Hump Day Craziness

I read this yesterday and it lead me to some interesting questions.  Well, they were interesting to me anyway.  I’ve been fascinated with the different factions of the Republican Party and the increased number of Libertarians who primarily seem to vote Republican when there is no Libertarian around to vote for.  This piece mentions the possible break between Evangelical Christian Republicans and conservative Catholics over the new Pope’s recent comments regarding gays and poverty.  It appears to me that Libertarians have also broken with the Christian wing of the Republican Party over many social issues.   I’ve learned from our discussions here that Libertarians seem to be for both open borders and abortion, in some cases “on demand”, even I don’t believe in either of those suggestions, so is that to the left of me?

I guess I’m wondering where all this will eventually lead.  How hard will it be for Libertarians to vote for a Republican of the evangelical sort?  Is it just a case of voting for the lesser of two evils in a Presidential election, or even a local election?  When do your votes and principles collide?  I swallowed my objections and voted for Obama because of health care, and a couple of other accomplishments I supported,  rather than third party, which is what I normally do.  A big fat wasted vote either way really.

My thoughts rambled from the original piece but I wanted you guys to see how it got me thinking.  I’m finding it somewhat interesting that I tend to vote social issues and for the preservation of things such as Social Security, Medicare and other safety net protections.  There doesn’t seem to be that much difference to me in the reality of economic policy between the parties or for that matter even foreign policy now that many conservatives seem to be more isolationist than they were in the past, but I’m guessing the Libertarians/Conservatives here don’t agree and vote their pocket book, or is it all big vs small government and the demolition of the safety net that motivates y’all.  I’m curious.  It seems to me that the differences between us are more along the lines of priorities.  I think we all value similar things but just place more weight on some than others.  Or maybe I’m delusional.

I think it is a safe bet that if Pope Francis I lives more than a few years that Catholics will soon be kicked out of the Republican Party and resume their previous status as the semi-black race. The reason is simple. Pope Francis I is on the opposite side of the political divide from Pope John Paul II. The Polish pope was a Cold Warrior who basically took the Reagan-Thatcher line on left-leaning political movements in the Third World, including in Latin America. The Argentinian Jesuit pope isn’t a communist, but he advocates for the poor without any apology.

For now, conservative American Catholics are trying to parse the distinction, but it isn’t going to work. They are not going to be able to embrace The Slum Pope who wants to “make a mess” of the established order within the Church by encouraging young people to shake up the dioceses and force them to embrace the convicts, drug addicts, and the truly impoverished.

Our country is uniquely unable to appreciate this change specifically because our right wing succeeded in categorizing the left in the Third World (and, to an extent, even in Europe) as communist in sympathy. The right assumes that the Vatican is an ally in all things, but that is no longer even close to being the case. On so-called family values, the papacy is still reliably conservative, even if it can’t be counted on anymore to demonize homosexuality. But on economic issues, the papacy is now a dedicated enemy of the Republican Party.

Before long, the right will have no choice but to break from the pope, and then their opposition will grow to a point that the alliance between Catholics and evangelicals will not hold.

There sure has been a lot of talk lately about women.  I’ve been troubled by some of it as it seems we’re going backwards in some respects.  There are too many stories to link but between all the states enacting TRAP laws, all the strange definitions of rape, the mayor of San Diego’s bizarre harassment and who has and has not shielded him from investigation, the treatment of rape victims in the military,  USC redefining rape as not rape if there is no ejaculation (my personal favorite), who is and isn’t hot enough to either run for office or other more nefarious activities, etc. etc. that I’ve been trying to figure out what’s going on.  Maybe nothing ever really changed.  I’m concerned that so much of it has become political football.  I thought this piece on the subtleties of how a woman can succeed in the financial industry was pretty troubling.

Our youngest is working in another male dominated industry and is constantly trying to determine how to proceed on her merits while most of the men are attracted to her looks.  She has a few male mentors who seem to take her seriously so she’s focusing on that and trying to stay away from the guys who want to date her and stay focused on her work.  She’s discovering it’s an interesting dynamic that has many challenges.  She faced numerous challenges as a grad student but that was nothing compared to what she’s dealing with now.

It doesn’t help when other women give this kind of advice.

