Today in History – September 19

1988 – On September 19, 1988, just one day after sustaining a head injury in a frightening accident, American diver Greg Louganis wins gold in the springboard competition at the Summer Olympics, in Seoul, South Korea. It was his second consecutive Olympic gold in the event.

Louganis fought through his nerves to nail all 11 of his dives, proving that he was still the best diver in the world. Louganis also won repeat gold in the men’s platform competition, becoming the first man ever to win consecutive golds in both events.

On October 2, Louganis was awarded the United States Olympic Committee Spirit Award and later announced his retirement from competition to pursue an acting career.

In 1995, Louganis confirmed that he was suffering from the AIDS virus.

1957 – The United States detonates a 1.7 kiloton nuclear weapon in an underground tunnel at the Nevada Test Site (NTS), a 1,375 square mile research center located 65 miles north of Las Vegas.  The test, known as Rainier, was the first fully contained underground detonation and produced no radioactive fallout. A modified W-25 warhead weighing 218 pounds and measuring 25.7 inches in diameter and 17.4 inches in length was used for the test. Rainier was part of a series of 29 nuclear weapons and nuclear weapons safety tests known as Operation Plumbbob that were conducted at the NTS between May 28, 1957, and October 7, 1957.

1957’s Operation Plumbbob took place at a time when the U.S. was engaged in a Cold War and nuclear arms race with the Soviet Union. In 1963, the U.S. signed the Limited Test Ban Treaty, which banned nuclear weapons testing in the atmosphere, underwater and outer space. A total of 928 tests took place at the Nevada Test Site between 1951 and 1992, when the U.S. conducted its last underground nuclear test.

1873 – One of the worst financial depressions in American History. On September 19, 1873 (Black Friday), the New York Stock Exchange announced that important investment banking firm of Jay Cooke & Company had collapsed after investing too heavily in railroad securities. The collapse of such an influential company affected the entire stock market, and soon other large firms failed. By 1875, about 500,000 men were unemployed, and wage cuts for other workers precipitated a wave of strikes and labor violence. And not until the end of 1870’s did the U.S economy improve.  The original Black Friday was on Sept. 24, 1869.

Morning Report – Party at the Fed 09/19/13

Vital Statistics:

Last Change Percent
S&P Futures 1721.8 4.0 0.23%
Eurostoxx Index 2940.7 31.7 1.09%
Oil (WTI) 108.2 0.1 0.07%
LIBOR 0.25 -0.002 -0.89%
US Dollar Index (DXY) 80.2 -0.042 -0.05%
10 Year Govt Bond Yield 2.70% 0.01%
Current Coupon Ginnie Mae TBA 105 1.3
Current Coupon Fannie Mae TBA 104.2 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.42
Markets are higher this morning after yesterday’s furious rally on the Fed’s decision to keep asset purchases in place. The 10 year had a trading range of over 30 basis points in yield yesterday. Initial Jobless Claims increased to 309,000. Bonds and MBS are up small.
The FOMC statement was obviously a surprise, and it is clear from the reaction in the markets that a LOT of people were leaning short heading into the announcement. What does that mean for rates going forward? The markets will now begin to fret about the December meeting, which isn’t going to be bond bullish. I think if you are considering locking right now, you do it. 2.7% seems to be resistance on the 10 year, and we could be looking at a 2.7% – 3.0% trading range. At these levels, take the money and run.
The Fed’s decision certainly provides support for the theory that the Fed was really targeting leverage with its announcement last Spring. The economic data has never supported a reduction of stimulus, and the Fed has been consistently too high with its economic forecasts. The thing is, they can’t un-ring the bell – so people are not going to be piling into levered curve flattening trades. REITs have significantly de-leveraged. Mission Accomplished.
The Fed took down its forecasts again, with the 2013 GDP range now 2.0% – 2.3% from 2.3% – 2.6% in June. Unemployment’s forecast ticked down as well, from a range of 7.2% – 7.3% to 7.1% to 7.3%. Ben Bernanke was asked in the press conference about the labor force participation rate and how it seemed to be driving unemployment. Bernanke acknowledged that there is more to the labor picture than simply the headline unemployment number, and also stressed that these are guideposts, not thresholds. In other words, if unemployment gets to their 7% target, but it is due to the wrong reasons (a drop in the participation rate), then the Fed may decide to remain accomodative.
The beatdown goes on… Wells Fargo is cutting 1,800 jobs in its mortgage unit, in addition to the 3,000 announced earlier this year.

