Morning Report – Government shutdown looms 09/30/13

Vital Statistics:

Last Change Percent
S&P Futures 1670.9 -15.5 -0.92%
Eurostoxx Index 2882.4 -36.9 -1.26%
Oil (WTI) 101.7 -1.2 -1.15%
LIBOR 0.249 0.001 0.20%
US Dollar Index (DXY) 80.14 -0.382 -0.47%
10 Year Govt Bond Yield 2.61% -0.02%
Current Coupon Ginnie Mae TBA 105.7 0.1
Current Coupon Fannie Mae TBA 104.9 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.33
Markets are lower as participants contemplate a government shutdown. The Street has viewed this issue as a kabuki dance, but we are now getting to the short strokes. Bonds and MBS are rallying.
Aside from the government shutdown issues, this week also contains the all-important jobs report. The Street is at an increase of 182k and an unemployment rate of 7.3%. St Louis Fed Head James Bullard raised the possibility of tapering at the October meeting. I think if we have any sort of shutdown, tapering will be off the table until the Dec meeting at the earliest. Of course if there is a shutdown, we won’t be getting any economic data this week.
One potential issue coming down the pike is the fee limit on mortgages starting Jan 1. The cap makes sub $100k loans uneconomic for originators. I wonder how the CFPB will handle the sudden unavailability of loans below 100k. Not sure if they thought this through or they just plan on hitting everyone with fair lending / CRA lawsuits.
Housing equity rose 30% or more than $2 trillion over the past year, according to NAR.
Another interesting data point on the manufacturing renaissance in the US – low value added industries like textiles are onshoring. The problem is finding people.

Saturday Open Thread

Just thought I’d post an open thread so that folks can throw anything up. Shamelessly stolen from Ezra Klein’s Wonkblog:

    The Best Sentences We Read Today


— “I’m going to look them in the eye and say, ‘You must be confusing me with someone who gives a f— about your opinion.'”

I hope that link works. I had to google the sentence to get to the article from Wonkblog’s link.

— “So hang on tight because you are going to get some clear and true facts without rumor and innuendo, or any accompanying B.S. and mush.”

— “Chicken-sh— editors who wouldn’t touch stories like that, they love documents, so he changed the whole ball game.”

— “The Administration has had nearly two million minutes to implement this law.”

Lydia DePillis

What else do we have? Both MSU and UM have byes this week, so I don’t have much in the way of football to watch today.

Morning Report – breakdown of the government shutdown 09/27/13

Vital Statistics:

Last Change Percent
S&P Futures 1685.0 -7.5 -0.44%
Eurostoxx Index 2913.5 -9.5 -0.32%
Oil (WTI) 102.8 -0.2 -0.21%
LIBOR 0.248 0.000 0.10%
US Dollar Index (DXY) 80.22 -0.307 -0.38%
10 Year Govt Bond Yield 2.63% -0.02%
Current Coupon Ginnie Mae TBA 105.4 -0.3
Current Coupon Fannie Mae TBA 104.7 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.28
Markets are lower ahead of Continuing Resolution Weekend. Personal income rose .4% in August, while personal spending rose .3%. The prior months were revised upward. Bonds and MBS are up.
The government’s new fiscal year begins on Tuesday, and unless Congress comes up with a way to keep the lights on the government will shut down. You have all-out war between Democrats and Republicans and a civil war in the Republican party. Here is the state of play: The House passed a continuing resolution that funds the government through the end of the year, but it contains language that de-funds obamacare. The Senate passed a continuing resolution that funds the government through the end of the year, but it removed the obamacare language and sent it back to the House. So that leaves Boehner with 3 possible outcomes: 1) He can convince the Tea Party Republicans to go along with a clean continuing resolution, 2) He passes a bill with primarily Democratic party support (and that support won’t be free, plus it will probably cost him the Speakership), or 3) He attempts to pass a clean CR and it fails, which shuts down the government. Democrats are confident that any shutdown will be a replay of 1995, where the public sided with Clinton. How to handicap it:  I think the fact that the Republican leadership is so vocal against the rebellious Tea Party republicans is important and it brings them on board. #1 is the most likely scenario, followed by #2. If we do have a shutdown, it will be short.
If the government shuts down, what does that mean for the mortgage markets? Ginnie Mae will be open for business, according to HUD’s contingency plan from 2011, which supposedly would be used in this case. I have yet to see what FHA will do. Bottom line, I don’t foresee any major disruptions to the financial markets. Macroeconomic Advisers estimates that a 2 week shutdown will lop .3% off of 4Q GDP. Mark Zandi of Moody’s estimates that number to be 1.4% if it goes 3 – 4 weeks. (Mark, you didn’t get the Treasury Secretary gig – you don’t need to keep carrying water for the Administration).
Pending Home sales fell 1.6% in August, according to the National Association of Realtors. The NAR blames the drop on an acceleration of home sales in early summer, as buyers accelerated purchase decisions as interest rates began to rise. The NAR is anticipating 2014 sales to be flat with 2013 and median existing home sale prices to increase 5% – 6%. Note that almost half of all home sales right now are all-cash transactions and that number is usually close to 20%. So even if existing home sales are flat next year, year over year, the mortgage business could still improve markedly as distressed / cash sales run their course.
The number of loans in the process of of foreclosure at the end of the second quarter decreased 40% to 744k. This is an interesting statistic, MBA estimates the shadow inventory of homes to be 3.3 million. I know MBA also includes 90 day DQs, which may account for some of the difference – 90 day DQs in judicial states which haven’t been permitted to move to the foreclosure process yet. Other tidibits – the overall percent of loans that were seriously delinquent fell from 15% a year ago to 3.8%. Almost 91% of all loans in the report were current and performing.
Does the high shadow inventory number necessarily mean that cash sales will continue to be half of all existing home sales? Probably not. Professional investors who bought property for rentals are noting the increase in prices, and will certainly think about ringing the register. They won’t be selling to other professional investors, so that inventory will be coming soon. Plus, as we have seen in the D, many of these homes will be bulldozed, not sold.

