Morning Report – Recovery Summer on the horizon? 4/17/14

Vital Statistics:

Last Change Percent
S&P Futures 1856.0 3.2 0.17%
Eurostoxx Index 3149.1 9.9 0.31%
Oil (WTI) 103.9 0.2 0.16%
LIBOR 0.226 -0.002 -0.88%
US Dollar Index (DXY) 79.7 -0.104 -0.13%
10 Year Govt Bond Yield 2.66% 0.03%
Current Coupon Ginnie Mae TBA 105.7 -0.2
Current Coupon Fannie Mae TBA 104.3 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.41

 

Markets are higher this morning as earnings continue to come in and for the most part the look good. GE and Goldman reported better than expected earnings this morning, although Google disappointed last night. So far (and it is very early) it looks like the market’s fears of a bad earnings season look unfounded. I think the biggest worry was going to be the banks, and so far, so good.
Markets will be closed tomorrow, and bonds close early today.
Initial Jobless Claims came in at 304k, which is a strong number historically. What is “normalcy” in initial jobless claims? Going back to 1970, it is about 375k. Here is a chart of initial jobless claims going back to 1970, so you can get some historical perspective:

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The Fed released the Beige Book yesterday. Overall, it shows activity increasing since last month, which isn’t surprising – the big question is whether it is a rebound from weather-related weakness or something sustainable. Certainly some of the manufacturing data we saw recently (industrial production, capacity utilization) seems to imply the latter. I think people don’t appreciate the industrial production reports that came out yesterday – the headline numbers for March were great on their own, but the upward revisions to February numbers were huge.

On the labor front, wage pressures remained contained, except for the Dallas district. Most districts are reporting labor shortages in skilled labor. On the negative side, food prices are rising, and rising food prices plus stagnant wages can be an economic damper. The main takeaway is that the economy seems to be accelerating and it is looking like it is more than just a rebound from weather-related weakness. That said, the weakness in housing starts continues to be a head-scratcher. We are still at levels that represent the bottoms of previous recessions. Any excesses of the bubble were corrected long ago.

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I suspect that a sudden increase in household formation is going to catch the builders absolutely flat-footed. Once the job market improves for young college grads, there is going to be a stampede for starter homes.
Yet one more data point that things are improving: banks are increasing their business lending. The big banks reported an 8.3% increase in commercial loans outstanding compared to a year ago. This is part of the reason why the bank earnings are not as bad as feared – business lending is replacing lost mortgage banking income. This portends an expansion in capacity, and almost by definition, hiring.
Recovery summer may finally come this year. Kind of messes with the whole “sell in May and go away” theory, doesn’t it?

Morning Report – Housing Starts disappoint

Vital Statistics:

 

  Last Change Percent
S&P Futures  1847.7 8.1 0.44%
Eurostoxx Index 3126.3 34.8 1.13%
Oil (WTI) 104.6 0.8 0.82%
LIBOR 0.228 0.002 0.66%
US Dollar Index (DXY) 79.7 -0.104 -0.13%
10 Year Govt Bond Yield 2.64% 0.01%  
Current Coupon Ginnie Mae TBA 105.7 -0.1  
Current Coupon Fannie Mae TBA 104.4 0.0  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.26    

 

Markets are higher this morning as earnings are coming in better than expected. Bonds and MBS are down small.
 
Mortgage Applications rose 4.3% last week, the first increase in a month. Both purchases and refis rose.
 
Industrial Production rose .7% in March, and capacity utilization rose to 79.2%, the highest since mid-2008.
 
Housing starts came in at a 946k pace in March, lower than the 970k street estimate. Building Permits were 990k, again south of expectations. Single family starts were up half a percent, while the volatile multi-fam segment fell 6.4%. Activity rebounded in the Northeast, but the South and West were down. 
 
Speaking of the builders, according to the NAHB, homebuilder sentiment improved slightly in April from a downward-revised March reading. So far, it is looking like the Spring selling season is going to be nothing special, as ongoing tight credit conditions and capacity constraints keep a lid on optimism. 
 
Believe it or not, some places in the country are finding they have to raise wages in order to attract talent. Mark Zandi, chief economist at Moody’s says there are spot labor shortages that will probably broaden out over the next year as the job market steadily improves. 

