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 | 1392.3 | -5.1 | -0.36% |
| Eurostoxx Index | 2526.2 | -17.3 | -0.68% |
| Oil (WTI) | 86.22 | -1.0 | -1.10% |
| LIBOR | 0.311 | -0.001 | -0.32% |
| US Dollar Index (DXY) | 80.53 | 0.125 | 0.16% |
| 10 Year Govt Bond Yield | 1.61% | -0.02% | |
| RPX Composite Real Estate Index | 191.3 | 0.5 |
Markets are lower this morning on no real news. Expect stocks and bonds to be choppy as they react to every new clue about the fiscal cliff. Harry Reid said he was “disappointed” in how the talks were going yesterday. This one will probably go down to the wire. Bonds and MBS are up.
Bob Schiller told CNBC that the possibility of the US curbing mortgage interest deductions could prompt a sea change from buying houses to renting. He is cautious on house prices: “Persistently high unemployment and low growth in wages are reasons to be skeptical of this recovery. People that haven’t recovered their economic situation yet and we have threats from abroad. I still think it’s a risky market.”
To Schiller’s point about people not yet recovering from their economic situation, the NY Fed has a report out on the pace of consumer de-leveraging. Aggregate consumer debt fell by .7% YOY to 11.31 trillion, which is down 11% from the peak in Q308. Still, the excesses of the housing bubble have yet to be worked off. That said, debt service payments are at multi-decade lows, due to lower interest rates. If you are wondering why the Fed is keeping interest rates so low for so long, this is why. Inflation is a debtor’s best friend, and that is why the Fed is so sanguine about inflation.
Chart: Debt balance and composition:
For what it is worth, I do not share Schiller’s caution. I am bullish on residential real estate and think it will be the best performing asset in the US next year.
The Washington Post picked up on the Brown-Forman special dividend. Expect companies with excess cash to distribute it to shareholders before taxes go up next year.
Investor’s Business Daily has a good write-up on how HUD and the GSEs helped inflate the housing bubble through affordable housing goals. They include a very interesting chart showing homeownership rates and different policy actions: Given that the interpretation of what went wrong has fallen completely along partisan lines, this piece of the puzzle has yet to be officially examined. And explains why Franklin Raines (who ran Fannie Mae in the early 00s and instituted the American Dream Commitment) has escaped prosecution despite presiding over an accounting fraud that rivaled Enron.
Filed under: Morning Report |
All Things in Moderation 
Stevie Cohen gets a Wells Notice. Martoma must be talking.
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” I do not share Schiller’s caution. I am bullish on residential real estate and think it will be the best performing asset in the US next year.”
Bullish on builders, mortgage underwriters or something else? I.e. how would an investor express bullishness on residential real estate? (I only ask for curiosity; I’m an index fund kind of guy).
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Brent, I own about $25K in an REIT. Absent a tax change that destroys REITs in general, do you think a decently managed REIT will be a good holding place for that small investment [made 18 years ago] in 2013?
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Hmm. We’re considering a move. Paid off about half our current mortgage and rates are really low. That or a refi.
BB
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It’s 2031? 😉
BB
[Sorry, Mark. I recognized the parentheses, but couldn’t resist what it would look like if read straight through.]
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Mark, what kind of REIT? – Commercial or residential? Obviously taxes are the biggest consideration there (not only the fiscal cliff, but also the proposal out of the SEC to regulate them under the Investment Company Act and to strip away tax status / limit leverage). I am not up on the machinations there. Also, while it isn’t a front-burner issue, the residential REITs who hold mortgages are pretty exposed if rates rise sharply. Banks got crushed in the 1970s as their borrowing costs rose, while the amount they were earning on their assets (low interest rate mortgages originated in the 1960s) stayed the same. They are generally not buying the interest rate derivatives that would bail them out if that happened. That makes sense now, given the Fed’s statements, but at some point they should be doing that.
MIke, a lot of these stocks – homebuilders, mortgage companies are up a lot already. That said, I believe we have underbuilt for 10 years and there are a lot of tailwinds for the homebuilders. Latest housing starts are around 900k. Would I fall out of my chair with shock if we hit 1.5 million next year? Not in the least. I could see 2 million prints over the next few years. Aside from the homeboys, Barron’s just did a bullish piece on PHH. Also, some of the zombie companies from the bubble have shown some life. Impac is up 7x since August. I am not aware of a REIT / specialty finance ETF, but I am sure there is one out there.