Morning Report – Distressed sales and cash percentages 09/26/13

Vital Statistics:

Last Change Percent
S&P Futures 1690.2 4.4 0.26%
Eurostoxx Index 2921.3 -6.1 -0.21%
Oil (WTI) 103.1 0.4 0.40%
LIBOR 0.248 0.001 0.20%
US Dollar Index (DXY) 80.51 0.179 0.22%
10 Year Govt Bond Yield 2.65% 0.02%
Current Coupon Ginnie Mae TBA 105.6 0.0
Current Coupon Fannie Mae TBA 104.7 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.29
Markets are higher after initial jobless claims came in at 305k, better than expected and second quarter QDP was revised downward to 2.5%. Personal Consumption Expenditures increased 1.8%. Bonds and MBS are down small.
New Home Sales increased at a 421k pace in August, in line with expectations. This is an increase from July but still on the low side for 2013. Household net worth increased by 1.3 trillion in the second quarter and is now 6 times disposable personal income.
The RealtyTrac August Residential and foreclosure sales report reports that the national medial sales price rose 3% to $175,000, which is a 6 pct increase from a year ago. The median distressed price was $116,000, up 1 percent from a month ago, but down 3% from a year ago. This decline in the price of distressed properties is relatively new and bears watching. All cash purchases represented 45% of all residential sales in August, up from 39% in July and 30% a year ago. No wonder the mortgage banking business is struggling – the refi boom is over, and the percent of puchase business with a mortgage is falling as well.

Morning Report – Bank Rejection Rates 09/25/13

Vital Statistics:

Last Change Percent
S&P Futures 1690.7 -1.8 -0.11%
Eurostoxx Index 2918.0 -4.9 -0.17%
Oil (WTI) 103.9 0.7 0.70%
LIBOR 0.248 -0.003 -1.04%
US Dollar Index (DXY) 80.44 -0.120 -0.15%
10 Year Govt Bond Yield 2.64% -0.01%
Current Coupon Ginnie Mae TBA 105.4 0.0
Current Coupon Fannie Mae TBA 104.5 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.32
Markets are slightly weaker this morning as durable goods orders came in better than expected, but still weak. Ted Cruz continues to tell bedtime stories. Mortgage applications rose 5% as rates fell.
CFPB Director Richard Cordray spoke to the American Banker Regulatory Symposium yesterday. He lamented that consumers cannot sever ties with certain entities, namely debt collectors and mortgage servicers. They will also use the disparate impact theory when determining whether discrimination is taking place, which unfortunately means that FICO is all that matters, and if the value of the underlying collateral in one area is likely to be more volatile than another, tough cookies, you have to lend to both borrowers at the same rate, assuming all other risk factors are the same. The volatility of the underlying collateral is an important issue that the regulators conveniently ignore because it negates the validity of their argument. The speech is basically a shot at mortgage bankers, payday lenders, servicers, debt collectors and other unsavory financial services folks.
Ever wonder how much banks differ in their loan approval percentages? It turns out that there is a bit of a spread between the big ones and the smaller ones. The biggest banks – Wells, JPM, BOA – have the highest rejection rates, in fact JPM rejects 1/3 of its applications!

