Morning Report – VIX is spiking again 2/4/14

Vital Statistics:

Last Change Percent
S&P Futures 1744.7 11.9 0.69%
Eurostoxx Index 2964.2 0.3 0.01%
Oil (WTI) 97.18 0.8 0.78%
LIBOR 0.236 0.001 0.36%
US Dollar Index (DXY) 81.11 0.103 0.13%
10 Year Govt Bond Yield 2.61% 0.04%
Current Coupon Ginnie Mae TBA 106.1 -0.3
Current Coupon Fannie Mae TBA 105 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.25
They take ’em away, they give ’em back. Volatility is back. Markets are higher this morning after yesterday’s bloodbath that sent the S&P 500 down 40 points. Overseas markets got slammed, particularly Japan, which is down 14.5% for the year already. Bonds and MBS are lower.
The VIX went out at 21.4. This is an indicator of financial pain and fear – as it rises, it should correlate positively with bonds – meaning if the VIX increases, rates will be falling. We are still nowhere near the spikes we saw in 2011 and 2010, let alone the late 2008 panic, but it is something to watch. The main thing to understand is that there are two forces acting on interest rates right now – 1) the Fed’s ending of QE, which is pushing rates higher, and 2) the sell-off in worldwide markets, which is causing the flight to safety trade which pushes rates lower. I would stress to your borrowers that all bets are off right now with interest rates. You could float and you might get lucky if someone blows up, or this could all blow over and we could be looking at 4.75% mortgage rates before you know it.

Speaking of interest rate bets, the largest mortgage REIT – American Capital Agency reported earnings yesterday. They had been deleveraging since last Spring, when they took their leverage ratio from 10x down to 7.2x. Last quarter they increased their exposure to the MBS market a tad, taking their leverage ratio up to 7.6x. The company had been seeing value in the MBS space. REITs are major players in the space and their activity influences mortgage rates, so their activity is something to watch. Given how much rates have fallen, this looks like a winning trade for them. That said, the sector is very much out of favor as the secular headwinds are going to be tough to manage.
Part of the reason for yesterday’s sell-off was an absolutely dismal ISM report. The ISM manufacturing report came in at 51.3, vs street expectations of 56. This shows a major deceleration in manufacturing in the month of January. Many reports – durable goods, for instance – showed a slowdown in December, which seems to have continued into the new year. Some of this could be weather-related, but investors are bracing for a lousy jobs report this Friday. Separately, construction spending rose .1% in January, which was better than expected.
The fireworks should start tomorrow with the ADP employment report, which is all honesty has been a terrible predictor of the employment report lately. We have another potential winter storm affecting the area as well, so tomorrow could be sloppy in more ways than one.

69 Responses

  1. Microsoft’s new CEO named:

    http://www.washingtonpost.com/blogs/the-switch/wp/2014/02/04/satya-nadella-drops-some-hints-about-microsofts-future/

    I can’t ever envision actually paying Microsoft for any cloud based service.

    Like

  2. We need to figure out when Brent is coming to DC again and plan around that.

    Brent?

    Alternatively, we meet in Arlington and kidnap NoVA. He can expense the Charlie Parker’s and the rope we use to tie him up.

    Like

  3. I don’t have any plans to visit the belly of the beast at the moment, but my in-laws are there so I usually hit the place at least a few times per year.

    Like

    • I think the DC contingent ought to make a trip the Big Apple. (Getting them to come to Stamford is probably too big an ask.)

      Like

  4. One of these days, Scott. . . there’s a meeting in Boston that I usually go to, and I was thinking about driving up next time. Which could include a stopover. And I’ve never set foot in CT, so that’s another trip to make!

    Like

  5. OMG! Could they really take up a populist position?

    Or will they snatch defeat from the jaws of victory?

    Like

  6. RED ALERT! RED ALERT!

    Chuck Todd is off message! Say again, Chuck Todd is off message!

    Schedule Oval Office Exclusive Stat!

    Like

  7. STAND DOWN! CRISIS AVERTED!

    Like

  8. How is it a “talking point” that obamacare raises taxes? Increased taxes were specifically part of the bill?

    Like

  9. At what level is it a crisis?

    Like

  10. “Carl”, I think your twitter account has run amok!

    Like

  11. “ise because of increased demand from newly insured Americans”

    stuff i said years ago for $200*, Alex

    * cause it’s the easiest answer in the category.

    Like

  12. How does a country come back from this level of debt? Absent the complete destruction of the rest of the worlds manufacturing base and population decimation I can’t figure it out.

    Like

  13. Waiting for them to admit GIGO.

    Like

  14. “Increased taxes were specifically part of the bill?”

    As you are well aware, raising taxes on “the rich” doesn’t count.

    Like

  15. They’re probably arguing that it’s not that the jobs are lost, but that workers are opting not to work. b/c they are now on Medicaid. how this is better escapes me.

    Like

  16. Via the PL:

    Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the aCA. The decline in full-time-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours; however, CBO has not tried to quantify those two components of the overall effect. The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in business’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking, but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week).

    So NoVA is at least partially right; it doesn’t say why they will opt out of the workforce. My guess would be that for at least some people it will be to either take a different job (without benefits) that they would prefer to have but couldn’t before because they needed the employment-supplied health insurance, or to start their own business.

    Like

  17. John/banned (posting as “ned stark” since he can’t get in under his old login) is pining away for you, jnc. He’s being beaten down by bad economists left and left.

    Like

    • Mich:

      John/banned (posting as “ned stark” since he can’t get in under his old login) is pining away for you, jnc.

      You should remind him that his login still works here, where he can find jnc.

