University of Michigan consumer confidence number last Friday. It certainly bodes well for a good holiday season for the retailers. On the other hand, the NY Fed’s Empire Manufacturing Survey continued to decline.

Citigroup reported better than expected earnings, though it appears one-time items drove the results.  The Street is still refusing to give much credit to Citi’s turnaround – book value is $63.59 a share and the stock is trading at 35.25, up about a half.

The NY Times has another article discussing the problems with appraisals. Given that the real estate market has been slow for so many years, finding enough non-distressed comps is proving to be a problem.  Sellers who think they are lowballing their prices find that appraisals are coming in well below their offers.  Appraisers counter that they don’t set the market – they reflect it, and blaming appraisers for a lousy housing market is like blaming the weatherman for lousy weather.

Bob Schiller and Rick Santelli discuss ZIRP and housing. Santelli, no fan of ZIRP calls it “money for nothing” and believes that the message it sends (that the Fed is really worried about the next few years) is putting a damper on the animal spirits. Plus, as Schiller has pointed out, there isn’t a lot of evidence that mortgage rates explain house prices. 

Mark Zandi believes that the deleveraging process is largely over. Certainly debt service payments relative to income are at the lowest level in 20 years, courtesy of low interest rates.  Debt however, is not, although it is off the highs of 2007.

 

 

 

Weekend Non-Sports Open Thread

Figured I’d put in a placeholder.

Saturday Football Open Thread (Week 7)

I’m not sure that any of us cared much about the early games this week; on Thursday Western KY beat Troy 31 – 26,  Tulsa beat UTEP 33 – 11 (UTEP had a field goal and then a touchdown with a two-point conversion), and Arizona State clobbered Utah’s fellow inductee into the Pac12, Colorado, 51 – 17.  Last night  Navy beat Central Michigan 31 – 13 in Mt Pleasant (sorry, Aunt Nancy!).

On the menu for today:

Iowa is playing at MSU (line: MSU, spread 11.5).  Once more into the breach (to mix battles)–go, Spartans! [Update: MSU loses 19 – 16 in OT]

Northwestern, the surprise of the Big Ten this year, is at Minnesota (line: Northwestern, spread 3.5).  Should be an excellent game, and for bsimon’s sake, go Gophers! [Update: Northwestern wins 21 – 13]

Syracuse is at Rutgers (line: Rutgers, spread 7.5)  in Big East play.  Go, Orange!  (Why just “Orange”, Scott?) [Update:  Syracuse loses 23 – 15]

And, ahem, the intra-ATiM death match of the week: Texas is venturing into the lions’ den in the Cotton Bowl which is actually closer to Norman, Oklahoma at noon EDT (ABC)(line: Oklahoma, spread 3.0).  I’m backing away slowly from this one and letting Mark and okie have at it with the trash talk. . .

In a huge surprise, okie goes with the spread and picks the Sooners 31-28. But she’s going to be terribly annoyed if it turns out the Sooners lose by a Penn State field goal. Sooners have the edge at QB, but the game really depends on which defense is worse. Ay-yi-yi for both defenses. Damien Williams could make a huge difference for the Sooner running game if he isn’t overwhelmed by his first experience in the atmosphere of this game. This is a really great rivalry game! In person, the huge crowd demarked at the 50 yard line with a sea of red in one direction and a sea of orange in the other is amazing. Saving the trash talk for the comments. BOOMER SOONER! okie

For the ‘Horns, watch out for Johnathan Gray, last year’s HS running back of the year, as a potential difference maker. QB David Ash has come so far, so fast, as a sophomore, that I won’t concede Landry Jones is still his better. Okie is right about the suspect defenses, yet both squads are sprinkled with huge raw talent. I think it will be close and middling high scoring, as does Okie. 35-28 UT? Could be. HOOK ‘EM! MiA

[Update: OU crushes smushes UT 63 – 21]

Wisconsin is at Purdue (line: Purdue, spread 1.0).  Boil ’em, Badgers! [Update: UW wins 38 – 14]

Utah is playing UCLA (line: UCLA, spread 6.0).  It would be nice if the Utes could win again. . . [Update: UCLA beats Utah 21  – 14]

Stanford is in South Bend to see if Notre Dame can make it 6 – 0 (line: Notre Dame, spread 7.0) [Update: Notre Dame wins 20 – 13]