So, LOs the next time a borrower says that “Wells or JP Morgan is quoting me X% with so many points, tell them that unless they have a commitment, they are taking a risk going with a big bank. It would be a shame to go all the way through the process, only to get rejected at the last minute.

Moody’s is warning that a government shutdown may slow economic activity and would damage the nation’s credit quality. I suspect Ted Cruz knows that we aren’t going to shut down the government over obamacare, and this “filibuster” – is his last stand on the issue. Once he sits down, we’ll get a continuing resolution and a debt ceiling increase in short order. Certainly the stock market, the bond market, and the US dollar are taking that view. The risk: Democrats demand an end to the sequester and try and stick in tax hikes. I don’t think they do that because Republicans will reject that and then a government shutdown becomes a case of “he said, she said” where Democrats take some risk of getting dirty with the Republicans. Here is a list of cuts that can avert a government shutdown.

Morning Report – Homebuilder earnings 09/24/13

Vital Statistics:

Last Change Percent
S&P Futures 1692.0 -0.7 -0.04%
Eurostoxx Index 2923.4 17.0 0.59%
Oil (WTI) 102.8 -0.8 -0.79%
LIBOR 0.25 0.000 -0.16%
US Dollar Index (DXY) 80.59 0.140 0.17%
10 Year Govt Bond Yield 2.68% -0.02%
Current Coupon Ginnie Mae TBA 105 0.2
Current Coupon Fannie Mae TBA 104.4 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.39
Markets are flattish amidst a couple of big transactions – Applied Materials is buying Tokyo Electron (yes a Japanese company is being bought by an American firm) and there is a possibility of an “IPO” for Chrysler as Fiat and the UAW pension fund debate the value of the company. Bonds continue their post FOMC rally.
We have a couple real estate indices this morning – Case-Shiller increased 12.4% YOY, pretty much in line with forecasts, while the FHFA House Price Index increased 1.0% MOM. The FHFA index is more of a central tendency index because it focuses on homes with conforming mortgages attached to it – in other words, it ignores the jumbo space and cash transaction which are often distressed sales.
We have earnings from a couple of homebuilders today: Lennar (LEN) and KB Home (KBH). Orders dropped 9% on a unit basis, but increased 7% on a dollar basis. Their cancellation rate was 33%.  Revenues increased 29% and average selling prices rose 22% to 299k. KB’s increase in ASPs is due to a strategic shift on their part. The stock is down small premarket. Lennar reported ASPs of 291k, with new orders up 14% on a unit basis and 32% on a dollar basis. Cancellation rate was 18%. The stock is up 1.5% preopen.
Jeffrey Metzger, CEO of KB Home said “The fundamentals of the current housing recovery are firmly in place, supported by low inventory levels, an improving economy, and positive demographic trends. Given these factors, we believe that the recent slower pace of recovery caused by an uptick in mortgage interest rates is a temporary effect and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing.”
Stuart Miller, CEO of Lennar said: “We continue to see long-term fundamental demand in the housing market driven by the significant shortfall of new single family and multi family homes built over the last five years. While there may be bumps along the road that may impact the short-term pace of the recovery, the long-term outlook for our business remains extremely bright.”

Morning Report – People don’t understand HARP 09/23/13

Vital Statistics:

Last Change Percent
S&P Futures 1699.3 -3.1 -0.18%
Eurostoxx Index 2914.4 -12.8 -0.44%
Oil (WTI) 104.5 -0.3 -0.24%
LIBOR 0.251 0.001 0.40%
US Dollar Index (DXY) 80.39 -0.038 -0.05%
10 Year Govt Bond Yield 2.73% 0.00%
Current Coupon Ginnie Mae TBA 104.8 0.1
Current Coupon Fannie Mae TBA 103.9 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.42
Markets are lower as they start to worry about the machinations over the debt ceiling and the continuing resolution. Bonds and MBS are more or less flat.
We will have lots of relevant data this week, with Case-Shiller and the FHFA Home Price Index on Tuesday, Lennar and KB Home earnings on Tuesday as well, and the third revision to 2Q GDP on Thursday. Note the Fed took down 2013 GDP projections by 30 basis points in its economic forecast, so maybe they know the revision is going to be bad. The Street is at 2.6%. Don’t forget Q1 GDP started at something like 2.5% and was revised downward to 1.1%.
The tea party wing of the Republican Party is demanding that obamacare be delayed or de-funded as a condition to raising the debt ceiling. Needless to say, this is going nowhere in a Democratically controlled Senate and won’t be signed by the author either. The continuing resolution will be the first hurdle, and Republicans do have something to protect in that it keeps sequestration-level spending in place. The debt ceiling is a messier affair, but Republican leadership is dead-set against defaulting on the debt, so this will get passed one way or the other, but it may cost Boehner his speakership if he passes an increase in the debt ceiling by relying on Democratic votes.
The FHFA is trying to figure out why eligible borrowers are not taking advantage of HARP. There seems to be this perception that you have to be delinquent to take advantage of it, which is false. LO’s take note.