      Like

  18. The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply,

    Great. I pay more in taxes so somebody can go live their dream or something. screw that.

    Like

  19. SPOILER:

    Did he lose his head yet?

    Like

  20. Did he lose his head yet?

    Yes–on the Sunday Open Thread.

    You should remind him that his login still works here

    I have; a couple of times. Don’t know why he hasn’t come back.

    Like

  21. So they are saying that there are people who are working simply because of access to health insurance, and once they are able to get insurance on their own, they will stop working?

    But the amount of people who get cut back or downsized out because of the employer mandate is too small to bother counting?

    Does Elmendorf bother reading any of the myriad of Fed surveys, etc that say employers are cutting hours / headcount due to obamacare? CBO’s views seem out of step with what people are actually saying / doing.

    Like

  22. Did R30 or Cao wish to see him boiled in oil or something?

    Like

  23. BTW, NoVA, he was pining for you, too, but since I didn’t know if you feel like going back to PL at all I neglected to mention it.

    Like

  24. I don’t think i’d have anything to add over there.

    but the next time someone wants single payer, thank them for my yacht fund.

    Like

  25. Did R30 or Cao wish to see him boiled in oil or something?

    Not R30 so much as spacebarsentiments and Cao. It was hilarious; for some reason most people didn’t realize who he was, so when he said “Hey, okie, you realize this is bannedagain, right?” those two went into Immediate Ultra High Dudgeon Alert about he was “trolling PL” because he hadn’t made his new login “bannedagain2014” or some such. Nobody, but nobody does dudgeon as well as those two, I have to give them that.

    He made a comment to them to the effect that “oh no! I haven’t done what the cool kids wanted me to do!”, so I said “Off with his head!”

    space and cao disappeared until after midnight at that point.

    Like

  26. but the next time someone wants single payer, thank them for my yacht fund.

    Essentially every Obamacare post, which averages once/day. I’ll keep that in mind.

    Like

  27. So they are saying that there are people who are working simply because of access to health insurance, and once they are able to get insurance on their own, they will stop working?

    No, they didn’t make any conclusions at all about why people would leave the work force, just that they would.

    Like

  28. This whole thing is just shifting costs all over the place. I’m all for breaking the bond between employment and insurance coverage, but not by shafting those remaining in the workforce with higher taxes.

    Like

  29. “You should remind him that his login still works here, where he can find jnc.”

    I did, but I think the real draw is NoVA. He’s our loss leader.

    Like

  30. okay. straps on helmet. i’m going in.

    Like

  31. ah, crap. phone call.

    Like

  32. i’m going in

    We gots yer back, man! Hang up that phone and get over there!

    Like

  33. Where’s Juicebox to explain this shit to me?

    Damn your mizerliness Bezos!

    Like

  34. whoa. after some recon into the PL, abort mission.

    nuke it from orbit.

    Like

    • nuke it from orbit.

      Look, this is a multimillion dollar operation. He can’t make that kind of decision. He’s just a grunt!

      Like

  35. whoa. after some recon into the PL, abort mission.

    Yes, that thread sure went to hell in a handbasket fast. It got front paged–sorry!

    Like

  36. Remind me again why we didn’t get a “Like” function?

    That was great, Scott!

    Like

  37. We manufacture those, by the way.

    Like

  38. Calm down Wingnuts!

    Bullet: dodged.

    Like

  39. And how is that choice possible?
    By taxing the remaining labor pool. that’s not a choice. that’s stealing. you’re stealing time.

    Like

  40. Even if not extending UI results in less of a labor supply, those are choices.

    Like

  41. Wow, I just got reminded why I don’t go there. Some of these people are just absolute assholes…

    Like

  42. maybe stealing is too harsh.

    i’m on the record as being in favor a breaking the bond between employment and insurance.
    but not like this.

    Like

  43. Because I’m too lazy to research. . . do people who are self-employed count in Labor Department statistics?

    i.e., if I stop being employed and start a business am I counted as “employed” or do I just fall out of the statistical pool?

    Like

  44. self employed count as “employed”

    Like

  45. OK, then about 90% of my argument about the CBO report just flew out the window.

    Like

  46. I’m going to go read that link that shrink put up (that jnc posted a bit ago).

    Like

  47. there will be less man hours worked. after everyone follows their dream and quits their day jobs b/c health insurance is now subsidized out the wazoo, there will be less labor supplied.

    see page 117 of the report. It’s the low-end of the income scale where this is estimated to have the biggest impact. unskilled labor.

    sure, somebody might quit filing tsp reports and strike out on their own.

    so either these workers will leave the workforce and write the great american novel and cure cancer in their subsidized housing, or they will go from low-wage to no-wage and medicaid.

    Like

    • nova:

      so either these workers will leave the workforce and write the great american novel and cure cancer in their subsidized housing, or they will go from low-wage to no-wage and medicaid.

      Better they quit their low-wage job than they keep it and the taxpayers be forced to “subsidize” their employer. (/snark)

      Like

  48. Like

  49. Moar Republican War on Women!

    Like

  50. Like

  51. If only there was some explanation for this.

    http://washingtonexaminer.com/article/2543432

    It’s as if a law was passed that disincentives the hiring of full time workers.

    Like

  52. Also — there’s the fact that “freedom” to not work wasn’t exactly a talking point during passage. They were terrified of disrupting the employer-based system.

    Like

  53. “Better they quit their low-wage job than they keep it and the taxpayers be forced to “subsidize” their employer. (/snark)”

    ^^ This is what they actually believe. Our snark/jokes are their white papers.

    Like

  54. Why does anybody put any veracity in CBO scoring?

    Like

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