Today in history – September 18

1996 – Boston Red Sox Roger Clemens strikes out 20 batters for the second time in his career. Subsequent allegations of steroid use will place forever make Clemens’ many achievements suspect. I’m ashamed he became a Yankee.

1975 – Patty Hearst, 19-year old daughter and heiress of newspaper magnate Randolph Hearst, is finally captured in a San Francisco apartment after a months long manhunt for her. Over 7 months earlier, Hearst had been kidnapped by a leftist (!) terrorist group calling itself the Symbionese Liberation Front (SLF). Initially the SLF had demanded that Randolph Hearst hand out $70 worth of food to every needy person in California in exchange for her return, but after her father had donated more than $6 million worth of food to the Bay area’s poor, an audiotape was released in which Hearst herself announced that she had willingly joined the SLF and had changed her name to Tania. Two weeks after her announcement, Hearst is captured on a surveillance camera wielding an M1 carbine while robbing a San Francisco branch of the Hibernia Bank. A warrant is issued for her arrest, resulting in her capture in September. Despite claiming that she was a victim of brainwashing, Hearst will go on to be convicted and sentenced to 7 years in prison, although her sentence will be commuted by President Jimmy Carter and Hearst will join Marc Rich as a beneficiary of President Bill Clinton’s controversial pardon program executed on his last day in office, January 20 2001.

1862 – Following the battle of Antietam, Union General George McCLellan misses a chance to end the Civil War by allowing the retreating Confederate army to escape across the Potomac. Although the Union army had superior numbers and fresh troops following the original inconclusive battle, and might well have been able to destroy General Robert E. Lee’s battered rebels, McClellan allowed Lee’s army to cross the Potomac unmolested and refused to give chase for nearly the next 2 months, despite the urging of both the War Department and President Lincoln himself that he do so. Lincoln eventually dismisses McClellan from his command. The war will carry on for nearly another 3 years.

Morning Report – Taper Day 09/18/13

Vital Statistics:

Last Change Percent
S&P Futures 1698.8 0.5 0.03%
Eurostoxx Index 2907.4 16.4 0.57%
Oil (WTI) 105.8 0.4 0.39%
LIBOR 0.252 0.001 0.20%
US Dollar Index (DXY) 81.14 0.001 0.00%
10 Year Govt Bond Yield 2.86% 0.01%
Current Coupon Ginnie Mae TBA 103.7 0.0
Current Coupon Fannie Mae TBA 102.8 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.48
Markets are flattish ahead of the FOMC meeting this afternoon. The announcement is expected around 2:00pm, so don’t try and lock anything around that time period. Bonds and MBS are down small.
Mortgage applications rose 11.2% last week, which was a big increase after a depressed short Labor Day week. The refi index jumped 18% as rates ticked down a little. The purchase index was up 2.5%.
Housing starts and building permits came in lower than expected, with housing starts at an annualized 891k and permits at an annualized 918k. SFR continued to increase while multi-fam dipped. Sub – 1 million levels in housing starts is still a highly depressed level. After touching 1 million units in March, activity has been slowing. You can see from the chart we have been underbuilding for a long time. I guess you won’t see a major increase in starts until the first time homebuyer returns to the market and that is going to be jobs-driven. In related news, the National Association of Homebuilder Confidence Index was flat last month, but still at post-crisis highs. The builders are also noting that momentum seems to have stalled for the moment.