The Week in Review – September 21

House Republicans sure had a busy week.  In addition to cutting SNAP by a pretty significant amount, they culminated the week in another repeal/defund Obamacare vote.

Notching its 42nd vote against Obamacare and knowing full well that the Democratic Senate will reject it, Republicans in the House cast their vote, staged a noisy celebration in front of a placard declaring “SenateMustAct,” and then left town for several days to give time for the Senate to demolish its work.

“The Senate will not pass any bill that defunds or delays Obamacare,” Senate Majority Leader Harry Reid said flatly.

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The latest in the Naval Shipyard shooting is that his targets appear to be random based on video surveillance.  It looks like Aaron Alexis’ mental state has become the focus of most commentary.

WASHINGTON (Reuters) – The contract worker who opened fire at the Washington Navy Yard this week appeared to have no particular target as he moved through a building and shot and killed 12 people, FBI Director James Comey said on Thursday.

Comey, whose agency is leading the investigation into the shooting, said that in surveillance video the man identified as 34-year-old Aaron Alexis “appears to be moving without particular direction or purpose.”

Thousands of workers streamed back into the Washington Navy Yard on Thursday, three days after Alexis, a former reservist working at the site as a contractor, opened fire with a shotgun as he wandered several floors and hallways.

The Department of Veterans Affairs said on Wednesday that Alexis was treated for insomnia in August at hospitals run by the VA, but that he said he did not have violent thoughts and did not seek care from a VA mental health specialist.

His credentials were still valid, although Rhode Island police had warned the Navy in August that Alexis had reported “hearing voices” and said he believed people were following him and “sending vibrations into his body,” according to a Newport police report.

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Coloradans are returning home after a week and a half of horrible weather.  They’re calling it the 1000 year flood now.  A week and a half ago Golden had over a foot of hail.  They had to bring out the snow plows in 90 degree weather and when it melted it added to the flooding.  The pictures in the link are pretty incredible.

Up and down Colorado’s Front Range, the number of dead rose to seven, with three others missing and presumed dead. But the number of unaccounted-for people dropped to about 140, thanks to rescues and restored communications.

“Right now we’re just moving from the life-saving mode to the life-sustaining mode,” said Kevin Kline, director of the Colorado Division of Homeland Security and Emergency Management.

Kline said it was too early to estimate the dollar damage but added, “It’s going to be big.”

The damage spans 17 counties and nearly 2,000 square miles.

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I finally got my first iPhone last weekend, a hand-me-down from one of my kids.  It’s okay (the phone I mean).  We have so many lines coming in here and with my kindle and a non-contract phone for traveling, I never really felt the burning desire, but I finally relented.  But this is nuts.

When the first iPhone went on sale, it was unlike any other phone that had ever hit the market. Gadget fanatics lined up across the country to shell out more than $500 for Steve Jobs’ totally new innovation.

Apple’s seventh iPhone launches today and the lines still persist. Around the world, from China to New York to London, people have gathered outside Apple Stores for the launch of the iPhone 5c and iPhone 5s.

The iPhone 5s costs $200, the iPhone 5c $100.

But why? Why are they breaking down the doors for phones they can buy online or can walk in and get at the store later in the day? Why are people sleeping on the streets to get phones that have been updated with just a couple of new impressive features?

“I want the gold one and everyone wants the gold one.”

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For your viewing pleasure here’s a list of movies that opened Friday the 20th and a couple that either stand out or look like ticket sellers to me.

PrisonersFilm centers on a small town carpenter whose young daughter and best friend are kidnapped. After the cops fail to find them, the man turns vigilante and starts an investigation of his own.  Jake Gyllenhaal, whom I like for some reason, stars as the cop.

RushAn action/adventure Set against the sexy and glamorous golden age of Formula 1 racing, this film portrays the exhilarating true story of two of the greatest rivals the world has ever witnessed-handsome English playboy Hunt and his methodical, brilliant opponent, Lauda. Taking us into their personal lives on and off the track, Rush follows the two drivers as they push themselves to the breaking point of physical and psychological endurance, where there is no shortcut to victory and no margin for error. If you make one mistake, you die.  This one’s directed by Ron Howard so might be worth watching.