Illinois is in The Big House (line: UM, spread 21).  Go Blue! [Update:  UM smushes Illinois 45 – 0]

Boston College is playing FSU (line: FSU, spread 27).  Er, Go Eagles! [Update:  FSU wins 51 – 7]

tOSU (Okie and Mark call Okie Lite OSU and “the Ohio State” tOSU) I don’t care–as the “official” Saturday Football poster at ATiM that school in Columbus, OH, gets no love and no upper case from me:  osu is at Indiana (line: tOSU osu, spread 17.5).  C’mon, IU, you gave my alma mater a scare last week.  Really go for it this week!!  Damn Big 12 folks are too polite to “that school”. . . 🙂  [Update:  IU can’t catch up and osu pulls off another win 52 – 49]

Off this week:  Penn State, USF, Arizona, Georgia Tech, and Nebraska.

Happy Saturday to one and all–may the right teams win!

Morning Report 10/12/12

Vital Statistics 

  Last Change Percent
S&P Futures  1433.4 5.0 0.35%
Eurostoxx Index 2492.4 5.3 0.21%
Oil (WTI) 92.14 0.1 0.08%
LIBOR 0.334 -0.006 -1.76%
US Dollar Index (DXY) 79.61 -0.161 -0.20%
10 Year Govt Bond Yield 1.68% 0.01%  
RPX Composite Real Estate Index 194.4 0.1  

Stocks are higher this morning after positive earnings out of JP Morgan and Wells Fargo. Mortgage banking drove revenues and profits. The Producer Price Index came in higher than expected, although it was lower ex-food and energy.  Bonds and MBS are flattish.

Was the debate last night market moving?  Of course not.  Best headline to sum it up:  GOP and Dems agree: Our guy won.

It turns out yesterday’s unexpectedly large drops in unemployment claims was due to a large state mistakenly reporting its claims.  

Frank Blake of the Home Despot sees a full blown housing recovery as a year or two away. He points to customer attitudes – do homeowners consider a home improvement as an investment to be recouped when the house is sold, or simply an expense.  I would agree – considering a granite countertop an “investment” is definitely bull-market thinking.

What is the role of the CFPB?  It was sold as an agency dedicated to more transparency and ensuring consumers are fully informed when making financial decisions.  But to the people that work there, the mission is to force financial service providers to give consumers a better deal. The Mortgage Bankers Association warns of unintended consequences.

Come On, I’m Not a Robot, Okay? I Wish!

Bad Lip Reading makes performance art out of the presidential debates:

 

It’s party time, chumps!

Morning Report 10/11/12

Vital Statistics:

Last Change Percent
S&P Futures 1433.8 7.5 0.53%
Eurostoxx Index 2473.0 16.4 0.67%
Oil (WTI) 92.44 1.2 1.30%
LIBOR 0.34 -0.003 -0.73%
US Dollar Index (DXY) 79.83 -0.092 -0.12%
10 Year Govt Bond Yield 1.71% 0.04%
RPX Composite Real Estate Index 194.3 -0.4

Markets are firmer after a surprisingly low initial jobless claims report. Initial Jobless claims fell to 339k, which is below the average over the past 45 years and more or less consistent with normal non-recessionary economies. Bonds and MBS are down on the report.

At the Council on Foreign Relations yesterday, Jamie Dimon revealed the background to the Bear Stearns deal:  “We did them [the government] a favor.  We were asked to do it and we did it at great risk to ourselves.”  Many on Wall Street suspected the flurry of merger activity at the height of the financial crisis – JPM / Bear & Wamu, Bank of America / Countrywide and Merrill, and Wells / Wachovia were a series of shotgun weddings ordered by the government.  Now we have someone explicitly saying that it was.  You would think that would be news, especially since the government is suing JPM for stuff that Bear did prior to the merger.  Or that fact would be interesting to people who bemoan TBTF. To the Washington Post, they discuss Dimon’s comments with the snarky headline “The Financial Gospel according to JP Morgan Chase CEO.” without mentioning the Bear issue, where they focus on the London Whale. If WaPo is truly representative of the Washington mindset, I guess that article speaks volumes about the disconnect between Wall Street and Washington.

