Tuesday 5/20/2014 Open Thread

Posted on May 20, 2014 by jnc4p

I didn’t see a notice about Brent being away, but in the interest of comment management here’s a new open thread for today.

Filed under: Open Thread | 74 Comments »

Weekend Open Thread

Posted on May 17, 2014 by Michigoose

Nothing much to comment on, so I thought I’d drop some music in on you. Aloe Blacc is one talented guy:

https://www.youtube.com/watch?v=0U1KiRhsLHA

But, of course, there is always the incomparable Aaron Neville:

Happy weekend, all!

Filed under: music, Open Thread | Tagged: | 79 Comments »

A Business Dilemma

Posted on May 16, 2014 by lmsinca

When we bought our business a little over 13 years ago we negotiated for the exclusive right to manufacture and sell two products that were invented, patented and trademarked by the original owner. This agreement would last 20 years (until 2021) and then the tooling would revert back to the family, either to his daughter or grandchildren. My husband first came on board as part of the sales team about 35 years ago right after this product was introduced. It was the launching pad for the business and “the” main product we’re known for. The last two years it was the Number One seller in Tennis Accessories on Amazon over the holiday season.  Over the years we have added numerous other products but this one still generates about 10%-15% of our sales and has actually had a bit of a resurgence in the tennis market since internet sales in general have been increasing every year and we’re able to reach the public more easily.  Funny, there is even a little nostalgia involved.  The product was copied when the patent ran out but both copies never worked the way they were designed to because a couple of steps (trade secrets) were not part of the patent and they missed them.

The tooling is getting old and outdated and part of our agreement was that the original designer/owner of the tooling would pay for repair costs and we would pay him 5% of cost at manufacturing as a royalty. This system worked for about 10 years when the owner decided he no longer wanted to pay the tooling repair costs and so we worked out a new agreement that he would forgo his royalty checks and we would be responsible for the tooling until it reverted back to the family. He is now in his nineties and in a convalescent home at death’s door.

It’s doubtful anyone in the family is interested in really having the tooling back but I’m a little afraid to ask. We are considering if the next hurdle in repairs is worth the expense unless the tooling were to become ours permanently. It apparently needs to be converted to a manifold system which will cost somewhere between 20K and 30K and that is only one of four parts which are also old and having more problems as time goes by.

It’s a great product and makes us decent money every year but we’re just not sure it’s worth the investment. The original owner’s daughter is very unpredictable when it comes to the business.  She hated it when she worked for her Dad but enjoyed the income and while anxious to let it go, tried to screw us over several times with her lawyer’s help during the purchase process. Luckily we weren’t born yesterday so we were able to protect our interests well. I don’t trust her though.

I guess what I want to know is if it seems like it would be worth the investment if we ultimately have to return the tooling anyway or should we just return it early and let them deal with it? I believe that would be the end of a great product though.

My other concern is that I really don’t know how much longer we want to work ourselves and I don’t particularly trust Walter’s health to stick it out long enough for us to recoup the expense. I really don’t want to get stuck doing all the work myself. Our son helped occasionally with putting the parts together for large orders but he’s in CO now and the work is too strenuous for our oldest daughter although she does help out here in other ways occasionally.

I’m also trying to figure out an angle where if we made the repairs how could we end up owning the tooling as I think there is a marketable value to it and we might be able to sell it, even considering the condition it’s in.

Any suggestions?

 

Filed under: small business | 19 Comments »

Morning Report – Johnson-Crapo gets out of Committee 5/16/14

Posted on May 16, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1867.0 -0.3 -0.02%
Eurostoxx Index 3166.2 3.0 0.09%
Oil (WTI) 101.9 0.4 0.36%
LIBOR 0.229 0.003 1.22%
US Dollar Index (DXY) 80.1 0.101 0.13%
10 Year Govt Bond Yield 2.50% 0.01%  
Current Coupon Ginnie Mae TBA 106.4 -0.2  
Current Coupon Fannie Mae TBA 105.4 0.0  
BankRate 30 Year Fixed Rate Mortgage 4.16    

 

Markets are flattish after a better than expected housings starts report. Bonds and MBS are down
 
Housing starts rebounded in April to a annual rate of 1.07 million, an increase of 13.2% month-over-month. Building Permits increased to 1.08 million, an 8% increase. This is still well below the historical average of 1.5 million units a year, and still a dismal number compared to pre-bust levels. 
 
Johnsnon – Crapo (the GSE reform bill) got out of Committee today, with all the liberals voting against it. The liberals dislike the bill because they want affordable housing mandates. Given the lack of support from liberals, Senate Majority Leader Harry Reid is unlikely to bring the bill to the floor. 
 
