Morning Report – 4Q GDP upward revision 02/28/13

Vital Statistics:

  Last Change Percent
S&P Futures  1516.7 0.9 0.06%
Eurostoxx Index 2616.7 4.9 0.19%
Oil (WTI) 92.98 0.2 0.24%
LIBOR 0.287 0.000 0.00%
US Dollar Index (DXY) 81.58 -0.024 -0.03%
10 Year Govt Bond Yield 1.88% -0.02%  
RPX Composite Real Estate Index 194.2 0.2  

Markets are flattish after 4Q GDP was revised upward, but less than forecast.  4Q GDP has been revised upward to + .1% from -.1%.  Initial Jobless Claims came in at 344k. NAPM Milwaukee came in BTE at 56.5. Bonds and MBS are up on the news. 

The US GDP number was disappointing (the Street was at + .5%) and a drop in defense spending was a big factor.  Don’t forget 3Q GDP came in at + 3.1%, well in excess of the current 1.5% trend.  The government’s fiscal year ends in September, and there is a “use-it-or-lose-it” dynamic that goes on.  In other words, if an agency doesn’t spend their entire budget, it will be cut next year.  So even if they don’t actually need to spend the money, they will. The net effect is that government spending tends to accelerate in Q3 and then fall in Q1. You can see this in Table 1 of the official press release.  Punch line:  Take both 3Q and 4Q GDP numbers with a grain of salt. Of course, there is a battle royale going on between the right and the left about how to frame this whole issue as everyone deals with the sequester, which makes the signal to noise ratio miniscule.

Tidbits from the Bernank’s House Testimony yesterday:  A “significant majority” of the FOMC is supportive of current policy.  The Fed would prefer that US fiscal solutions be less front-loaded. They note some progress in the labor market and haven’t seen any significant problems in market functioning. He also gave some insight into the planned exit strategy:  to let the assets run off and then drain reserves.  He said it is a “reasonable guess” that unemployment will get to 6% by 2016.

It is getting easier to raise money in the housing market. There should be an uptick in IPOs for homebuilders this year as there is still a chasm between ease of financing in the private and public markets.  While yield pigs will jump on bond issues from the recently dead, non-public entities still struggle to get access to construction loans. The homebuilders are pretty rich at the moment, sporting P/Es around 30 or so.

Jack Lew was confirmed as Treasury Secretary.  His job will be the pit bull defending government spending and pushing for tax hikes. How this affects the dollar I have no idea. 

Morning Report – Its raining money 02/27/13

Vital Statistics:

  Last Change Percent
S&P Futures  1493.5 1.1 0.07%
Eurostoxx Index 2581.6 11.1 0.43%
Oil (WTI) 92.45 -0.2 -0.19%
LIBOR 0.287 0.001 0.17%
US Dollar Index (DXY) 81.73 -0.137 -0.17%
10 Year Govt Bond Yield 1.85% -0.03%  
RPX Composite Real Estate Index 194 0.0  

Markets are flattish this morning on no real news. Italian Sovereign Yields are slightly lower after the sell-off of the last two days.  Mortgage Applications fell 3.8% last week. Durable Orders dropped 5%, which was a disappointment, but most of that looks to be due to Boeing and their battery problem.  Strip out Boeing, and orders were up 6.3%, which is a signal that businesses are starting to spend on CAPEX.  Fed Chairman Bernake will address the House Financial Services Committee today.  Bonds and MBS are rallying. For those that follow technicals, it looks like the 10 year has broken out of its bear trend of the last 4 months. 

The Bernank spoke in front of the Senate Banking Committee yesterday and seemed to tamp down speculation that the Fed intended to end QE any time soon. Remember the December minutes seemed to indicate that there was a consensus forming that purchases of MBS and Treasuries would end sometime this year.  This accounts for the 15 basis point rally we have seen in the 10 year over the past few days. He also urged the government to find a way to kick the sequester can down the road and replace it with more gradual cuts, while at the same time playing down the “fiscal armageddon” predictions.  

Bernake assured the Committee that the Fed was monitoring the unintended consequences of low interest rates and said that the risks of new bubbles were offset by companies using low interest rates to lock in low borrowing costs for a long period. Almost on cue, Bloomberg has a story regarding this exact issue, where the yield pigs are feasting on junk bonds, which “trade like dot coms.” As an aside, Radian (remember them?  the mortgage insurer left for dead in the depths of the crisis?) They just priced a convert deal, 2 1/4s up 25. Its raining money out there..

Jamie Dimon said yesterday that banks are accumulating more capital than regulators require and will not know what to do with it in two years.  “Lend it” is the obvious answer, but if you can lock up long term capital in the bond market for less than your dividend yield, what are you going to do as a CFO?  

The jumbo market is coming back. While still nowhere near pre-crisis levels, jumbo origination is up 60% from last year. While still hard to get, the loans are priced aggressively, at about a 23 basis point spread to conventionals.  A pick up in jumbo activity may well foreshadow the return of the private label market.