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Brent – Invesco A is into Simon Properties [malls], hospitals, and hotels. Bought into it when Simon starting paving outer Austin. It hasn’t made me rich: Went from $15K to $30K to $14K to $25K, as I recall.
All – This great article says that an electromagnetic flux motor using copper windings and iron/steel sheets can be substituted for rare earth electromagnets.
For the uninitiated, that makes electric motors, both for hybrid vehicles and diesel-electrics, much cheaper, and eliminates China’s stranglehold on the rare earth elements. This is good for the future of efficient energy with less fossil fuel. But we could always make electromagnets out of copper windings and iron, they were just WAY TOO BIG. This article doesn’t tell about the scale for these new magnets that use “sheets”.
If y’all have read about this somewhere else and know what the scale is, I am very curious.
http://www.economist.com/news/science-and-technology/21566613-electric-motor-does-not-need-expensive-rare-earth-magnets-reluctant-heroes/print
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Mike provided me this link:
http://www.e-vectoorc.eu/en/view/main.html
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REIT = Real Estate ??
Hey, any of you VA guys: do you know why Bill Bolling suddenly dropped out of the gubernatorial race?
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REIT = Real Estate ??
Real Estate Investment Trust. Basically a stock that invests in real estate and doesn’t pay taxes at the corporate level.
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Thanks, Brent!
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The frightening part of that graph is the growing height of the student loans section of the debt load. I suspect many parents once used home equity to finance college educations and now can’t because of the poor real estate market.
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Bolling dropped out, because Coochi enginered a convention instead of a primary.
Off topic. Primo and Secondo turned 7 today. Woo hoo!
BB
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“Brent – Invesco A is into Simon Properties [malls], hospitals, and hotels. Bought into it when Simon starting paving outer Austin. It hasn’t made me rich: Went from $15K to $30K to $14K to $25K, as I recall.”
Mark, is it not paying dividends too? I added a REIT index fund (vanguard) in spring 2009 for diversification. I don’t recall what the net asset value swings have been, but it keeps churning out cash every month.
“Off topic. Primo and Secondo turned 7 today. Woo hoo!”
Time flies, eh? Congrats!
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Speaking of Birthdays: Mini ashot turned 1 today! Woo hoo! The party was on Saturday and went by just as fast as the rest of last year. I love that little guy so much.
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Awwww, Happy Birthday to the kiddies. I recently embroidered a quilt square for my nephew and his new bride with a quote that seems appropriate for just about any occasion that depicts love.
“There is no remedy for love but to love more”
I “love” that. Parenting is a lifetime commitment full of unrestrained love.
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Going back to the mortgage interest deduction, maybe all the talk is a trial balloon to see how the public reacts to its dissolution in order to gauge whether or not to include it in the “fiscal cliff” negotiations. Another piece from WaPo suggests that a phase-out of the mortgage interest deduction may be palatable.
Happy Birthday to all the lil ‘uns out there.
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Times-Dispatch write ups on Bolling.
http://www.timesdispatch.com/news/state-regional/bolling-exits-governor-s-race-clearing-gop-path-for-cuccinelli/article_3eb4642f-57aa-5895-8b05-9a201f94e732.html
http://www.timesdispatch.com/news/state-regional/government-politics/bolling-will-not-endorse-cuccinelli/article_3b538d2e-399d-11e2-b86f-0019bb30f31a.html
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Happy birthday to the kids!
Wow, BB, at their 7th you need a bigger house!
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Congrats, ashot! Wait ’till mini-shot gets mobile. The problem with twins is that they have a tendency to go in different directions.
You’re right about size, Mark. Particularly since Pinta [Spanish for spotted] arrives in two weeks.
BB
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Happy birthdays to younguns all around.
The WaPo article on Bolling hints that he is not ruling out an independent run. That would seem to pretty much insure a Democratic win in my mind.
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Yes, you are probably right. Someone (Clizza?) made the point that each party had nominated the one candidate that gave the other party a chance at winning the election.
Also, it’s ensure.
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I’d have to think long and hard about voting for Bolling as an independent. I’m deeply suspicious of McAuliffe’s motives.
BB
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Oh, Mini Ashot has been mobile for about a month. He’s a walking fool which makes coming home from work the best part of my day. Arms outstretched and yelling “Dadda” as soon as I walk in the door. When work calms down, I’m going to try and put a post up about the first year.
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Arms outstretched and yelling “Dadda” as soon as I walk in the door.
Nothing like it.
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