Morning Report – A tale of two housing markets TAX DAY ’14

Last Change Percent
S&P Futures 1827.8 3.3 0.18%
Eurostoxx Index 3128.9 -2.7 -0.09%
Oil (WTI) 103.3 -0.8 -0.72%
LIBOR 0.226 -0.002 -1.01%
US Dollar Index (DXY) 79.84 0.113 0.14%
10 Year Govt Bond Yield 2.65% 0.00%
Current Coupon Ginnie Mae TBA 105.6 -0.1
Current Coupon Fannie Mae TBA 104.4 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.3

 

Markets are up small on no real news. Bonds and MBS are flat
Inflation at the consumer level remains well-behaved, increasing at .2% month-over-month in March. On an annual basis, they rose 1.5%.
The latest CoreLogic Market Pulse is out, and it has some good stuff in it. One of the things we have noted before is that there really is a tale of two markets – the high end, which is doing great, and the low end which is not. If you listen to the builders, you will see that average selling prices for new homes have been increasing at a mid-teens rate. This is not apples-to-apples appreciation, it is that the growth is in the larger segments. Apparently the average square footage of a new home has increased 200 square feet since 2008.
The first time homebuyer has had a most difficult time, graduating college with a mountain of student loan debt and dismal job prospects. That may be changing, however as Barclay’s has pointed out. College graduates are beginning to have a little more success on the jobs front, and this should usher in the return of the first time homebuyer, who really has been dormant since the bubble burst six years ago.
Mortgage lending is hitting a 17 year low, as rates increase. According to the MBA, here are the dynamics at work: Mortgage rates jumped in mid-2013 as the Fed signalled tapering was at an end. This pushed up cash purchases to 40%, which helped fuel price increases, but also squeezed more Americans out of the market. This is the foundation for lower lending for the rest of the year.

Morning Report – The week ahead 4/14/14

Vital Statistics:

Last Change Percent
S&P Futures 1822.0 10.3 0.57%
Eurostoxx Index 3128.3 11.8 0.38%
Oil (WTI) 103.7 0.0 -0.01%
LIBOR 0.229 0.002 0.97%
US Dollar Index (DXY) 79.82 0.365 0.46%
10 Year Govt Bond Yield 2.65% 0.02%
Current Coupon Ginnie Mae TBA 105.8 -0.1
Current Coupon Fannie Mae TBA 104.5 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.24

 

SPUS are higher this morning after Thursday and Friday’s bloodbath. Bonds and MBS are down small.
Retail Sales came in better than expected, and the previous month was revised upward by a pretty large amount. March sales came in at +1.1% (vs .9 expected) and February was revised upward from .3% to .7%.
We have a short week coming up with markets closed on Friday. In terms of economic data, the big day will be Wednesday, when we get housing starts and building permits as well as industrial production and capacity utilization. After that, expect a lot of position-squaring ahead of the 3 day weekend.
Earnings season really begins this week, with a lot of heavyweights reporting. This morning we got Citi, and later this week we will hear from Bank of America, Google, General Electric, and Goldman.
Ever since Mel Watt took of FHFA, he has been pretty silent about what he is looking for, and how he wants to treat the GSEs going forward. At the end of the day, Watt is an affordable housing CRA guy to the bone and won’t do anything that jeopardizes that.

Morning Report – dismal mortgage banking stats 4/11/14

Vital Statistics:

 

  Last Change Percent
S&P Futures  1818.9 -8.2 -0.45%
Eurostoxx Index 3106.2 -46.7 -1.48%
Oil (WTI) 103.4 0.0 0.03%
LIBOR 0.226 -0.001 -0.26%
US Dollar Index (DXY) 79.52 0.140 0.18%
10 Year Govt Bond Yield 2.61% -0.04%  
Current Coupon Ginnie Mae TBA 106 0.1  
Current Coupon Fannie Mae TBA 104.7 0.2  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.26    

 

Markets are lower again this morning after the market sold off heavily yesterday. Bonds and MBS are up. 
 
The producer price index came in at .5%, showing inflation remains tame.
 
LOs, if you have anyone on the fence about locking or who wanted to do a loan but was balking at the rate, give them a call. A 2.61% 10 year yield isn’t going to last long.
 
JP Morgan missed earnings estimates last night, and the only way to describe the mortgage arm is dismal. Mortgage Origination volumes were down 68% from the prior year and 27% from the prior quarter. The business lost $58 million on a pre-tax basis. J.P. Morgan is forecasting a pretax loss of about $100MM – $150MM in the second quarter, and a pre-tax loss for the entire year. The stock is down a couple of bucks (about 3.5%) pre-open
 
Well Fargo, on the other hand beat earnings estimates, however the stock is flat pre-open. Wells originated $36 billion in Q1, down from $50 billion in Q4 and $140 billion a year ago. Gain on sale margins fell to 1.61% from 1.77% last quarter and 2.56% a year ago. 