New details have emerged from a bias lawsuit filed by three former employees of Merrill Lynch against the company, which alleges that during training they were instructed to read a book called “Seducing the Boys Club: Uncensored Tactics From a Woman at the Top” and emulate its advice.

The tips in the book, published by New York Magazine’s The Cut, are truly shocking. “I play on [men’s] masculine pride and natural instincts to protect the weaker sex,” says a section of the book advising women on how to get men to do their work. “Unless he is morbidly obese, there is no man on earth who won’t puff up at this sentence: Wow, you look great. Been working out?” suggests a portion on diffusing tense situations.

On a lighter note the Anthony Weiner story is in another realm altogether in my opinion.  I guess I’d like to know why his wife is standing by him but it’s none of my business really.  Otherwise it seems to be a case of “consenting adults” which doesn’t bode well for his marriage or his candidacy but otherwise is just more creepily entertaining than anything else.

I wish I could share all the “Carlos Danger” jokes my husband has come up with, they’re hysterical, and just pop out of his mouth at the most inconvenient times.  He’s a true comic and I’ve thanked my lucky stars more than once that he makes me laugh.  Anyway we’ve had a lot of fun at Anthony Weiner’s expense around here.  I saw this and couldn’t resist.

Anthony Weiner Forever

Weiner forever

Morning Report – 2Q GDP better than expected, but Q1 revised down 7/31/13

Vital Statistics:

  Last Change Percent
S&P Futures  1683.3 -1.4 -0.08%
Eurostoxx Index 2755.1 -4.1 -0.15%
Oil (WTI) 103.6 0.5 0.46%
LIBOR 0.266 0.001 0.23%
US Dollar Index (DXY) 82.12 0.290 0.35%
10 Year Govt Bond Yield 2.68% 0.07%  
Current Coupon Ginnie Mae TBA 103.8 -0.4  
Current Coupon Fannie Mae TBA 103.3 -0.4  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.36    


Markets are slightly better after some good economic data. At 2:00 pm we will get the FOMC decision. Mortgage Applications fell. Bonds and MBS are getting beaten up on the good data.
The ADP jobs report showed the private sector added 200k jobs in July, and June was revised upward to 198k. The ADP report is supposed to mimic the final jobs number, not the advance estimate we will get on Friday. 
The advance estimate of second quarter GDP growth came in at + 1.7% This was higher than the 1% estimate. First quarter GDP was revised down by a lot… from + 1.8% to + 1.1%. That said, it looks like the growth came from inventory build as consumer spending cooled. If spending doesn’t rebound, that will depress growth in the future. 
Count Richmond California as the next locality threatening to use eminent domain to seize mortgages. Unsurprisingly, SIFMA (the Securities Industry Financial Markets Association) which runs the TBA market condemned the idea. SIFMA told San Bernardino that if they proceeded down the eminent domain path, that mortgages originated in that jurisdiction would become ineligible for TBA trading. This would effectively cut off the locality from Ginnie Mae and Fannie / Freddie loans. Which is 90% of the mortgage market. FHFA nominee Mel Watt has taken a pass on the whole eminent domain issue, which is yet another reason why he faces an uphill battle for confirmation. 

Morning Report – REIT TBA selling could be over 7/30/13

Vital Statistics:

  Last Change Percent
S&P Futures  1686.8 4.3 0.26%
Eurostoxx Index 2760.1 18.3 0.67%
Oil (WTI) 103.9 -0.6 -0.60%
LIBOR 0.265 -0.001 -0.38%
US Dollar Index (DXY) 81.66 0.000 0.00%
10 Year Govt Bond Yield 2.58% -0.02%  
Current Coupon Ginnie Mae TBA 104.3 -0.1  
Current Coupon Fannie Mae TBA 103.9 0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.36    