Morning Report – Case-Schiller 02/26/13

Vital Statistics:

  Last Change Percent
S&P Futures  1490.8 3.6 0.24%
Eurostoxx Index 2586.8 -65.1 -2.45%
Oil (WTI) 92.23 -0.9 -0.95%
LIBOR 0.287 0.000 0.00%
US Dollar Index (DXY) 81.85 0.180 0.22%
10 Year Govt Bond Yield 1.87% 0.01%  
RPX Composite Real Estate Index 194.1 -0.5  

Markets are higher after yesterday’s bloodbath.  Yesterday’s sell-off was blamed on Italian election results which caused a 32 bp sell-off in Italian sovereigns.  They have traded another 50 basis points wider this morning. The Bernank will testify before the Senate Banking Committee today.  Bonds are higher, continuing yesterday’s furious rally. The 10-year has tightened by 13 basis points and is trading at 1.87%.  MBS are flat.

The S&P Case-Schiller index of home prices rose 6.8% YOY and .88% MOM in December. The only MSA with negative growth was New York.  Separately, FHFA reported that prices increased .6% MOM in December. They note that while the foreclosure pipeline is still high, the actual number of homes available for sale is very low and falling. 

Altos has a piece on why inventory is so low. First, they cite low housing starts. From 1957 – 2002, we averaged 1.5 million units a year.  Since the bubble burst, we have been hitting around 700k. Quickly ramping up housing construction is difficult. Second, there is psychological effect of sellers who now see the light at the end of the tunnel.  Prices are rising again, and they are hoping to get out flat. Finally, the government has emphatically sided with home owners over home buyers. They are pulling out all the stops to keep inventory off the market through foreclosure mitigation and refinance opportunities for underwater homeowners.  This has the net effect of restricting supply, which is good for existing homeowners, but not so much for first time homebuyers who want in. The net result:  2013 home price appreciation should be very strong. 

In confirmation of the above, the Despot reported a 13.9% increase in 4Q sales, with comps up 7%. While they attribute some of the growth to Sandy repairs, they mainly cite the improving residential real estate market. 

In a sign that the refi boom may be over, JP Morgan plans on cutting headcount in mortgage banking by 13k – 15k in an effort to cut $3B in expenses by the end of 2014. They see cutting 3,000 – 4,000 jobs in consumer banking this year, almost entirely by attrition.  The hits keep coming….

Bob Corker is saying the ball is in the White House’s court in order to confirm CFPB acting Chairman Richard Cordray.  A January court decision that Obama’s recess appointments to the NLRB were unconstitutional is giving Republicans a chance to press for changes to CFPB in order to bring more of it under Congressional control.  They are arguing for a 5 member bipartisan board, and for the budget to be subject to the normal appropriations process. 

Bites and Pieces: The Book

Hi all,

I was searching through some old comment threads to track down a particular response of Scott’s awhile ago. In the course of doing that, I saw a lot of interesting Bites & Pieces posts. Some of which I’d completely forgotten about.

I was thinking about going through them and compiling the Bites & Pieces into one record for ATiMers, past and present. Perhaps an exercise for when I’m in Sequesterville. We are forbidden by law from doing anything work related while on furlough, so I may as well make some use of my time.


Morning Report – Life after Fan and Fred 02/25/13

Vital Statistics:

  Last Change Percent
S&P Futures  1521.4 6.8 0.45%
Eurostoxx Index 2688.7 58.6 2.23%
Oil (WTI) 94.04 0.9 0.98%
LIBOR 0.287 -0.002 -0.52%
US Dollar Index (DXY) 81.11 -0.368 -0.45%
10 Year Govt Bond Yield 1.98% 0.02%  
RPX Composite Real Estate Index 194.5 0.2  

Markets have a risk on feel this morning on no real news.  Elections are being held in Italy, with Bersani on track to win. Italian sovereign yields have tightened 20 basis points in response. Bonds and MBS are down.

Sequester week. Bob Woodward had a column over the weekend that said, WH protestations aside, that the sequester was Obama and Lew’s idea in the first place. The WH is releasing all sorts of gloom and doom scenarios about what will happen if sequestration happens. Republicans seem to be content to allow the cuts to happen. FWIW, I do not believe the markets care one way or the other about the impending sequester. 

The Chicago Fed National Activity Index showed growth moderated in January, falling to -.32 from a revised +.25 the previous month. Production related indicators explain most of the weakness, although employment and consumption also were negative contributors. The 3 month moving average is still in positive territory, indicating that economic growth continues to be moderately above trend.

The Bernank will be testifying in front of Congress this week. These things tend to be partisan dog-and-pony shows where the questioners are more interested in getting the Fed Chairman to validate their worldview than they are in seeking actual answers.  Democrats will undoubtedly be pushing for Bernake to say that sequestration will be an economic nightmare, while Republicans will be pushing for him to say that spending and the debt pose a problem. Democrats will also be looking for support for raising the minimum wage. Republicans will probably want to drill down a bit on the end of QE. 