Morning Report: FOMC minutes soothe the markets 4/10/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1863.6 -1.2 -0.06%
Eurostoxx Index 3168.4 -14.4 -0.45%
Oil (WTI) 103.3 -0.3 -0.33%
LIBOR 0.227 -0.001 -0.22%
US Dollar Index (DXY) 79.52 0.036 0.05%
10 Year Govt Bond Yield 2.67% -0.02%
Current Coupon Ginnie Mae TBA 105.8 0.1
Current Coupon Fannie Mae TBA 104.4 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.44

 

Markets are flattish after initial jobless claims came in lower than expected and import prices rose. Bonds and MBS are up small.
Stocks and bonds took off on the release of the FOMC minutes yesterday. The Fed considered a more explicit commitment to keep rates low until inflation reaches their target. This additional hurdle for raising rates cheered the markets and stocks went out on their highs. “A few” members (probably Plosser) thought the Fed Funds rate should increase soon, but the rest of the Committee disagreed, saying that the evidence the hawks cited was inappropriate to focus on at the zero bound. The takeaway is that the forecast of a June 2015 rate hike is looking more and more like an outlier and if inflation stays below the target rate of 2%, the Fed may consider holding rates at zero until inflation its 2%. Which, if China indeed hits the wall and its real estate bubble bursts, could be a long time. Start thinking about where the next bubble is going to be.
Remember Greece? The fiscal ne’er-do-well of Europe that got cut off from the bond market? Well, guess what? They just raised 4 billion euros of 5 year paper, with a bid to cover ratio of 5:1. The rate they paid? 4.75%. People have such short memories….. Or it is just the fact that since rates are so low, people have to reach for yield. Either way, once rates start going up, it is going to be a bumpy ride, IMO.
One other point about Greece – they did clean up its public spending issues a bit and trimmed its debt (the dreaded austerity that liberal economists love to hate). That is the difference between not being able to finance your government at all and being able to borrow at under 5%. Note to Paul Krugman. The bond market always gets the last word. Always.
Unintended consequence of Dodd-Frank? Turning non-judicial states into judicial ones anyway. Lenders are choosing to go through the court process, even if it takes more time, in order to reduce the potential liability under the new foreclosure laws (especially in states like California).
The CFPB is holding a forum on the mortgage closing process on April 23. It will be livestreamed on their site. Find out what sins we are apparently committing in the closing process.

Morning Report – credit is becoming easier in the jumbo space 4/9/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1850.2 5.2 0.28%
Eurostoxx Index 3191.8 14.1 0.44%
Oil (WTI) 102.6 0.0 0.00%
LIBOR 0.228 0.000 0.11%
US Dollar Index (DXY) 79.79 0.038 0.05%
10 Year Govt Bond Yield 2.71% 0.03%
Current Coupon Ginnie Mae TBA 105.4 -0.2
Current Coupon Fannie Mae TBA 104.1 -0.5
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.48
Stocks are up on no real news. Bonds and MBS are down. Alcoa kicked off earnings season last night with better than expected EPS.
Mortgage applications fell 1.6% last week. Purchases rose 2.7% but refis fell 4.9%. Refis are now roughly half of all mortgages after being over 60% not too long ago. The 30 year fixed rate mortgage was unch’d during the week.
Later on today, we will get the minutes from the March FOMC meeting. There could be some volatility in the bond market around this release, so be careful. The street will be looking for the color on the “as soon as six months” statement – is it just one lone hawk who thinks we could start tightening in just over a year, or do other voting members share that sentiment?
Mortgage credit availability expanded in March, according to the MBA. Availability is expanding in the jumbo space. While credit availability is better than a year ago, we are still far away from any sense of normalcy, let along the go-go days of 2005-2007. The fact that the availability in credit is really only expanding in the jumbo space must be giving the CRA junkies in Washington conniptions.
Good backgrounder on the non-bank servicers. The pace of growth of the non-bank servicing sector is “scaring regulators, who see it as a threat to their four-year effort to improve how banks handle loans in default.” Hence NYS AG Eric Schneiderman has blocked a MSR deal between Wells and Ocwen. Not sure why the New York State Attorney General thinks banking regulation is his bailiwick, but I guess he is following the model Spitzer used – bash the financial sector all the way to the Governor’s Mansion.
Speaking of banks, it looks like they are going to need to raise $68 billion in capital to meet stricter standards, although most banks will likely meet the new standards by retaining earnings or restructuring some assets. We will hear from Wells and JP Morgan later this week.