California led the nation into the housing bust; now it is leading the nation out of it. Strength on the coast is steadily moving inland.  The Northeast was one of the last to go into crisis, and is still lagging, although rents are up 10% in Manhattan.

Are distressed sales artificially lowering comps, which feeds into appraisal problems with home sales?  The NAR thinks so. Given that you have to use comparable sales, appraisals will lag the market, almost by definition.  This has caused problems on 35% of sales.

I DON’T WANT TO BELIEVE THEY ARE THIS STUPID

Letting us in on a secret
By Dana Milbank, Published: October 10

When House Republicans called a hearing in the middle of their long recess, you knew it would be something big, and indeed it was: They accidentally blew the CIA’s cover.

The purpose of Wednesday’s hearing of the Oversight and Government Reform Committee was to examine security lapses that led to the killing in Benghazi last month of the U.S. ambassador to Libya and three others. But in doing so, the lawmakers reminded us why “congressional intelligence” is an oxymoron.

Through their outbursts, cryptic language and boneheaded questioning of State Department officials, the committee members left little doubt that one of the two compounds at which the Americans were killed, described by the administration as a “consulate” and a nearby “annex,” was a CIA base. They did this, helpfully, in a televised public hearing.

Rep. Jason Chaffetz (R-Utah) was the first to unmask the spooks. “Point of order! Point of order!” he called out as a State Department security official, seated in front of an aerial photo of the U.S. facilities in Benghazi, described the chaotic night of the attack. “We’re getting into classified issues that deal with sources and methods that would be totally inappropriate in an open forum such as this.”

A State Department official assured him that the material was “entirely unclassified” and that the photo was from a commercial satellite. “I totally object to the use of that photo,” Chaffetz continued. He went on to say that “I was told specifically while I was in Libya I could not and should not ever talk about what you’re showing here today.”

Now that Chaffetz had alerted potential bad guys that something valuable was in the photo, the chairman, Darrell Issa (R-Calif.), attempted to lock the barn door through which the horse had just bolted. “I would direct that that chart be taken down,” he said, although it already had been on C-SPAN. “In this hearing room, we’re not going to point out details of what may still in fact be a facility of the United States government or more facilities.”

May still be a facility? The plot thickened — and Chaffetz gave more hints. “I believe that the markings on that map were terribly inappropriate,” he said, adding that “the activities there could cost lives.”

In their questioning and in the public testimony they invited, the lawmakers managed to disclose, without ever mentioning Langley directly, that there was a seven-member “rapid response force” in the compound the State Department was calling an annex. One of the State Department security officials was forced to acknowledge that “not necessarily all of the security people” at the Benghazi compounds “fell under my direct operational control.”

And whose control might they have fallen under? Well, presumably it’s the “other government agency” or “other government entity” the lawmakers and witnesses referred to; Issa informed the public that this agency was not the FBI.

“Other government agency,” or “OGA,” is a common euphemism in Washington for the CIA. This “other government agency,” the lawmakers’ questioning further revealed, was in possession of a video of the attack but wasn’t releasing it because it was undergoing “an investigative process.”

Or maybe they were referring to the Department of Agriculture.

That the Benghazi compound had included a large CIA presence had been reported but not confirmed. The New York Times, for example, had reported that among those evacuated were “about a dozen CIA operatives and contractors.” The paper, like The Washington Post, withheld locations and details of the facilities at the administration’s request.

But on Wednesday, the withholding was on hold.

The Republican lawmakers, in their outbursts, alternated between scolding the State Department officials for hiding behind classified material and blaming them for disclosing information that should have been classified. But the lawmakers created the situation by ordering a public hearing on a matter that belonged behind closed doors.

Republicans were aiming to embarrass the Obama administration over State Department security lapses. But they inadvertently caused a different picture to emerge than the one that has been publicly known: that the victims may have been let down not by the State Department but by the CIA. If the CIA was playing such a major role in these events, which was the unmistakable impression left by Wednesday’s hearing, having a televised probe of the matter was absurd.

The chairman, attempting to close his can of worms, finally suggested that “the entire committee have a classified briefing as to any and all other assets that were not drawn upon but could have been drawn upon” in Benghazi.

Good idea. Too bad he didn’t think of that before putting the CIA on C-SPAN.

danamilbank@washpost.com