The National Federation of Independent Business released their small business confidence survey yesterday, showing that confidence is improving, but still below par. The two biggest problems for small business remain taxes and regulations.

Filed under: Morning Report | 15 Comments »

Morning Report – lots of conflicting data 5/15/14

Posted on May 15, 2014 by Brent Nyitray

Morning Report

Last Change Percent
S&P Futures 1881.2 -4.1 -0.22%
Eurostoxx Index 3195.1 -15.4 -0.48%
Oil (WTI) 101.9 -0.5 -0.44%
LIBOR 0.226 0.001 0.22%
US Dollar Index (DXY) 80.23 0.152 0.19%
10 Year Govt Bond Yield 2.51% -0.03%
Current Coupon Ginnie Mae TBA 107 0.3
Current Coupon Fannie Mae TBA 105.6 0.1
BankRate 30 Year Fixed Rate Mortgage 4.17

 

Markets are lower this morning after Wal-Mart missed. Bonds and MBS are up.
Very mixed bag of economic data this morning:
  • Empire Manufacturing 19.01 vs 6 expected (indicates strong economy)
  • Consumer Price Index .3 vs .3 expected (doesn’t tell you anything)
  • Initial Jobless Claims 297k vs 320k expected (great number – indicates strong economy)
  • Industrial Production down .6% vs expectations of flat (lousy number – indicates weakness)
  • Capacity Utilization of 78.6% vs 79.1% (hideous number – indicates weakness)
FWIW, the bond market is taking its cue from the weak industrial numbers and the Wal-Mart miss. Speaking of which – the 10 year bond yield is now pushing 2.5% – LOs if you have any customers who missed their chance to refi last fall, wake them up. The market just let them back in. Don’t look a gift horse in the mouth.

Stonegate Mortgage released their earnings this morning, and they missed on the top line and the bottom line.
Stonegate has been an acquisitive company, so doing apples-to-apples comparisons in order to divine organic growth is difficult. They wrote down their MSR book by $8 million. They have a conference call at 11:00 am (877) 303-5863 if people are interested.. The stock is down a few percent on the open.
FHA is looking for ways to expand credit and has unveiled its “Blueprint for Access.” It is a designed to first time homebuyers, where the borrower goes through a counseling program before buying a home. If they complete the program, they get 50 bps off their upfront FHA mortgage insurance premium and receive a 10 bp reduction in their annual FHA mortgage insurance premium. If they have no serious DQs in their first two years, they get an additional 15 bp reduction in MIP fees. More info will be released in the summer and fall.

Filed under: Morning Report | 21 Comments »

Morning Report – Mel Watt speaks at Brookings 5/14/14

Posted on May 14, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1890.7 -3.6 -0.19%
Eurostoxx Index 3203.4 -8.4 -0.26%
Oil (WTI) 102 0.3 0.30%
LIBOR 0.225 0.002 0.67%
US Dollar Index (DXY) 80.02 -0.119 -0.15%
10 Year Govt Bond Yield 2.57% -0.03%  
Current Coupon Ginnie Mae TBA 106.4 0.0  
Current Coupon Fannie Mae TBA 105.2 0.1  
BankRate 30 Year Fixed Rate Mortgage 4.36    

 

Stocks are lower this morning on no real news. Bonds are up and the 10 year yield is back at the bottom of its range. LOs, if you have customers that were waiting for better rates, wake them up and tell them that if the range holds, today is about as good as it is going to get.
 

 
Mel Watt spoke at Brookings yesterday and the left has to be unhappy because they didn’t get the big things they wanted – principal mods on Fannie / Freddie loans nor did they get an extension of HARP eligibility dates. The highlights were (in no particular order):
  • No principal mods on Fan / Fred loans
  • Housing finance reform is a Congressional responsibility, not a FHFA one
  • No extension to HARP eligibility dates
  • Will provide some reps and warranties relief – 2 DQs in 36 months ok
  • Not lowering conforming loan limits
  • Will try and find a “cure” option for buybacks
  • Some sort of new neighborhood stabilization pilot program, details unclear
  • FHFA is worried about tight credit overlays
  • New securitization platform, will allow private label
  • Expect to see FNMA / Gold spread narrow as they will fall under one security
  • Will continue to shrink Fannie and Fred’s balance sheet to $250B each by 2018
Punch line: For all the sturm and drang, Mel Watt isn’t dramatically different than Ed DeMarco. The left has to be seething.
 
