Morning Report – Q1 GDP surprises 4/30/14

Vital Statistics:

Last Change Percent
S&P Futures 1870.8 -1.0 -0.05%
Eurostoxx Index 3196.3 -12.4 -0.39%
Oil (WTI) 100.3 -1.0 -1.01%
LIBOR 0.223 -0.002 -0.89%
US Dollar Index (DXY) 79.59 -0.221 -0.28%
10 Year Govt Bond Yield 2.69% 0.00%
Current Coupon Ginnie Mae TBA 105.6 0.1
Current Coupon Fannie Mae TBA 104.5 0.0
BankRate 30 Year Fixed Rate Mortgage 4.3


Markets are slightly lower this morning after GDP came in much, much lower than expected. Bonds and MBS are up small. The market almost does not believe the number.
The advance estimate for first quarter GDP came in at +.1%. The Street was looking for +1.2%, so this is a big surprise. Remember, this is the advance estimate for first quarter GDP and will be subject to two revisions. Given the fact that the SPUS aren’t down 20 handles and the 10 year isn’t yielding 2.6%, the Street clearly thinks this will be revised substantially upward the next time around. Going from 2.6% growth in Q4 to nearly flat GDP growth simply doesn’t comport with all the other numbers we have been getting.
Mortgage Applications fell 5.9% last week. The index is challenging the lows we set in the last week of 2013. The refi index has already broken through that low and is now around the lows set in mid 2008. Purchases fell 4.4%, even though rates were flat. Average loan sizes fell to 239.7k and the refis account for just over half of all applications right now.
The ADP Employment report is forecasting 220k private payrolls for Friday’s jobs report. Last month, the ADP number pretty much nailed it. The Street is forecasting 215k this Friday.
We had some other minor data this morning, with the ISM Milwaukee missing estimates and the Chicago Purchasing Manger’s index beating.
We will hear from the FOMC later today. Given there will be no press conference, I think we should expect nothing major, just another $10 billion in tapering and a commitment to lower rates until the labor market improves. I will be interested to see if the statement references the slowdown in Q1.
The Senate Banking Committee has enough votes to get Johnson Crapo out of Committee, but not enough to bring it to the floor. Six Democrats and six Republicans out of 22 support the measure. The liberals want more effort spent on forcing banks to lend to “underserved” areas.

Morning Report – Case-Shiller up / 13 out of 20 markets down 4/29/14

Vital Statistics:

Last Change Percent
S&P Futures 1870.3 4.3 0.23%
Eurostoxx Index 3197.9 32.1 1.01%
Oil (WTI) 101.2 0.4 0.40%
LIBOR 0.225 0.001 0.22%
US Dollar Index (DXY) 79.79 0.103 0.13%
10 Year Govt Bond Yield 2.72% 0.02%
Current Coupon Ginnie Mae TBA 105.4 -0.2
Current Coupon Fannie Mae TBA 104.3 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.26
Markets are up small this morning on no real news. Bonds and MBS are down small.
Home prices rose.76% month-over-month and 12.9% year over year, according to the Case-Shiller real estate index. The strength in home prices is largely due to reduced inventory and does not necessarily represent a robust housing market. In fact, 13 out of the 20 cities in the index declined in February on a month-over-month basis. The strength was in the West Coast, Dallas, and DC. Everyone else was down.
Why does a company with $123 billion in net cash on the balance sheet need to tap the bond market? In a move guaranteed to infuriate many, Apple is looking to do a $17 billion bond issue to repurchase stock. Why not use the their cash to do it? Because it is overseas and subject to repatriation taxes.
The markup of the Crapo-Johnson bill begins mark-up in the Senate. The two big expected changes are 1) Guarantors of MBS cannot also be originators, and 2) The bill will not supersede the bailout agreement, which means all of Fan and Fred’s profits have to go straight to the government. My personal opinion is that not much is going to be done on housing reform this year. With Republican control of the Senate a distinct possibility, they are going to want to wait and see if they can drive a better deal when control changes.
There was nothing earth-shattering in American Capital Agency’s first quarter earnings release. AGNC is the second-biggest mortgage REIT in the US and is a big buyer of mortgage backed securities. They continue to shrink their balance sheet and buy back stock. They have shortened the maturity of their portfolio and now half of it is in 15 year fixed rate MBS. The dwarfs are interesting – you do get a meaningful drop in rate on the conforming side, but not on the government side. In fact, there is no rate advantage in going from 30 to 15 in govvies at all. Why? Govvie dwarfs are highly illiquid.