The Bipartisan Policy Center has released a report on the future of housing and the GSEs. With the government guaranteeing 90% of all mortgages these days, there is a push in Washington to get the private sector more involved. They envision phasing out Fan and Fred and replacing them with a “public guarantor,” who has a re-insurance role, stepping in only when private insurers are unable to make good on the loan. They also propose that the government get involved with providing affordable rental housing. 


I just had to get Bon Jovi off the front page.



Is anybody going to be in Boston in a couple of weeks?  I fly in on Friday, 3/8, and don’t have to be out to Woods Hole until the next day; where’s a good place to stay/eat?  I’ve been through Boston several times now, so know how to use their version of the Metro, but haven’t found a hangout I like yet.

Sorry. Really.

Look, I’m sorry. But this was on the radio yesterday morning, it’s been on a loop in my head since then. And the only way to get it out is to give to someone else.

FY2013 CR & 02/21/2013 Open Thread

New NYT piece with some good info on the next stage of the budget fight, the continuing resolution to fund the government through the rest of FY2013 (i.e. through September 30, 2013).

“Taking steps to avoid a full government shutdown at the end of March, the House Appropriations Committee as soon as next week will introduce legislation to keep the government financed through Sept. 30, the end of the fiscal year, but do nothing to stop the pending cuts.”

“The Senate next week will consider competing Democratic and Republican proposals to stop the automatic cuts. The Democratic plan would institute a 30 percent minimum tax rate on incomes over $1 million, cut farm subsidies, and institute military cuts delayed until most United States troops have returned from Afghanistan. Neither plan is expected to win the 60 votes needed to overcome a filibuster

Instead, attention will shift to the next deadline, March 27, when financing for the government runs out.

The House bill would maintain financing at presequester levels, $1.043 trillion, with detailed spending instructions for defense programs devised to give the Pentagon more flexibility. But a provision in the spending bill will say that all levels are subject to automatic cuts to be meted out by the White House Budget Office.”

If the House is really going to let the baseline be set at pre-sequester levels for the CR, this could constitute a cave for the Republicans. I.e. the sequester was actually in effect for about 1 month tops and now spending is going to be held flat at the old levels.

Update: Good piece by Karl Rove on the various options. I agree with his proposal:

“My own recommendation is that House Republicans should pass a continuing resolution next week to fund the government for the balance of the fiscal year at the lower level dictated by the sequester—with language granting the executive branch the flexibility to move funds from less vital activities to more important ones.”

President’s Day Open Thread – 02/18/2013

Open thread for links, etc.

New York considers passing a law making previous employment condition a basis for a discrimination lawsuit when an applicant is denied a job. What could go wrong?



Morning Report – Housing Market Outlook 02/15/13

Vital Statistics:

  Last Change Percent
S&P Futures  1518.0 -0.5 -0.03%
Eurostoxx Index 2632.2 -3.2 -0.12%
Oil (WTI) 96.64 -0.7 -0.69%
LIBOR 0.29 0.000 0.00%
US Dollar Index (DXY) 80.52 0.066 0.08%
10 Year Govt Bond Yield 2.01% 0.01%  
RPX Composite Real Estate Index 192.7 -0.4  

Markets are flattish on no real news. The Empire State Manufacturing Survey showed improvement in NY State for the first time in months. Bonds and MBS are flat.

Elizabeth Warren is fighting to keep the CFPB from being accountable to Congress. Senate Republicans are pushing to have the Bureau subject to annual appropriations and installing a 5 member board to increase transparency and accountability. Liberals are pushing for a straight up and down vote on Richard Cordray, who was installed through a recess appointment. 

Dr. Cowbell was on Bloomberg TV this morning pushing for the Fed continue ZIRP as long as possible, in order to sustain the US housing recovery.  He blames Japan’s lost decade on premature tightening by the Bank of Japan. He made is usual push for infrastructure spending and said we don’t have a debt problem. Of course the Fed is keeping the bond vigilantes at bay. Can they do so forever? 

Freddie Mac has released their 2013 Economic and Housing Market Outlook. Like Krugman, they note the nascent strength in housing and estimate that it could add .5% to GDP this year.  They see the 30 year fixed rate mortgage at 4% by Q413, with unemployment at 7.5% and housing starts at 1 million. They forecast that originations will fall by 15% this year as refis drop from a 75% share to a 40% share.  

Senate Democrats unveiled a plan to delay the sequester by replacing the non-defense discretionary spending cuts with tax increases and maintaining defense cuts. Of course it has zero chance of going anywhere –  it is more of a demagoguing opportunity for the President and an attempt to give the Heisman to an idea that was his to begin with.  It is increasingly looking like there will not be a deal on the sequester, so it will either (a) happen, (b) get delayed for a year, or (c) happen and then get fixed in the continuing resolution. 

Note:  The MR will be spotty next week as I will be on the Left Coast.

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