Generation IronThis one’s a docu/drama that examines the professional sport of bodybuilding today and gives the audience front row access to the lives of the top 7 bodybuilders in the sport as they train to compete in the world’s most premiere bodybuilding stage – Mr. Olympia.  This is a limited release so that might mean something……………lol

Disclaimer:  This is not an endorsement of any of the above movies……….hahaha

Today in history – September 20

1975 – The Scottish pop band The Bay City Rollers makes their US debut on a short-lived ABC television show called Saturday Night Live with Howard Cosell. The BCR had already become a teen phenomenon in the UK, inspiring scenes reminiscent of the Beatles from a decade earlier with their biggest hit and number one, Saturday Night. As it turns out, however, neither the Rollers nor the Cosell show have the same staying power of the Beatles, as SNL with Howard Cosell is cancelled after only 3 months (opening the way for NBC’s Saturday Night to change its name and go on to make history) and the Bay City Rollers themselves fade soon thereafter. But their biggest hit still makes the occasional pop culture appearance:

1973 – Wimbledon’s two time reigning women’s champion Billie Jean King defeats former Wimbledon men’s champion Bobby Riggs in a much anticipated exhibition tennis match dubbed “The Battle of the Sexes”. The 55-year old Riggs, who had been openly contemptuous of women’s tennis, had challenged the 28-year old King the previous year, a challenge that King had ignored until Riggs trounced the women’s leading money winner Margaret Court 6-1, 6-2 in the first (and long since forgotten) first battle of the sexes. Once King accepts the challenge, the match quickly becomes one of the most hyped sporting events in history, being staged in the Houston Astrodome in front of a record crowd of over 30,000 people, along with an international television audience. King beats Riggs fairly easily in straight sets, 6-4, 6-3, 6-3. The match has long been hailed as an iconic moment in the history of the women’s liberation movement, but ESPN recently raised question about the event, alleging in an Outside The Lines broadcast that Riggs, a notorious gambler and hustler, was involved with the mob and in fact threw the match.

1519 – Portuguese explorer Ferdinand Magellan sets out from Spain in an effort to find a western passage through the Atlantic to the Spice Islands in Indonesia. Magellan will eventually find the passage after probing the South American coast, becoming the first European explorer to pass through the Atlantic to the Pacific through what will come to be known as the Straits of Magellan at the southern tip of South America. One of Magellan’s 3 ships to pass through the straits will eventually make it all the way back to Spain, the first ship to circumnavigate the globe, although it will do so sans Magellan himself, who is killed in the Philippines, the victim of a poison arrow strike.

Morning Report – Fed may move in October 09/20/13

Vital Statistics:

Last Change Percent
S&P Futures 1715.4 -2.0 -0.12%
Eurostoxx Index 2927.8 -8.4 -0.28%
Oil (WTI) 105.7 -0.7 -0.64%
LIBOR 0.25 -0.001 -0.24%
US Dollar Index (DXY) 80.46 0.083 0.10%
10 Year Govt Bond Yield 2.75% 0.00%
Current Coupon Ginnie Mae TBA 104.8 -0.2
Current Coupon Fannie Mae TBA 103.8 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.37
Slow news day. Markets are taking a breather after a tumultuous week. There are no economic data this morning, and bonds / MBS are flat.
Federal Reserve Bank of St. Louis President James Bullard told Bloomberg TV that Wednesday’s decision not to slow bond buying was a “close call” and and a “small” tapering is possible next month. Given that there is no press conference scheduled after the Oct Fed meeting and no economic forecasts, this is a bit of a surprise. That said, if the Fed is in fact contemplating moving at the next meeting, then this rally in bonds will probably prove to be very short-lived. LOs, is you have customers on the fence, get ’em locked.
Wells is out with a bearish call on the S&P 500. Their end of year call on the S&P? 1440, down 16% from here. The thesis:  the market growth has been all multiple expansion and earnings are going to disappoint. Gina Adams is trying to become the next Elaine Gazarelli.
Speaking of earnings, we are now in the “oh crap” season, where companies who are going to miss their quarterly estimates begin to fess up. Earnings season officially starts in 3 weeks with Alcoa on 10/8. Last Wed, Oracle took advantage of the FOMC distractions to announce they were going to miss.
Warren Buffett called the Fed the “greatest hedge fund in history.” It is generating 80 and 90 billion a year in revenue for the US government.  I bet Ben is thinking “hey, can I get 2 and 20?”
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