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.

48 Responses

  1. about time.

    Frist!

    punks!

    Like

  2. “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. ”

    I thought that the government only forced the Merrill Lynch deal. I think Countrywide was all on BoA themselves as it was done in 2007 – 2008.

    “The endgame in Bank of America’s $4 billion takeover of Countrywide Financial began with a December phone call from Countrywide Chief Executive Angelo Mozilo to his Bank of America counterpart, Kenneth D. Lewis. And on January 11, 2008, Bank of America announced it had agreed to buy Countrywide for $4 billion in an all-stock transaction. The stock’s value settled at about $5½ per share following the announcement; it had been as low as $4.43 before the Bank of America deal was announced.

    After more than six months of financial deterioration at Countrywide—despite a $2 billion infusion of cash from Bank of America in August—Mozilo said he was ready to throw in the towel, according to Lewis.

    At the same time, having watched Countrywide dramatically retool its operations in a bid to survive, Bank of America executives began to believe Countrywide’s big U.S. mortgage business might be worth having.

    “The ability to get that kind of size and scale became more appealing as we saw the business model change to a model we could accept,” Lewis said. “We considered the lawsuits, the negative publicity that Countrywide had. We weighed the short-term pain versus what we think will be a very good deal for our shareholders.”

    Bank of America deployed 60 analysts from its headquarters in Charlotte, N.C., to Countrywide’s headquarters in Calabasas, Calif. After four weeks analyzing Countrywide’s legal and financial predicament, and modeling how its loan portfolio was likely to perform, Bank of America offered an all-stock deal valued at $4 billion for Countrywide—a fraction of the company’s $24 billion market value a year ago. Countrywide shareholders approved the deal on June 25, 2008 and it closed July 2, 2008″

    http://en.wikipedia.org/wiki/Countrywide_Financial

    Edit: This looks to be from an WSJ piece on it. BoA’s old lawyer was Countrywide’s lawyer at the time that the deal was done.

    “After Mr. Mozilo’s call in early December, Bank of America sent dozens of bankers to California, where they holed up at the West Lake Village Four Seasons near Calabasas, according to people involved in the process. A key player during the negotiations between Countrywide and Bank of America was Edward Herlihy, a senior partner with the law firm Wachtell, Lipton, Rosen & Katz, who represented Countrywide.

    Mr. Herlihy has advised Bank of America for almost two decades and knows Mr. Lewis well. Those relationships proved crucial in brokering the deal, a person familiar with the matter said.

    On Dec. 28, Mr. Mozilo met at Countrywide’s headquarters with Mr. Herlihy and other advisers, with Mr. Lewis participating by phone. The two sides agreed to pursue a deal, and on Jan. 4, Mr. Herlihy presented the plan to Countrywide’s board along with investment bankers from Sandler O’Neill. They rushed to complete it this past week as speculators drove Countrywide’s price below $5 amid rumors of a bankruptcy filing, which the company denied.

    Bank of America said it believes that paying $4 billion for a company with a book value triple that amount gives adequate cushion for potential damages, settlements and other litigation costs involving mortgages that went bad. “I have confidence in our due- diligence teams that we made the right assessment of the downside,” Mr. Lewis said.”

    http://kaoshi.wobuxihuan.org/wiki/The_Wall_Street_Journal-20080112-Behind_Bank_of_America-s_Big_Gamble

    Actual WSJ link:

    http://online.wsj.com/news/articles/SB120005404048583617

    Edit 2:

    “Historically, federal regulators have played an active role directing a struggling financial institution towards a takeover, particularly because of the liability to the federal deposit insurance fund. Countrywide operates a thrift whose deposits are insured by the Federal Deposit Insurance Corp.

    The Office of Thrift Supervision, a division of the U.S. Treasury Department, began regulating Countrywide in March, after the company converted to a federal thrift from a national bank. The OTS set up a full-time presence at Countrywide’s headquarters in August. However, people familiar with regulators’ thinking said they didn’t actively encourage the BofA deal.

    “There was no encouragement in all this,” Mr. Lewis said. “It doesn’t mean they’re not happy we did it, but there was no pressure at all and no prior discussions.””

    Like

  3. “Rep. Elijah Cummings (D-MD) wants to exhume the robo-signing scandal and hold hearings on it”

    Presumably this is just for entertainment value at this point, since there was a global DoJ settlement.