Markets are higher this morning on no real news. Bonds and MBS are up
The S&P / Case-Shiller home price index rose 1.05% month over month and 12.2% year over year in May. The usual suspects (Phoenix, Lost Wages, and San Francisco) showed 20%+ gains while the Midwest and East Coast showed low / mid single digit increases. New York brought up the rear with a 3.3% increase. This has been borne out by the homebuilders, where the ones with a heavy West Coast focus have outperformed the ones that are East Coast / diversified. 
Mortgage REIT American Capital Agency (AGNC) reported second quarter earnings last night. Book value got hit by 12%, but the interesting data point is the state of their TBA portfolio. The To-Be-Announced (or TBA) market is what sets mortgage rates. Over the second quarter, their TBA portfolio fell from 27.5 billion to 14.5 billion. That is a lot of paper they just dumped. They consider themselves to be positioned where they want to be at this point from a duration hedging standpoint. The key takeaway – we’ll have to see what Annaly (NLY) has to say, but so far, it appears that a substantial chunk of the selling in the TBA market is done. That is good news for mortgage rates, and I wouldn’t fall out of my chair with shock to see lower mortgage rates in the context of a stable 10-year.
Completed foreclosures were 55,000 in June, down 20% year over year and up 2.5% from May, according to CoreLogic. Approximately 1 million homes in the U.S. were in some stage of the foreclosure process, compared to 1.4 million a year ago. This represents 2.5% of all homes with a mortgage. The states with the most work left to do are Florida (8.6%), New Jersey (6%), New York (4.8%), Connecticut (4.2%) and Maine (4.1%). 

Morning Report – Busy week ahead 7/29/13

Vital Statistics:

  Last Change Percent
S&P Futures  1683.4 -3.2 -0.19%
Eurostoxx Index 2748.6 6.6 0.24%
Oil (WTI) 105.1 0.4 0.37%
LIBOR 0.266 0.001 0.38%
US Dollar Index (DXY) 81.71 0.050 0.06%
10 Year Govt Bond Yield 2.58% 0.02%  
Current Coupon Ginnie Mae TBA 104.4 0.1  
Current Coupon Fannie Mae TBA 103.8 -0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.35    


Markets are down this morning as we head into a data-intensive week. Merger Mondays are back with a few big transactions. Bonds and MBS are down small.
We have 3 big events in bonds this week – first we have the FOMC meeting on Tues and Wed. The FOMC statement will undoubtedly be parsed very closely. We will also get the advance estimate of 2Q GDP on Wed. Finally, on Friday we get the jobs report. So lots of potential market-moving stuff towards the back end of the week. 
There is a lot of discussion over who will be the next Fed Chairman after Bernanke’s term is finished in January. Bernanke has said he doesn’t want the job anymore. The two names mentioned are Janet Yellen and Larry Summers. Given that Summers hasn’t even done a stint as a Fed governor, he would be a surprising pick. This looks like so much theater. The next Fed Head will be Yellen. Yellen is an even bigger dove than Bernanke, so keep that in the back of your mind when you think about taper timing.
This week we will have a lot of earnings reports from the mortgage REITs. While we expect to see declining book values, the more interesting data will involve how much the REITs have de-leveraged. Some have done nothing (Capstead). Others have sold paper and still have increased leverage ratios because the value of their portfolio has dropped. What we hear from the REITs will tell us a lot about how much selling remains to be done in the MBS market, and that will tell us which way we want to lean with rates.

Morning Report – What homebuilders are saying about the market 7/26/13

Vital Statistics:

  Last Change Percent
S&P Futures  1675.5 -8.5 -0.50%
Eurostoxx Index 2744.8 4.5 0.16%
Oil (WTI) 104.4 -1.1 -1.03%
LIBOR 0.265 0.001 0.45%
US Dollar Index (DXY) 81.77 -0.203 -0.25%
10 Year Govt Bond Yield 2.55% -0.02%  
Current Coupon Ginnie Mae TBA 104.5 0.2  
Current Coupon Fannie Mae TBA 104 0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.38    


Markets are lower on no real news. Bonds and MBS are up small. 
There isn’t much in the way of economic data this morning. I would expect activity to dwindle as most of the Street will be on the L.I.E. by noon.
Yesterday was a big day for real estate-related earnings – we heard from three homebuilders – Meritage, D.R. Horton, and Pulte. As far as the question “Has higher mortgage rates affected traffic and purchase activity?” goes, the answer is yes, at least in some areas. Meritage (who is primarily in the West / Southwest) noted an increase in orders, as did Pulte. Pulte noted that buyers still have a “sense of urgency.” On the other hand, D.R. Horton, which is more geographically diversified reported a decrease in orders. That was huge. D.R. Horton said that buyers are “alarmed” at the rapid rise in rates and it has affected sales. I guess it makes sense when you think about it – on the West Coast, inventory is depleted and prices are rising at double digit rates. So it would make sense that buyers would feel a sense of  urgency – the fear is not being able to find a house. Elsewhere in the country, with prices flat / up small, that doesn’t exist. Horton is at the lower price points as well, so maybe you are starting to get into DTI issues with first time homebuyers. Anyway, the increase in rates is starting to bite as far as purchase activity goes.