Morning Report – Big week ahead 4/28/14

Vital Statistics:

Last Change Percent
S&P Futures 1863.2 3.1 0.17%
Eurostoxx Index 3161.8 14.4 0.46%
Oil (WTI) 101.1 0.5 0.47%
LIBOR 0.225 -0.002 -0.77%
US Dollar Index (DXY) 79.58 -0.174 -0.22%
10 Year Govt Bond Yield 2.67% 0.01%
Current Coupon Ginnie Mae TBA 105.6 0.0
Current Coupon Fannie Mae TBA 104.6 0.0
BankRate 30 Year Fixed Rate Mortgage 4.25


Markets are up small this morning after Pfizer released a $100 billion bear hug for AstraZeneca Plc. Bonds and MBS are flat.
Big week coming up. The action begins Wednesday, with the FOMC decision and the advance estimate of Q1 GDP. On Thursday, we have a couple of big reports with the ISM Manufacturing report as well as personal income / consumption. Finally, on Friday we get the jobs report. So, there is a lot of stuff this week that could move bonds around. Float at your own risk.
The Street estimate for Q1 GDP is +1.2%, a significant slow down from the +2.6% pace for the fourth quarter. Clearly the Street is baking in some caution given the lousy weather in January and February. Housing continues to punch below its weight, so that is another issue.
The FOMC meeting will not have a press conference or any revisions to the economic forecast, so it should be a non-event. Expect to see another $10 billion reduction in asset purchases.
Pending Home Sales rose 3.2% month over month but fell 7.4% on a year-over-year basis. The jump was mainly a catch-up after a rough start to the year. The NAR is expecting existing home sales to hit 4.9 million in 2014, less than the 5.1 million pace in 2013. Given the inventory shortage, they expect median prices to increase 6% – 7% this year.

Saturday Open Thread

Since McWing hasn’t put up a weekend thread yet I’ll pick up his slack.

Thought for the day:

With foxes we must play the fox.

Thomas Fuller

Which of course, in today’s day and age, led me immediately to this:

Birthdays today:

William Shakespeare, Ludwig Wittgenstein, Kevin James, John James Audubon, Jet Li

Morning Report – Mixed signals on the economy 4/25/14

Vital Statistics:

Last Change Percent
S&P Futures 1867.6 -5.5 -0.29%
Eurostoxx Index 3164.6 -25.2 -0.79%
Oil (WTI) 101.1 -0.8 -0.83%
LIBOR 0.227 -0.001 -0.55%
US Dollar Index (DXY) 79.68 -0.120 -0.15%
10 Year Govt Bond Yield 2.68% -0.01%
Current Coupon Ginnie Mae TBA 105.6 0.1
Current Coupon Fannie Mae TBA 104.5 0.0
BankRate 30 Year Fixed Rate Mortgage 4.24


Stocks are lower this morning on no real news. Emerging markets continue to sell off. Bonds and MBS are up small.
University of Michigan Consumer Confidence picked up in April, from 82.6 to 84.1.
The Markit Purchasing Managers Index fell slightly to 54.9 from 55.7. The Markit Services PMI fell as well. These readings are still well above neutrality, but it looks like things cooled a bit in April. The employment numbers were not great – the expansion in service sector payroll was the weakest in almost 2 years. Input prices (primarily food and energy) increased.
Rep. Elijah Cummings (D-MD) wants to exhume the robo-signing scandal and hold hearings on it. There was an ongoing investigation of servicing misdeeds during the foreclosure process that was eventually shut down when the government realized the only people making any money on it were the consultants, not aggrieved homeowners. Apparently the consultants walked away with $1.9 billion and homeowners got nothing. Seems to me to be a lot of money to pay consultants to review foreclosure files. But that probably explains why 6 of the 10 richest counties in the US surround DC.
Speaking of regulators going after the banks, the government is looking for more that $13 billion from Bank of America over RMBS deals. If B of A wasn’t asked to buy Countrywide from the government, that deal will go down in history as one of the worst mergers ever. If the government asked B of A to buy Countrywide, then the government is exhibiting absolutely reprehensible behavior.
The Wall Street Journal has a good article on how demand for home loans has fallen off as buyers experience sticker shock. Last year at this time, mortgage rates were 75 basis points lower, and home prices were 13% lower. This has caused affordability to take a hit, although real estate is still highly affordable compared to historical numbers. As a result, housing continues to punch below its weight in terms of contributing to economic growth. That said, the thing that jumped out in reviewing the homebuilder earnings is that the growth is pretty much coming from increases in average selling prices. For example, Pulte had flat year-over-year revenues which consisted of a 10% increase in ASPs and a 10% drop in deliveries. The builders have probably increased prices as far as they can, and will now have to push out volume to keep increasing the top line. In my opinion, that is what is going to break the logjam in the economy. The builders are coming up against some tough comparisons, and are not going to want to report revenue declines. Which means more building, which puts more people to work, which gets the virtuous cycle going again. At some point, the job market will improve enough to bring the first time homebuyer back, which is the key to a meaningful recovery in housing and is the difference between housing starts of 900k and 1.5 million.