Certainly the Fed is noticing the drop-off in housing sector activity as rates have risen. This will probably make them want to maintain current purchases of MBS and cause them to lower Treasury purchases only. The consensus seems to be the “tiny taper” scenario, where the Fed cuts Treasury purchases by $10 billion a month starting in October.
The SEC is going to force companies to disclose the ratio of CEO pay to the median pay of employees at the firm. Glad to see the SEC is on class warfare beat – much more important than, say, doing something about high frequency trading  /sarc.

Morning Report – Inventory still tight in CA 09/17/13

Vital Statistics:

Last Change Percent
S&P Futures 1692.1 0.9 0.05%
Eurostoxx Index 2888.0 -6.7 -0.23%
Oil (WTI) 105.9 -0.7 -0.64%
LIBOR 0.252 0.000 0.04%
US Dollar Index (DXY) 81.15 -0.146 -0.18%
10 Year Govt Bond Yield 2.83% -0.03%
Current Coupon Ginnie Mae TBA 104.1 0.1
Current Coupon Fannie Mae TBA 103.1 0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.53
Markets are flattish as we head into Day 1 of the FOMC meeting. We should get the actual announcement tomorrow around 2:15 pm. Bonds and MBS are rallying as the market continues to digest the fact that Summers won’t be the next Fed Chairman.
The Consumer Price Index came in at .1% month-over-month, below expectations, and frankly below what the Fed would like to see. As long as (a) there are no bubbles and (b) there is no inflation, the Fed will likely try and err on the side of accommodation.
That said, I believe this reprieve we have been given in rates will be short-lived. Don’t lose the forest for the trees – rates are going up, and if you have any borrowers who have been on the fence or who were floating, now is a good time to lock.
The California Association of Realtors reported that increasing mortgage rates are starting to bite as activity slipped 2%. Prices are still increasing though, as the median home price hit $441k, the highest since Dec 2007. Inventory is improving in the sub 750k bucket, although month’s supply is still extremely low at just about 3 months.

Morning Report – Larry Summers is out, ushering in the third term of Alan Greenspan 09/16/13

Vital Statistics

 

Last Change Percent
S&P Futures  1688.6 3.7 0.22%
Eurostoxx Index 2893.2 26.1 0.91%
Oil (WTI) 106.2 -2.0 -1.86%
LIBOR 0.252 -0.002 -0.81%
US Dollar Index (DXY) 81 -0.449 -0.55%
10 Year Govt Bond Yield 2.79% -0.10%  
Current Coupon Ginnie Mae TBA 103.8 0.0
Current Coupon Fannie Mae TBA 103.3 0.7
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.57

 

Markets are higher after Larry Summers withdrew his name from consideration for the Fed Chairmanship. Bonds and MBS are rallying hard, with the 10 year yield down 10 basis points.
 
Janet Yellen is a Greenspan clone, as is Bernanke. Summers would have ended QE a bit earlier than Yellen would have. I have to say I am skeptical of the 10 year here at 2.79%. If you wanted to refi and missed the boat, the market just let you back in. I would take advantage of it, because the secular story on bonds is unchanged. LO’s should go back and contact their borrowers who are on the fence and let them know they just got a gift that won’t last forever.
 
Does this change what the Fed will do on Tuesday and Wed?  Probably not. The consensus seems to be a taper of $10 billion a month, which will be Treasuries and not MBS. 
 
We have some industrial numbers today, with the Empire State Manufacturing Index, Industrial Production, Capacity Utilization, and Manufacturing Production. Later this week, we will get housing starts, building permits, and existing home sales. All important data for us.
 
The CFPB made some changes to the QM rule.  Here is a summary.

 

50 Years Ago Today – September 15

I came across this story this morning and thought it was worth reminding all of us how far we’ve traveled in fifty years.