    Like

  4. Worth a note:

    “The New Industrial Belt: The Deep South
    Does America still “make things?” Come take a look … in Mississippi.
    James Fallows Apr 25 2014, 1:10 AM ”

    http://www.theatlantic.com/business/archive/2014/04/the-new-industrial-belt-the-deep-south/361207/

    Like

  5. My run this morning sucked and my shower didn’t take.

    FML.

    Like

  6. Three words re manufacturing, Right To Work.

    #MicDrop

    Like

    • jnc:

      Interesting Cost of Living calculator.

      And a good demonstration of why, even if one does believe in having a minimum wage, it makes no sense whatsoever to set it nationally for the whole nation.

      Like

  7. This strikes me as an almost libertarian take on climate change.

    http://www.theguardian.com/theguardian/2008/mar/01/scienceofclimatechange.climatechange

    Like

  8. What, was Paul Ehrlich to busy to give ridiculous predictions?

    Or is it different this time, ’cause the science is settled.

    I think I’ll burn a tire today to honor Gaia.

    Like

    • McWing:

      I think I’ll burn a tire today to honor Gaia.

      Heh. I thought this one was notable:

      Initially ridiculed by many scientists as new age nonsense, today that theory forms the basis of almost all climate science.

      And this is supposed to make us take him more seriously!

      Like

  9. This was what I liked about it:

    “Do he and his wife try to limit the number of flights they take? “No we don’t. Because we can’t.” And recycling, he adds, is “almost certainly a waste of time and energy”, while having a “green lifestyle” amounts to little more than “ostentatious grand gestures”. He distrusts the notion of ethical consumption. “Because always, in the end, it turns out to be a scam … or if it wasn’t one in the beginning, it becomes one.”

    Somewhat unexpectedly, Lovelock concedes that the Mail’s plastic bag campaign seems, “on the face of it, a good thing”. But it transpires that this is largely a tactical response; he regards it as merely more rearrangement of Titanic deckchairs, “but I’ve learnt there’s no point in causing a quarrel over everything”. He saves his thunder for what he considers the emptiest false promise of all – renewable energy.

    “You’re never going to get enough energy from wind to run a society such as ours,” he says. “Windmills! Oh no. No way of doing it. You can cover the whole country with the blasted things, millions of them. Waste of time.”


    To Lovelock, the logic is clear. The sustainability brigade are insane to think we can save ourselves by going back to nature; our only chance of survival will come not from less technology, but more.”

    Like

    • jnc:

      This was what I liked about it:

      Yeah, I liked that too. But somehow I doubt all the hype about his past predictive powers.

      In 1965 executives at Shell wanted to know what the world would look like in the year 2000. They consulted a range of experts, who speculated about fusion-powered hovercrafts and “all sorts of fanciful technological stuff”. When the oil company asked the scientist James Lovelock, he predicted that the main problem in 2000 would be the environment. “It will be worsening then to such an extent that it will seriously affect their business,” he said.

      This is the headliner of his prognostications? Shell made $16 billion in profits last year on revenues of over $450 billion. Surely its business has suffered more from problems with environmentalists than from problems with the environment itself. Not exactly a reason to consider him the Carnac the Magnificent of environmental predictors.

      Like

      • Brent:

        My daughter is doing a paper for school about the collapse of the housing market in 2007/8, and the resulting financial crisis. Naturally, her professor has been spouting off about the repeal of Glass-Steagall being the seminal event (with links to, er, HuffPo!!), a notion that I have been trying to disabuse her of. I know early on during ATiM you wrote several very insightful comments explaining the role that Fannie Mae, the Fed, and federal housing policy played, which I have passed on to her, but I was wondering if you had written anything on a more formal platform than ATiM that she might be able to link to and cite in her paper. Let me know. Thanks.

        Like

  10. My rent in SLC must have been even more out-of-whack with the market than I thought it was; I must also be an unusual spender, because I’m spending ~$100 less per month than I was in SLC, but that’s completely the opposite what the RPP indicates.

    Hmmmmmmmmmmm.

    Like

  11. Michi, how’s your car situation?

    Like

  12. “ScottC, on April 25, 2014 at 2:32 pm said:

    Heh. I thought this one was notable:

    Initially ridiculed by many scientists as new age nonsense, today that theory forms the basis of almost all climate science.

    And this is supposed to make us take him more seriously!”

    I read it as less about the planet being self aware and more about a complex ecosystem that tends to return to equilibrium over time. If you read the wiki entry, it makes a usefull point about how consistent the salinity of the oceans has been over decades.