Morning Report – The left is balking on housing finance reform 4/8/14

Vital Statistics:

 

  Last Change Percent
S&P Futures  1838.7 0.6 0.03%
Eurostoxx Index 3162.4 -23.6 -0.74%
Oil (WTI) 101.3 0.9 0.89%
LIBOR 0.227 -0.002 -0.89%
US Dollar Index (DXY) 79.86 -0.377 -0.47%
10 Year Govt Bond Yield 2.71% 0.01%  
Current Coupon Ginnie Mae TBA 105.4 0.0  
Current Coupon Fannie Mae TBA 104.4 0.0  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.32    

 

Stocks are flat after a rough couple of days for stocks. Bonds and MBS are flat
 
Small Business turned slightly more optimistic in March, according to the NFIB. Expected increases in sales and inventories drove the increase. That said, plans to increase hiring fell. That said, small business did add more workers in March (an average of .18) than they did in February (an average of .11). Half of the respondents hired or tried to hire in the past three months, and 41% reported few or no qualified applications for open positions. Skilled trades are in short supply, and pretty much all of the homebuilders have noted the same thing on their conference calls. We are starting to see salary increases for the most in-demand workers. For the rest of us, any increased compensation is being eaten up by increased benefits expense. 
 
The National Association of Homebuilders reported that the recovery continues to spread. Nationwide, we are operating at 88% of normal economic and housing activity. Unsurprisingly, the most activity is in the energy patch, with Baton Rouge, Oklahoma City, and Houston topping the list. Encouragingly, stronger employment numbers seem to be driving the increase. 
 
The latest HUD Housing Scorecard is out, if anyone cares about the Administration or HARP / HAMP.
 
The left is revolting over the effort to overhaul the GSEs. They want more low-income lending mandates. Of course, if the bill becomes larded with social engineering mandates, Republicans will vote against it. The problem is that the left simply does not believe that affordable lending mandates had anything to do with the housing bubble. Of course if one looks at the severities in CRA areas, it is obvious that it did. How many abandoned houses worth ten grand have $100,000 mortgages on them in places like Detroit, Harrisburg, San Bernardino, etc. That is CRA ground zero. This may be one area where the two viewpoints of what happened from 2000 – 2008 are irreconcilably different. Wall Street Sharpies caused the bubble! Social Engineering caused the bubble! Both viewpoints go to the core of what the different parties believe and no one is going to convince the other of anything. Meanwhile, the taxpayer backstops 90% of all new origination…. Ask who is happiest with the status quo and you’ll be able to see who drives the hardest bargain.

Morning Report – Light Data week ahead 4/7/14

Vital Statistics:

 

  Last Change Percent
S&P Futures  1854.4 -5.7 -0.31%
Eurostoxx Index 3199.4 -31.0 -0.96%
Oil (WTI) 100.4 -0.7 -0.73%
LIBOR 0.229 0.000 -0.11%
US Dollar Index (DXY) 80.32 -0.101 -0.13%
10 Year Govt Bond Yield 2.72% 0.00%  
Current Coupon Ginnie Mae TBA 105.2 0.0  
Current Coupon Fannie Mae TBA 104.2 0.0  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.35    

Markets are lower this morning worldwide and US futures are following. Bonds and MBS are up small.

 
This week is a light one data-wise, with only the FOMC minutes (which will be released on Wed) as a potential catalyst. The market will be parsing the minutes looking for more color around the “as soon as six months” comment. 
 
This week starts off earnings season, and we will hear from JP Morgan and Wells late in the week. We will probably see poor mortgage banking numbers out of both (although Wells is very aggressive these days bidding paper). 
 
According to Black Knight Financial Services, monthly origination volume is the lowest on record. The government’s share of originations has fallen due to a sharp drop in HARP loans. There is very little origination activity happening in the lowest credit score buckets.
 

The Difference Between Men and Women

I copied this from another forum and although I’m not quite sure where it came from, I thought it was funny enough to share, especially since it’s Friday.  Friday was always my joke day at the PL.

Let’s say a guy named Fred is attracted to a woman named Martha. He asks her out to a movie; she accepts; they have a pretty good time. A few nights later he asks her out to dinner, and again they enjoy themselves. They continue to see each other regularly, and after a while neither one of them is seeing anybody else.

And then, one evening when they’re driving home, a thought occurs to Martha, and, without really thinking, she says it aloud: “Do you realize that, as of tonight, we’ve been seeing each other for exactly six months?”

