Morning Report – Undiversified Bond Investment? 03/28/13

Posted on March 28, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1558.1 1.3 0.08%
Eurostoxx Index 2633.5 21.0 0.80%
Oil (WTI) 96.39 -0.2 -0.20%
LIBOR 0.283 -0.001 -0.35%
US Dollar Index (DXY) 83.07 -0.148 -0.18%
10 Year Govt Bond Yield 1.85% 0.01%  
RPX Composite Real Estate Index 190.5 -0.3  

Markets are flattish on the last trading day of the quarter. 4Q GDP was revised upward from + .1% to + .4%. Personal consumption was revised downward as well.  Initial Jobless Claims rose last week to 357k. Bonds and MBS are flat.

The bond markets close at 1:00 pm EST today. Expect very little action today as traders will probably flatten positions ahead of quarter end.

The Office of Comptroller of the Currency has released the 4Q mortgage performance metrics. 89.4% of all mortgages are current, up from 88.6% last year. Delinquencies and foreclosures are down as the pipeline gets cleared and real estate prices start rebounding. More and more servicers are turning to mods as opposed to foreclosure initiations. The recidivism rate on these mods is around 17%.

The Private Label Securitization market is returning faster than people thought. Prior to this year, the only deals were the occasional Redwood Trust jumbo deal.  JP Morgan recently announced a deal, and now Springleaf plans a $1 billion subprime deal. The palette of products originators can offer is expanding in a big way.

FHFA has made mods easier to do on delinquent mortgages – anyone who is more than 90 days delinquent is automatically eligible for a loan mod. Borrowers do not have to show a financial hardship any more. This will only apply to Fan and Fred loans, and mods will be rate / term, not principal reductions. So this begs the question:  Why won’t everyone stop paying their mortgage in order to get a mod?  FHFA said they would use existing “screening measures to prevent strategic defaulters.”  Whatever that means. 

Is your house an undiversified bond investment? Was house price appreciation driven by falling interest rates? And does that mean that when rates start rising house prices will fall again? I would point out that interest rates aren’t the only factors affecting home prices – population growth, incomes, the availability of credit, and even global capital flows play a role. He does have a point, which is that a rapid rise in home prices like we saw from the early 90’s to 2007 is unlikely to be repeated given that we won’t have the tailwind of falling interest rates to increase affordability. That said, low interest rates can last a long time – from the end of WWI to the mid 60’s, short-term rates were 5% or lower. From 1932 to the mid 50’s, short term rates were under 2.5%.  I would also point out that real estate prices increased during the 1970s, even as short term rates moved up to 15%. 

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24 Responses

  1. jnc4p's avatar
    jnc4p, on March 28, 2013 at 9:49 am said:

    Charles Blow ends up sounding pretty libertarian in his arguments for same sex marriage:

    “I strongly believe in the sovereignty of self — the idea that you are the sole dictate of your own body and your own life as long as no one else is unwittingly or willingly negatively influenced by your choices.”

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    • ScottC's avatar
      ScottC, on March 28, 2013 at 10:58 am said:

      jnc:

      Charles Blow ends up sounding pretty libertarian in his arguments for same sex marriage:

      Lots of people – left and right – are quick to make appeals to libertarian principles when such appeals suit their particular policy inclinations, but are equally quick to abandon those principles when they become at all inconvenient to policy preferences.

      BTW I’m not at all sure that SSM advocacy, at least as it exists today, is dictated by libertarian principles. To the extent that legal marriage is state recognition of a lifestyle, libertarian principles suggest that the state shouldn’t be involved in sanctioning any marriage. To the extent that it is simply a contract, then libertarian principles suggest that the state should recognize marriage between literally any 2 or more consenting adults without restriction. Neither or those are what SSM marriage advocates want.

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  2. jnc4p's avatar
    jnc4p, on March 28, 2013 at 11:15 am said:

    Yes, but once they go on record swiping libertarian rhetoric, it’s harder to walk back.

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  3. novahockey's avatar
    novahockey, on March 28, 2013 at 11:39 am said:

    “it’s harder to walk back.”

    you’d like to think so anyway.

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  4. Kevin S. Willis's avatar
    Kevin S. Willis, on March 28, 2013 at 12:20 pm said:

    “Just because they’re right on same sex marriage doesn’t mean they’re right on, you know, the economy.”

    Ideology is cherry picked all the time. I know, I’ve done it myself!

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  5. jnc4p's avatar
    jnc4p, on March 28, 2013 at 2:18 pm said:

    You guys see this? Is there a catch?

    “March 25, 2013, 8:09 pm
    Puerto Rico Creates Tax Shelters in Appeal to the Rich
    By LYNNLEY BROWNING and JULIE CRESWELL
    …

    Puerto Rico is a commonwealth of the United States, but for tax purposes, it is treated differently. Most residents of Puerto Rico, with the exception of federal employees, already pay no federal income tax. A person needs to live 183 days a year on the island to become a legal resident.

    The new tax breaks are a twist on the island’s tradition of using tax perks to bolster the economy. Puerto Rico’s per-capita income is around $15,200, half that of Mississippi, the poorest state in the nation. In 2006, a previous incentive exempting United States companies from paying taxes on profits from Puerto Rican manufacturing ended after Congress said that the incentive had bilked taxpayers.

    The new tax breaks are a radical shift in that they focus on financial, legal and other services, not manufacturing. Puerto Rico slashed taxes on interest and dividends to zero from 33 percent, and it lowered taxes on capital gains, a major source of income for hedge fund managers, to zero to 10 percent.