Morning Report – HARP 3.0 may face a steep climb 7/25/13

Vital Statistics:





S&P Futures 




Eurostoxx Index




Oil (WTI)








US Dollar Index (DXY)




10 Year Govt Bond Yield




Current Coupon Ginnie Mae TBA




Current Coupon Fannie Mae TBA




RPX Composite Real Estate Index




BankRate 30 Year Fixed Rate Mortgage




Markets are lower in spite of some strong earnings reports and a decent durable goods report. Initial Jobless claims were 343k. Bonds and MBS are down small / flat.


Mortgage REIT Hatteras Financial released earnings yesterday, and reported a 20% drop in book value. Hatteras invests in agency ARM product, so it is on the slightly more esoteric side, but they made one interesting observation: The MBS market (and the 7/1 ARM market in particular) suffered a powerful sell-off in the last two weeks of June, and has yet to bounce back. So it wasn’t simply end-of-quarter liquidation. What does this mean for us? That non-QE supported MBS spreads are finding new levels. What does that mean in English? That once QE ends, we may find the TBA market experiencing the same thing – a permanent increase in spreads, which means higher rates, even if the 10 year bond doesn’t move. Make hay now….


More than half the mortgage modified in 2009 under the Home Affordability Modification Program (HAMP) have defaulted, according to a report from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). This report will certainly make a push for HARP 3.0 even more difficult. Interesting fact: of the $38.5 billion allocated to housing support programs in 2009, only 22% (or about $8.6 billion) has even been spent. 


The Detroit bankruptcy is going to be interesting for municipal bonds, especially GOs (general obligations). There are two types of muni bonds – revenue bonds, where the principal and interest is paid for by some project (like a bridge) and general obligation bonds, where interest is paid for out of general revenues. Liquidity in munis is terrible to begin with – banks won’t hold them as inventory because they aren’t allowed to take the tax deduction on the interest payments, so nobody will make a market in them. Retail holders of these bonds may find themselves unable to sell. If banks won’t buy them, then who will buy these things? Hedge funds, who are buying them with an eye towards going to the mat in bankruptcy court. And they aren’t paying par. They probably care in the 40s.

Morning Report – Washington has a “eureka” moment 7/24/13

Vital Statistics:

  Last Change Percent
S&P Futures  1693.5 5.2 0.31%
Eurostoxx Index 2756.0 33.1 1.22%
Oil (WTI) 106.8 -0.4 -0.36%
LIBOR 0.264 -0.002 -0.60%
US Dollar Index (DXY) 81.99 0.043 0.05%
10 Year Govt Bond Yield 2.57% 0.07%  
Current Coupon Ginnie Mae TBA 104.4 0.0  
Current Coupon Fannie Mae TBA 103.8 -0.3  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.3    

Markets are higher this morning after a good earnings report out of Apple. Bonds are again victims of the risk-on trade.

Michael Dell and Silver Lake boosted their buyout offer for Dell by ten cents to $13.75. It is their best and final offer. Dude, you’re getting a dime.
Mortgage Applications fell 1.2% last week. Purchase apps were down 2.1%, while refis were more or less flat. Refi volume has dropped to 63% of total applications. The conventional index rose about 60 bps, while the govvie index dropped 7%.
The U.S. taxpayer bears the credit risk of roughly half the U.S. mortgage market and 90% of all new origination. In a true “eureka” moment, the braintrust in Washington may have finally figured out that the problem is not that they haven’t slugged the banks hard enough. There is a proposal to relax the “skin in the game” rules for private label securitizations in the hopes that something other than 60% LTV / 740 FICO jumbos can be securitized in the future. The original rule was that banks would have to maintain 5% of all MBS they securitize, unless the LTV was lower than 80%. Now, they propose to require a 5% holding only for IO and stated income products. Never mind that IO and stated income are outside of the QM rules and very few market participants are willing to take non-QM risk.
The ARM is coming back
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