Mortgage Applications rose 3.6% last week. Purchases fell .1% while refis rose 6.8%. Refis are back up over 50% of the volume. Mortgage rates fell 4 bps last week.
 
Inflation picked up a little at the wholesale level, increasing from .5% to .6%, although ex food and energy it was down a little. Not enough to move the markets as inflation is still below the Fed’s target. 
 
FHA is trying to increase access to credit, and they are launching a new program which will offer a 50 basis point reduction in up-front mortgage insurance premium and a 10 basis point reduction in the annual premium for first-time homebuyers who complete the program.  

Filed under: Morning Report | 17 Comments »

Morning Report – Eric Holder thinks Wall Street wasn’t the sole cause of the financial crisis 5/13/14

Posted on May 13, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1894.9 2.1 0.11%
Eurostoxx Index 3212.1 5.1 0.16%
Oil (WTI) 101.3 0.7 0.72%
LIBOR 0.224 -0.001 -0.56%
US Dollar Index (DXY) 80.02 0.117 0.15%
10 Year Govt Bond Yield 2.63% -0.03%
Current Coupon Ginnie Mae TBA 106 0.0
Current Coupon Fannie Mae TBA 104.8 0.1
BankRate 30 Year Fixed Rate Mortgage 4.25

 

Stocks are flattish after a dismal retail sales report for April. Bonds and MBS are rallying on the number.
Retail sales came in at +.1% vs a Street expectation of .4%. Ex-autos and gas, retail sales dropped. March was revised higher, however so the news isn’t all bad. Looks like we had a weather-related rebound in March and sales went right back to their old ways.
Import Prices fell in April, not that the Fed is worried about high inflation or anything. Emerging market economies are slowing down, and they tend to try and export their way out of problems.
Small business optimism increased in April, according to the National Federation of Independent Businesses. This is the first time the index reached 95 since October 2007. Firms added an average .07 workers in April, weaker than March, but it still continues the 7-month string of increasing hires. 57% of firms increased capital expenditures. Credit availability is not an issue.

Is Eric Holder about to finally wind up his punishment of the banks? Interesting quote from Holder: “I am impatient,” Mr. Holder said in an interview. “We’re talking about conduct that contributed to the greatest financial disaster since the Great Depression. Not the sole cause, but contributed to it, so this is a priority, and that’s why I’m dedicating so much time to it.”

“Not the sole cause, but contributed to it.” Has anyone heard any other explanations of what caused the housing bubble and the crisis from the left? The Fed? Nope. The dual mandate? Nope. Housing subsidies? Nope. Affordable Housing Targets? Nope. I would love to hear someone from this administration elucidate some of the other reasons for the crisis, because all I hear is “The Wall Street Sharpies did it.” Of course the the other causes (the dual mandate, do-gooder social engineering gussied up as housing policy) are policies near and dear to the hearts of the left. In fact lack of affordable housing targets are the reason why GSE reform is going nowhere – because the left wants mandates, not just incentives. Proving once again that nobody learned a damn thing from the crisis and that it was explained and prosecuted entirely on ideological lines. Phil Angeledis’ Financial Crisis Inquiry Commission report was a sham that should have been signed Epstein’s mother.

Filed under: Morning Report | 126 Comments »

Morning Report – Another slow week on tap 5/12/14

Posted on May 12, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1880.2 6.8 0.36%
Eurostoxx Index 3200.2 16.1 0.51%
Oil (WTI) 100.4 0.4 0.44%
LIBOR 0.225 0.001 0.45%
US Dollar Index (DXY) 79.8 -0.103 -0.13%
10 Year Govt Bond Yield 2.64% 0.02%
Current Coupon Ginnie Mae TBA 106 -0.1
Current Coupon Fannie Mae TBA 104.8 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.22

 

Markets are higher this morning on strength in commodity prices. Bonds and MBS are down small.
No economic data this morning – we should get delinquencies and foreclosures from the MBA sometime this week. Tomorrow will probably have the most important data for the bond market with retail sales. The Street is expecting a .4% increase in the headline number. We get some inflation data with the CPI and the PPI this week, but inflation isn’t going to move the markets. Finally on Friday we get housing starts and building permits. I feel like Linus in the pumpkin patch waiting for my 1.5 million housing starts print, which has been normalcy over the past 50 years.
Of course the fly in the ointment for housing starts are the Millennial generation, which is depressing household formation and labor mobility. Workers are risk averse and unwilling to move given that companies no longer are willing to pay relocation costs, or even to fly applicants out for an interview. You end up in a situation where you have labor shortages and labor gluts. Of course this dynamic will change once the economy starts moving again, but this is yet another headwind.
Bill Gross cut his holdings of MBS in his Total Return Fund from 23% to 19%. He upped exposure to U.S. corporates and emerging markets debt. Duration was reduced to 4.73 years. This looks like a modest bet on economic strengthening. Separately, Atlanta Fed Head Dennis Lockhart says the economy should hit 3% growth in Q2.