    The incentives work with existing United States breaks. While residents still have to file a federal tax return, they do not have to pay capital gains taxes of 15 percent on assets held before moving and sold after 10 years of island residency.”

    http://dealbook.nytimes.com/2013/03/25/puerto-rico-creates-tax-shelters-in-appeal-to-the-rich/?WT.mc_id=BU-D-I-NYT-MOD-MOD-M298A-ROS-0313-HDR&WT.mc_ev=click&WT.mc_c=212114

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  6. Let the mutherfuker burn!'s avatar
    Troll McWingnut or George, whichever, on March 28, 2013 at 3:30 pm said:

    Plouffe’s
    Concern about “Akinizing” other Dems doesn’t say much for his respect for mainstream liberalism, no?

    http://www.huffingtonpost.com/mobileweb/2013/03/28/ashley-judd-not-running_n_2972833.html?ref=topbar

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  7. yellojkt's avatar
    yellojkt, on March 29, 2013 at 7:00 am said:

    Correct me if I’m wrong but I never saw libertarians making a big deal about the huge infringement on liberty that marriage was until gays started wanting to get married. The gross injustice of that patriarchal institution was more typically attacked by radical feminists.

    Now all of a sudden it’s no longer a core function of government to keep track of people’s living arrangements. Not that that isn’t a valid libertarian argument from my perspective but it never seemed to be as important as striking down labor laws and legalizing pot. Even among doctrinaire conservatives there are strains of folk willing to burn down the village in order to save it.

    It’s just that the timing of all this newfound umbrage over civil marriage is interesting.

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    • novahockey's avatar
      novahockey, on March 29, 2013 at 7:37 am said:

      “It’s just that the timing of all this newfound umbrage over civil marriage is interesting.”

      It’s just topical as all. If marriage wasn’t being discussed, you come off as even more of a crank. it’s like we’ve opened up the law, so now amendments are germane.

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  8. Let the mutherfuker burn!'s avatar
    Troll McWingnut or George, whichever, on March 29, 2013 at 7:34 am said:

    Yello,

    If the Supreme Court “legalizes” gay marriage, does that, in your opinion, settle the marriage issue?

    If so, why? If not, why not?

    Are Libertarians innately bigoted?

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    • yellojkt's avatar
      yellojkt, on March 29, 2013 at 10:46 am said:

      Are Libertarians innately bigoted?

      I’m actually asking the opposite. Can a libertarian be bigoted? Rand Paul took a lot of heat for suggesting that civil rights laws shouldn’t apply to private businesses. He sees random discrimination on any grounds as a legitimate libertarian concept. The thought that the market would overcome irrational prejudice seems like more fuzzy-headed idealism clearly contradicted by history.

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  9. novahockey's avatar
    novahockey, on March 29, 2013 at 12:00 pm said:

    there is no racial bigotry among libertarians. we find everyone equally worthless.

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  10. Michigoose's avatar
    Michigoose, on March 29, 2013 at 3:00 pm said:

    OT, but I get to take yello and Mrs yello to dinner tonight, since they’re in SLC for the evening. Cool!

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  11. jnc4p's avatar
    jnc4p, on March 29, 2013 at 3:56 pm said:

    “The thought that the market would overcome irrational prejudice seems like more fuzzy-headed idealism clearly contradicted by history.”

    No. In order for prejudice to be comprehensively implemented, it requires the power of the state behind it. Contrast Jim Crow vs the southwest after the Civil War.

    With regards to gay marriage, libertarians always are against tax preferences. The civil unions solution simply provides a nice way for the state not to discriminate based on sexual orientation, while also disentangling the government from involvement in a nominally religious institution i.e. marriage.

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  12. Michigoose's avatar
    Michigoose, on March 29, 2013 at 5:36 pm said:

    I saw, Mark. Was the SXSW line-up really that bad this year?

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  13. jnc4p's avatar
    jnc4p, on March 29, 2013 at 7:13 pm said:

    No. Kim didn’t get an invite.

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  15. jnc4p's avatar
    jnc4p, on March 29, 2013 at 9:03 pm said:

    Worth a read:

    “VA’s ability to quickly provide benefits plummets under Obama
    Mar 11, 2013

    Aaron Glantz
    Reporter

    …

    Rep. Mike Thompson, a California Democrat and Vietnam veteran, joined other members of the Northern California delegation to meet with senior VA officials Feb. 27 to discuss the issue. He said VA officials have told him they are making slow but steady progress.

    “I’m not going to be an apologist for the president or for the VA,” Thompson said, “but this was a long festering mess when they came in. I think they have made improvements.”

    The VA’s internal documents tell a different story. They show that the average wait time for veterans filing disability claims fell by more than a third under President George W. Bush, even as more than 320,000 Iraq and Afghanistan veterans filed disability claims.

    The documents show delays escalated only after Obama took office and have more than doubled since, as 455,000 more returning veterans filed their claims.”

    http://cironline.org/reports/va%E2%80%99s-ability-quickly-provide-benefits-plummets-under-obama-4241

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  16. yellojkt's avatar
    yellojkt, on March 29, 2013 at 9:34 pm said:

    I get to take yello and Mrs yello to dinner tonight, since they’re in SLC for the evening.

    And a delightful dinner it was. I will corroborate that Michigoose is both a redhead (as I once was myself) and carries off very tall boots with panache.

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  18. Michigoose's avatar
    Michigoose, on March 30, 2013 at 1:54 pm said:

    “Panache”. . . I like that!

    We found a great little restaurant that I hadn’t tried before, highly recommended if you’re ever in the area:

    http://www.thetinangel.com/

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