On this day fifty years ago, a box of dynamite rigged to a timer exploded beneath a stairway at the 16th Street Baptist Church in Birmingham, Ala., just as a group of African-American children were heading inside to prepare for Sunday morning services. Four girls were killed, more than a score more were wounded, and the South’s long intransigence against equality for African-Americans took yet another deadly turn.

That bloody summer of 1963—which McWhorter detailed in her 2001 book, “Carry Me Home: Birmingham, Alabama: The Climactic Battle of the Civil Rights Revolution”—was a pivotal experience for the nation, and helped pushed the 1964 Civil Rights Act into law. But it also was only part of a long arc of the troubled history of race relations in the country. At The Atlantic, Andrew Cohen writes of white Birmingham lawyer Charles Morgan Jr., who, a day after the bombing, issued an eloquent plea for white Alabamans to shoulder the blame for the region’s heinous acts of racism. Morgan’s speech included a challenge to his fellow white citizens who kept asking, “Who did this?”

“Who is guilty? A moderate mayor elected to change things in Birmingham and who moves so slowly and looks elsewhere for leadership? A business community which shrugs its shoulders and looks to the police or perhaps somewhere else for leadership? A newspaper which has tried so hard of late, yet finds it necessary to lecture Negroes every time a Negro home is bombed? A governor who offers a reward but mentions not his own failure to preserve either segregation or law and order? And what of those lawyers and politicians who counsel people as to what the law is not, when they know full well what the law is?

Those four little Negro girls were human beings. They had lived their fourteen years in a leaderless city: a city where no one accepts responsibility, where everybody wants to blame somebody else. A city with a reward fund which grew like Topsy as a sort of sacrificial offering, a balm for the conscience of the “good people,” whose ready answer is for those “right wing extremists” to shut up. People who absolve themselves of guilt. The liberal lawyer who told me this morning, “Me? I’m not guilty!” he then proceeding to discuss the guilt of the other lawyers, the one who told the people that the Supreme Court did not properly interpret the law. And that’s the way it is with the Southern liberals. They condemn those with whom they disagree for speaking while they sit in fearful silence.”

Morgan eventually was hounded out of town by death threats.

With its large African-American congregation, the 16th Street Baptist Church served as a meeting place for civil rights leaders like Martin Luther King Jr., who once called Birmingham a “symbol of hardcore resistance to integration.” Alabama’s governor, George Wallace, made preserving racial segregation one of the central goals of his administration, and Birmingham had one of the most violent and lawless chapters of the Ku Klux Klan.

The church bombing was the third in Birmingham in 11 days after a federal order came down to integrate Alabama’s school system. Fifteen sticks of dynamite were planted in the church basement, underneath what turned out to be the girls’ restroom. The bomb detonated at 10:19 a.m., killing Cynthia Wesley, Carole Robertson and Addie Mae Collins–all 14 years old–and 11-year-old Denise McNair. Immediately after the blast, church members wandered dazed and bloodied, covered with white powder and broken stained glass, before starting to dig in the rubble to search for survivors. More than 20 other members of the congregation were injured in the blast.

Today in history – September 13

2011 – A motley crew of political junkies and refugees from other blogs join forces to create All Things in Moderation, “a place where political discussion and debate can take place in the absence of the kind of unproductive vitriol that has come to characterize much of blog commentary these days.” The significance of this on the world outside their little bubble is highly questionable, but since this post is inside that bubble, it remains worth noting.