Morning Report – Homebuilder earnings 4/24/14

Vital Statistics:

Last Change Percent
S&P Futures 1879.7 6.8 0.36%
Eurostoxx Index 3197.1 21.1 0.66%
Oil (WTI) 101.9 0.4 0.40%
LIBOR 0.228 -0.001 -0.39%
US Dollar Index (DXY) 79.97 0.111 0.14%
10 Year Govt Bond Yield 2.72% 0.02%
Current Coupon Ginnie Mae TBA 105.2 -0.1
Current Coupon Fannie Mae TBA 104.2 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.28


Markets are up this morning after earnings reports and a good durable goods number. Bonds and MBS are down.
Durable goods came in at 2.6% in March, better than the 2% Street estimate. Initial Jobless Claims increased to 329k.
Pulte announced better than expected earnings, but orders are down 6% from a year ago. Net new orders are down 2%. Average selling prices increased 10% to 317,000 and gross margins increased to 23.8%. They reported that the spring selling season is off to a good start, and demand accelerated throughout the quarter. Michigan apparently did well, and demand is strong in Texas, Florida, and the Carolina. Demand is weak in Washington DC and New England. We saw confirmation of DC weakness from NVR. Perhaps prices simply rose too far too fast there. Pulte is more of an entry-level homebuilder, so that is encouraging. The first-time homebuyer has been the missing piece of the puzzle.
D.R. Horton announced even better numbers than Pulte, with new orders up 9% in units and 20% in dollar value. Gross Margins increased 210 basis points to 22.5%. Average selling prices increased 10% to 278,900. They reported that market conditions remain favorable, but the strength and improvement varies significantly over local markets. D.R. Horton in based in Texas, but operates over a big geographic area.
Finally, Ryland reported orders increased 6%, ASPs increased 18%, and gross margins increased to 21.1%. Ryland is based in Southern California and operates in 17 states.
So, for all the fears that homebuilder earnings would be terrible, so far, so good. We have heard from Lennar, KB, Pulte, DR Horton, NVR, and Ryland. Only NVR missed. That said, the weak order growth does seem to indicate that the big increases in ASPs and gross margins may be in the past. Very hard to reconcile these good earnings reports with that awful new home sales number yesterday.
Apple delighted the crowd with a better than expected earnings and a 7 for 1 stock split. I remember the ads for stock split beepers back in the late 90s in Barron’s. A company would announce a stock split, a page with the ticker is sent to your beeper, and you quickly go to your E*Trade account and buy the stock. No analysis required. Heck, you don’t even have to know what they do. Typical bubble thinking. Similarly, I remember the guy who sold me my Volvo station wagon in 2006 was speculating in condo rights. Hopefully he found a seat when the music stopped.
FWIW, it seems like the half a trillion market cap seems to be where companies stall out (both XOM and MSFT flirted with that level before petering out) and Apple is trading at $491B pre-open.

Morning Report – The Rent vs Buy decision revisited 4/23/14

Vital Statistics:

Last Change Percent
S&P Futures 1872.0 -1.9 -0.10%
Eurostoxx Index 3191.5 -8.2 -0.26%
Oil (WTI) 101.6 -0.2 -0.19%
LIBOR 0.229 0.000 0.07%
US Dollar Index (DXY) 79.76 -0.150 -0.19%
10 Year Govt Bond Yield 2.70% -0.01%
Current Coupon Ginnie Mae TBA 105.2 0.1
Current Coupon Fannie Mae TBA 104.2 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.28


Markets are lower this morning as earnings reports continue to pile in. So far, it is looking like most companies are meeting or beating estimates. Bonds and MBS are up.
The Markit US Manufacturing PMI slipped in April. It seems like big revisions have been the order of the day lately, so I wouldn’t fall out of my chair with shock if that preliminary number was revised upward. Like I said before, this could be the year that “recovery summer” stops being a running joke.
That said, new home sales came in at 384k, well below the last month’s 450k pace. Abysmal, abysmal number. The XHB (homebuilder ETF) is getting slammed right now. You can’t blame this one on the weather. Maybe the builders, who have been increasing home size and prices, have finally hit the point where the consumer is saying “uncle.” Shortages of buildable lots and skilled labor continue to be an issue.
Mortgage applications fell 3.3% last week (unsurprising as it was a short week). Both purchases and refis fell. Refi percent fell to 51.3%, and we are seeing ARMs increase – up to 8.5% of all loans.
Hatteras (a mortgage REIT that specializes in ARMs) reported that its leverage ratio increased. ARMs have always been on the illiquid side to begin with, but it looks like they increased their dollar roll position, which put even more pressure on front month TBAs. TBAs (To-Be-Announced) are generic mortgage backed securities, and their price in the market is the starting point of a rate sheet. So if TBAs are in demand, mortgage rates are falling, and if they are out of favor, mortgage rates are rising. In this case, Hatteras has been selling the front-month TBAs and buying the out-month TBAs. So this puts pressure on the front month TBA, which means ARM rates are slightly higher than they otherwise would be. Of course this trade has to be reversed at some point, so ARM pricing could get a bit better in the future. I realize this is kind of “inside baseball”, but it is always good to keep in mind how the buyers of mortgage backed securities (the ultimate lenders here) are positioned.
In the “what passes for analysis” category these days category, the Washington Post (yes that bastion of commercial logic) opines that owning a house is a lousy investment. The author talks about how stocks are so much better over the long term (conveniently, the S&P 500 is at all-time highs, and real estate has gotten pounded over the past six years), and concludes that owning your own home is a stupid investment and you are better off renting. This is a classic case of “in the sciences, knowledge is cumulative, and in the financial markets it is cyclical.” The author (who may be too young to remember) must imagine that inflation is forever vanquished, never to return again. If inflation ever comes back, stocks will get clobbered (as they did from 1965-1982 – the last secular bear market) as will bonds. But your house will go up in value with inflation, and the value of your liability (a 4% 30 year fixed mortgage) will fall. Inflation is a debtor’s best friend, and the Fed is pulling out all the stops trying to create it. At some point, it will succeed. And if you rent, you get to enjoy annual rent increases. If you bought, you have locked in your monthly payment for 30 years.