Filed under: Morning Report | 25 Comments »

Morning Report – looks like housing reform isn’t happening this year.

Posted on May 9, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1870.5 -1.8 -0.10%
Eurostoxx Index 3186.8 -17.5 -0.55%
Oil (WTI) 100.7 0.5 0.46%
LIBOR 0.224 0.001 0.34%
US Dollar Index (DXY) 79.74 0.375 0.47%
10 Year Govt Bond Yield 2.62% 0.00%
Current Coupon Ginnie Mae TBA 106.4 0.1
Current Coupon Fannie Mae TBA 105 0.0
BankRate 30 Year Fixed Rate Mortgage 4.21

 

Markets are flattish on no real news. Bonds and MBS are down small.
Job openings decreased to 4 million from 4.1 million in March
J.P. Morgan is getting into the jumbo business. Jumbo rates are still about 12 basis points lower than rates on a conventional loan. It is also a way to leverage the private client business, which makes sense. At BNY – clients can get 100% financing by pledging investment assets as collateral. They also offer 90 day locks. Again, this is largely for high net worth clients who are paying the bank asset management fees.
Liberals on the Senate Banking Committee have rejected the housing finance reform bill. The bill will probably still clear the committee, but the left is complaining that there is not enough mandates for affordable housing lending. That said, given the rejection on the part of the left housing reform is probably dead for this year. If Republicans end up taking the Senate, the left will wish it played ball.

Filed under: Morning Report | 19 Comments »

Morning Report – people think mortgages are getting harder to get 5/8/14

Posted on May 8, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1870.4 -3.8 -0.20%
Eurostoxx Index 3176.4 16.7 0.53%
Oil (WTI) 100.2 -0.6 -0.61%
LIBOR 0.223 -0.001 -0.27%
US Dollar Index (DXY) 79.24 0.037 0.05%
10 Year Govt Bond Yield 2.60% 0.01%  
Current Coupon Ginnie Mae TBA 106.3 0.0  
Current Coupon Fannie Mae TBA 105.5 0.1  
BankRate 30 Year Fixed Rate Mortgage 4.2    

 

Markets are down small on no real news. Bonds and MBS are down as well.
 
Initial Jobless claims came in at 319k, a decent number.
 
Janet Yellen spoke yesterday, but nothing market-moving came out of it. The punch line is that ending asset purchases remains appropriate, but it is still too early to think about increasing interest rates. She declined to give any sort of timeframe as to when it might be appropriate to raise rates. The Fed is anticipating a rebound in Q2 after a dismal Q1. She mentioned that she saw “reaching for yield” in the high yield bond market (as if the Fed has nothing to do with that). The Fed is also considering whether additional measures might be necessary to deal with the too-big-to-fail banks. 
 
So far earnings season has not been kind to the tech stocks. Erstwhile darlings like FireEye (FEYE) and Twitter (TWTR) have been demolished over the pat few months. FireEye is down 71% since early March, and Twitter is down 43%. It has been a rough market for some of these darlings that disappoint. Vol traders have to be loving life. Momentum traders, not so much.
 
Chart: Twitter stock price
 

 

 

Fannie Mae’s April Housing Survey is out, and there are a few interesting tidbits. The first one is that that people think it is harder to get a mortgage now than it was a few months ago. As anyone in the business can tell you, bankers are easing terms, not tightening them. In March, the 47% of respondents said it would be difficult to get a loan, vs 52% who thought it would be easy. Now, it is 52% think it would be hard, vs 45% who think it would be easy. That is a surprising result.
 

 

The second interesting tidbit is an increase in the number of people who think now is a good time to sell. The percentage of people who think it is a good time to buy are largely unchanged, but the potential sellers are increasing. This will hopefully portend an increase in purchase activity as we fix the low inventory problem.

 

 

Speaking of inventory, professional investors are marketing bonds issued against rental properties. Blackstone plans a $1 billion issue, after American Homes 4 Rent did a half a billion issue last month. I figured the pros would at some point become sellers, but I guess the opportunity cost of capital right now is exceptionally low. With home prices up 23% in some places they can’t be looking at high single digit rental yields anymore. 

 

Filed under: Morning Report | 45 Comments »

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