    Like

    • jnc:

      I read it as less about the planet being self aware and more about a complex ecosystem that tends to return to equilibrium over time.

      Is that really something that climate science has embraced? Anyway, I was just being a bit snarky about the implication that an association with climate science should enhance one’s reputation.

      Like

  13. Ezra Klein’s piece on Bundy was pretty good in the first half.

    http://www.vox.com/2014/4/25/5651432/cliven-bundy-spanish-people

    It also occurs to me that perhaps with Bundy, Eric Holder has finally found someone willing to have the conversation on race that he lamented about in 2009. A beer summit may be in order.

    http://www.cnn.com/2009/POLITICS/02/18/holder.race.relations/

    Like

    • jnc:

      t also occurs to me that perhaps with Bundy, Eric Holder has finally found someone willing to have the conversation on race that he lamented about in 2009. A beer summit may be in order.

      lol. That’s good.

      Like

      • On a totally different subject, I’ve been thinking about something for a while. What do you all think about SCOTUS repudiating the incorporation doctrine? I think it would be a good idea, and not just from a conservative/libertarian point of view. It would actually redound to the benefit of several progressive causes. For example, gun control could be pursued much more aggressively by liberals at the state level. So too restrictions on campaign financing. Perhaps even affirmative action policies.

        What is the down side?

        Like

  14. Aleithia is still the Gold Standard on PL for whacky governing ideas, but I think this person wins the award for the most paranoid rant I’ve seen on that site:

    Anon456
    1:04 PM EDT

    There is a solution to 11M illegals here that’s humane. Let em have work visas, not citizenship. The problem with illegals is not that they are illegal or bad, its that illegal immigration is being used by the NWO Fed parasites to make the US insolvent. Illegals dilute the vote of natural born voters. Because illegals leave their native countries, logic dictates they are more open to the idea of a one world government, the NWO agenda, than natural born who do not want the US replaced with a NWO one world fascist police state. Boehner has his job because he’s good at giving the NWO what it wants. Why doesn’t Boehner float the idea of a referendum for the people to decide if they want US going deeper in debt to fight a war with Russia over the Ukraine? Because the NWO wants the US in a war with Russia. The NWO controls’ Boehner. The more the US is in debt the more the Fed parasites charge the US taxpayer to borrow their own money. Also, the NWO knows it is a dictatorship and does not have to get the permission from the US Peeps for War with Russia or anything the NWO wants done. Is the NWO behind the NV rancher’s racist rant and part of primary season politics as usual like Benghazi? If NWO depicts Repubs as NV rancher loving racists, then the NWO may try to play the race card on Repubs to pass citizenship for 11M illegals.

    Like

  15. Scott, I have a white paper I wrote a few years ago – it was mainly about the opportunities in distressed whole loans, but there is some background stuff on the crisis.

    There is a link to it on my LinkedIn page… It is called Opportunities in Distressed Mortgage Pools

    Like

  16. Michi, how’s your car situation?

    Surprisingly little damage, essentially all cosmetic. And, given that it’s a 2001, I’m not going to worry about getting things buffed out/repainted at this point in time.

    Bruised all up and down my left side from hitting the door (I suppose, although I don’t remember doing that) and I had to go in for a follow-up MRI this morning, but I’m pretty much OK, too.

    We’ll try dinner again next month sometime after the 10th (Race day).

    Like

  17. “that she might be able to link to and cite in her paper. ”

    Will the professor look favorably on a paper that disagrees with the views espoused in the class?

    Like

    • jnc:

      Will the professor look favorably on a paper that disagrees with the views espoused in the class?

      Good question. Probably not, and we have talked about it, but I told her to be bold. I spent a lot of time in college being the contrarian and I fared OK. I told her to just make sure she accurately represents the teacher’s view, and then just explain why it is wrong. Besides, this is actually my high school daughter not my college daughter, so if she gets a bad grade for not toeing the line, I’ll feel pretty comfortable going to the school and ripping the teacher a new one.

      Like

  18. Glad to hear it wasn’t worse.

    Like

  19. You and me both, jnc!

    Like

  20. Re Bundy. He and the Federal government are both wrong. He (Bundy) followed the rules and challenged in court but still lost. The Federal Government, leaving aside the proposition that they own so much land, and the merits of that, certainly did not need a armored division to remove the cows. That was for show and to intimidate not only Bundy but other ranchers near him as well as far away. I told Mark and I stand by it, civil disobedience to Federal overreach and encroachment is not only fine but should be encouraged.