Morning Report – Existing Home Sales still weak 4/22/14

Vital Statistics:

Last Change Percent
S&P Futures 1867.5 3.1 0.17%
Eurostoxx Index 3192.4 36.6 1.16%
Oil (WTI) 102.9 -1.5 -1.45%
LIBOR 0.229 0.003 1.22%
US Dollar Index (DXY) 79.83 -0.113 -0.14%
10 Year Govt Bond Yield 2.74% 0.02%
Current Coupon Ginnie Mae TBA 105.2 0.0
Current Coupon Fannie Mae TBA 104 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.27


Markets are higher this morning on a blizzard of earnings reports and a couple major M&A transactions in the pharma space. Bonds and MBS are down.
The FHFA Home Price Index rose .6% month over month in February and is up just shy of 7% for the year. The FHFA Index only looks at homes with a conforming mortgage, so it is more of a central tendency index than, say Case Shiller.
Existing Home Sales were basically flat in March, coming in at 4.6 million. The median home price was up 7.4% year over year. Days on Market fell to 55 days from 62. First time homebuyers increased to 30% of transactions and all cash deals increased to 33%. For LOs that are discouraged by the death of the refi business, there is a bright side to these numbers. Investors are becoming less of a force in the market and the first time homebuyer is becoming more of one. Historically, existing home sales have been in the 5.2 million range. If we get back to historical run rates and all cash buyers go back to their historical levels of 20%, that means the gettable purchase business will increase 35%. (5.2 million * 80% with a mortgage) = 4.16 million gettable loans. Current situation: 4.6 million * 67% = 3.08 million.
Chart:  Existing Home Sales:


Morning Report – NVR disappoints 04/21/14

Vital Statistics:

Last Change Percent
S&P Futures 1862.5 4.6 0.25%
Eurostoxx Index 3155.8 16.6 0.53%
Oil (WTI) 104.4 0.0 0.05%
LIBOR 0.226 -0.002 -0.88%
US Dollar Index (DXY) 79.89 0.042 0.05%
10 Year Govt Bond Yield 2.70% -0.02%
Current Coupon Ginnie Mae TBA 105 -0.6
Current Coupon Fannie Mae TBA 104.1 0.2
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 Chicago Fed National Activity Index came in at .2, in line with expectations. The Index of Leading Economic Indicators rebounded to .8. Perhaps this year will be the end of the “recovery summer” running joke.
Thursday’s big increase in rates were a bit of a head-scratcher, given that there were no big economic reports on Thursday. Chalk it up to low liquidity in the markets as senior traders took the day off and instructed their junior traders to stay out of the way.
Lots of earnings this week, with some of the market heavyweights reporting. On Thursday, we will hear from homebuilders D.R. Horton and PulteGroup. Hopefully they will give some insight on how the spring selling season is shaping up.
Washington-DC based homebuilder NVR reported lower than expected earnings, partially based on a reversal of some previously recognized tax deductions.  Orders fell 5%, while backlog was down 3% on a unit basis but up 4% on a dollar basis. Gross margins increased to 18% as average selling prices rose 5%. NVR doesn’t do conference calls, so we’ll have to wait until Thursday to get some more color on the market environment. The stock is down 6.5%.
Ocwen is putting all future mortgage servicing deals on hold, after attracting the scrutiny of the New York Attorney General’s office. Everything is on hold until people figure out what Schneiderman wants.

Good Friday Post

Fresh thread since Brent’s taking *another* day off.

Jeez, banker’s hours.

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