And then, there is silence in the car.

To Martha, it seems like a very loud silence. She thinks to herself: I wonder if it bothers him that I said that. Maybe he’s been feeling confined by our relationship; maybe he thinks I’m trying to push him into some kind of obligation that he doesn’t want, or isn’t sure of.

And Fred is thinking: Gosh. Six months.

And Martha is thinking: But, hey, I’m not so sure I want this kind of relationship either. Sometimes I wish I had a little more space, so I’d have time to think about whether I really want us to keep going the way we are, moving steadily towards, I mean, where are we going? Are we just going to keep seeing each other at this level of intimacy? Are we heading toward marriage? Toward children? Toward a lifetime together? Am I ready for that level of commitment? Do I really even know this person?

And Fred is thinking: …so that means it was…let’s see…February when we started going out, which was right after I had the car at the dealer’s, which means…lemme check the odometer…Whoa! I am way overdue for an oil change here.

And Martha is thinking: He’s upset. I can see it on his face. Maybe I’m reading this completely wrong. Maybe he wants more from our relationship, more intimacy, more commitment; maybe he has sensed – even before I sensed it – that I was feeling some reservations. Yes, I bet that’s it. That’s why he’s so reluctant to say anything about his own feelings. He’s afraid of being rejected.

And Fred is thinking: And I’m gonna have them look at the transmission again. I don’t care what those morons say, it’s still not shifting right. And they better not try to blame it on the cold weather this time. What cold weather? It’s 87 degrees out, and this thing is shifting like a garbage truck, and I paid those incompetent thieves $600.

And Martha is thinking: He’s angry. And I don’t blame him. I’d be angry, too. I feel so guilty, putting him through this, but I can’t help the way I feel. I’m just not sure.

And Fred is thinking: They’ll probably say it’s only a 90-day warranty…scumballs.

And Martha is thinking: Maybe I’m just too idealistic, waiting for a knight to come riding up on his white horse, when I’m sitting right next to a perfectly good person, a person I enjoy being with, a person I truly do care about, a person who seems to truly care about me. A person who is in pain because of my self-centered, schoolgirl romantic fantasy.

And Fred is thinking: Warranty? They want a warranty? I’ll give them a warranty. I’ll take their warranty and stick it right up their…

“Fred,” Martha says aloud.

“What?” says Fred, startled.

“Please don’t torture yourself like this,” she says, her eyes beginning to brim with tears. “Maybe I should never have…oh dear, I feel so…”(She breaks down, sobbing.)

“What?” says Fred.

“I’m such a fool,” Martha sobs. “I mean, I know there’s no knight. I really know that. It’s silly. There’s no knight, and there’s no horse.”

“There’s no horse?” says Fred.

“You think I’m a fool, don’t you?” Martha says.

“No!” says Fred, glad to finally know the correct answer.

“It’s just that…it’s that I…I need some time,” Martha says.

(There is a 15-second pause while Fred, thinking as fast as he can, tries to come up with a safe response. Finally he comes up with one that he thinks might work.)

“Yes,” he says. (Martha, deeply moved, touches his hand.)

“Oh, Fred, do you really feel that way?” she says.

“What way?” says Fred.

“That way about time,” says Martha.

“Oh,” says Fred. “Yes.” (Martha turns to face him and gazes deeply into his eyes, causing him to become very nervous about what she might say next, especially if it involves a horse. At last she speaks.)

“Thank you, Fred,” she says.

“Thank you,” says Fred.

Then he takes her home, and she lies on her bed, a conflicted, tortured soul, and weeps until dawn, whereas when Fred gets back to his place, he opens a bag of Doritos, turns on the TV, and immediately becomes deeply involved in a rerun of a college basketball game between two South Dakota junior colleges that he has never heard of. A tiny voice in the far recesses of his mind tells him that something major was going on back there in the car, but he is pretty sure there is no way he would ever understand what, and so he figures it’s better if he doesn’t think about it.

The next day Martha will call her closest friend, or perhaps two of them, and they will talk about this situation for six straight hours. In painstaking detail, they will analyze everything she said and everything he said, going over it time and time again, exploring every word, expression, and gesture for nuances of meaning, considering every possible ramification.

They will continue to discuss this subject, off and on, for weeks, maybe months, never reaching any definite conclusions, but never getting bored with it either.

Meanwhile, Fred, while playing racquetball one day with a mutual friend of his and Martha’s, will pause just before serving, frown, and say: “Norm, did Martha ever own a horse?”

And that’s the difference between men and women.