    So what if Bundy’s a bad person or a booger-eating racist, I’m not going to give up on my beliefs of the Constitutionality of all sorts of things because some people are quacks.

    Bundy’s occupation, a rancher, a very iconic American profession made him instantly sympathetic to a lot of people. Randy Weaver in Idaho was completely unsympathetic but his wife didn’t deserve to be shot in the head by a ATF sniper because Weaver wouldn’t play ball and be a snitch for them.

    David Koresh and his followers were complete kooks. Does that justify what the government did to them?

    I say no.

    Like

    • McWing:

      I say no.

      I’m with you. Freedom is pretty meaningless if it doesn’t mean the freedom to think and say stupid, even malicious things.

      Like

  21. I wonder about due process provisions as well as voter discrimination. Would it be okay for a state to search/seize arbitrarily if it’s citizen’s say so? What if it decides chicks can’t vote?

    Tough one, that.

    Like

    • McWing:

      Would it be okay for a state to search/seize arbitrarily if it’s citizen’s say so? What if it decides chicks can’t vote?

      All states already have their own constitutions. Most if not all of the particularly egregious possibilities either already have been or in short order would be taken care of. As it stands, those constitutions are pretty much meaningless redundancies, except insofar as they provide even more protections than exist in the federal constitution.

      Like

  22. Eliminating the incorporation doctrine will probably require a constitutional amendment. It would probably be the one thing that would reinvigorate federalism the most, aside from overturning Wickard v Filburn.

    As a general proposition, I’m in favor of it.

    Like

  23. No, this isn’t a joke. Empathy taken to it’s logical extreme.

    “This guy thinks killing video game characters is immoral”

    http://www.vox.com/2014/4/23/5643418/this-guy-thinks-killing-video-game-characters-is-immoral

    Like

  24. I don’t know that I’d classify that as “empathy”.

    Like

  25. Aleithia is still the Gold Standard on PL for whacky governing ideas, but I think this person wins the award for the most paranoid rant I’ve seen on that site:

    Meh. I’ve read hundreds more paranoid rants by bernie alone. ceflynline makes that guy look like George Will.

    Like

  26. I spent a lot of time in college being the contrarian and I fared OK. I told her to just make sure she accurately represents the teacher’s view, and then just explain why it is wrong.

    TTo their eternal credit, the professors who became my closest mentors were all flaming left-wing nutjobs, of different stripes, but could not have been fairer or better to me. I adore them. I thanked three of them at commencement by name for their tutelage and got into law school on the strength of their recommendations. Even left-wing nuts can have integrity. But I have heard many horror stories of the opposite kind.

    Like

  27. “Michigoose, on April 25, 2014 at 5:36 pm said:

    I don’t know that I’d classify that as “empathy””

    It is. The argument being made is about the “pain” that they feel from being unable to complete their programming.

    Like

  28. Regarding reversal of selective incorporation (lol fantasyland!), sure, I would favor it. The doctrine is intellectually bankrupt. It would eliminate the bulk of federal abortion “jurisprudence” and a large docket of criminal procedure litigation. I haven’t looked at it lately, but I think most states have some free speech and religion rights in their constitutions, so it wouldn’t necessarily mean a new wave of censorship.

    Like

  29. jnc:

    Oh, I know the argument he was making. I just don’t buy it.

    Unless I can pay BitCoins for it. . .

    Like

  30. Jesus, this is funny,

    Even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of rising Russia and all the odious apparatus of the KGB state, we shall not flag or fail. We shall go on to the end. We shall fight on FaceBook, we shall fight on Instagram and Pinterest, we shall fight and, with growing follower lists and growing Likes, we shall defend our #hashtag, whatever the cost may be.
    We shall fight on Twitter, we shall fight on Vine, we shall fight on the Washington Post’s op-ed pages and in the New York Times’ comment areas, we shall fight in Buzzfeed’s gifs; we shall never surrender.

    And if, which I do not for a moment believe, this #hashtag or a large part of it were hijacked by trolls, then our social media reach, armed and guarded by the writers at Media Matters and the Daily Beast, would carry on the struggle, until, in God’s good time, some miracle should descend upon us in rescue us so we can return, as we much desire, to the #WarOnWomen.

    Romney wants to #BanTampons, please retweet.

    http://minx.cc/?post=348784

    Like

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