1971 – A four day riot in Attica prison in New York, during which prisoners held employees hostage and took over portions of the prison, ends abruptly when police open fire on the prisoners, killing 29 inmates and 10 hostages. Four days earlier, an inmate attack on a guard had grown into a full-fledged riot and inmate take-over. Three days of negotiations ensue, with prisoners demanding improved living conditions. When negotiations fail, Governor Nelson Rockefellar authorizes the police to re-take the prison by force. Lawsuits surrounding the event will carry on for decades, with New York State being ordered by a federal judge to pay $8 million in damages to sruviving inmates in 2000, and in 2005 the state finally settles with the families of those employees who were killed, for at total of $12 million.
http://www.youtube.com/watch?v=JPHRnMQULrw

1814 – As the British bombard Fort McHenry from the waters of the Chesapeake Bay, American Francis Scott Key pens The Defense of Fort McHenry, a poem that will eventually be set to music, renamed The Star Spangled Banner, and go on to become the US national anthem. Key had gone to Baltimore in order to negotiate the release of a friend of his who had been captured by the British. Brought aboard a British ship, Key secures the release of his friend, but is prevented from going ashore until the British finish their attack on Fort McHenry. Key was inspired to write his poem when, after an all night barrage, he awoke in the morning to the sight of the Stars and Stripes still flying over the fort. The Star Spangled Banner is now heard virtually daily in sports stadiums throughout the nation.

Morning Report – retail sales weak 09/13/13

Vital Statistics:

Last Change Percent
S&P Futures 1684.9 -3.9 -0.23%
Eurostoxx Index 2858.6 -3.5 -0.12%
Oil (WTI) 107.6 -1.0 -0.89%
LIBOR 0.254 -0.001 -0.20%
US Dollar Index (DXY) 81.46 -0.030 -0.04%
10 Year Govt Bond Yield 2.88% -0.03%
Current Coupon Ginnie Mae TBA 103.7 0.0
Current Coupon Fannie Mae TBA 102.6 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.55
Markets are flattish on no real news. Bonds and MBS are up small. Liquidity should be light due to the Jewish holiday. Today is the last big data day before the FOMC meeting.
Mohammed El-Arian of PIMCO says the Fed is tapering to head off excessive risk taking. PIMCO is forecasting a “taper-lite” announcement of $10 billion in Treasuries, which would mean the Fed will continue to purchase MBS at its current rate. Given that foreigners have been net sellers of MBS and REITs have been de-leveraging (in other words, they have been net sellers too), it makes you wonder where the replacement for the Fed’s buying will come from. What does that mean for your average mortgage banker? If TBAs are weak (bond prices falling), then mortgage rates will be higher.
Twitter announced its IPO in 140 characters or less:  “We confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.” Note that roughly half of the characters are legal disclaimer. Some things never change.
The Producer Price Index came in flat ex food and energy, showing that there is no inflation at the wholesale level. Inflation has been figuring into the Fed’s calculus for a while now, primarily on the downside. They desperately want to create a little inflation. 3% inflation and 3% wage growth feels a lot better to the average American than no inflation and no wage growth does.
Retail sales came in lower than expected, .2% on the headline number, and the same for the control group. Looks like back-to-school sales were disappointing, which bodes ill for the holiday shopping season. Since consumption is roughly 70% of the US economy, it doesn’t bode will for the 2H recovery we are supposed to be seeing according to Fed forecasts.
It will be Summers, at least according to the Nikkei newspaper. Supposedly this will be announced next week sometime. Summers would mean a quicker withdrawal of quantitative easing and a more vocal support of fiscal measures to stimulate the economy. The knives are out for Summers on the Left.

Two Years and Still Hanging On…Barely

Happy birthday, ATiM. Hard to imagine, but yes, it was 2 years ago today that our long lost colleague Kevin Willis put up the first ever ATiM post. In many respects it has been a long haul. Too much of a haul for some as, truth be told, we are currently a much diminished operation from last year. We operate now on what is basically a skeleton crew, with barely a comment on some days. Unfortunately I think the future of ATiM is much in doubt. But still, a special thanks to Brent for his daily efforts in the Morning Post, and thanks also to everyone else who continues to find the time in their busy schedules to contribute, and the fortitude to tolerate both the thoughts of those they disagree with and the rough and tumble that it sometimes produces. I wish there were more of us, but those who remain are a solid crew. Thanks.

Here’s to another year….I hope.