Morning Report – More Zillow / Trulia 7/29

Posted on July 29, 2014 by Brent Nyitray

Markets are higher this morning as earnings reports continue to come in. Bonds and MBS are up as well.

Consumer Confidence improved dramatically in June, according to the Conference Board. The present situation index rose from 86.3 to 88.3, but the expectations index rose from 86.4 to 92.7. In other words, the increase is being driven more by expectations of the future, which may or may not come to pass. Consumer confidence is back to October 2007 levels, where the first indications of the financial crisis were beginning to be felt. This was the beginning of the buyer’s strike where the big buyers of structured product were saying no mas and banks were beginning to lug paper they couldn’t move.

The S&P Case-Shiller index dropped 31 basis points in month-over-month in May, but is still up 9.34% on an annual basis. This is the seasonally-adjusted number. The non-seasonally adjusted number rose 1.1%. This is the first month-over-month drop since real estate bottomed in early 2012. Prices are back to summer 2004 levels. San Francisco, Tampa, and Chicago led the way with price appreciation.

case-shiller20

Mortgage REIT giant American Capital Agency reported good second quarter numbers. They reduced their leverage by shrinking their balance sheet, which is a bearish signal on MBS. Of course everyone knows rates are going up, but you don’t want to lighten your exposure until it is imminent. Interestingly, they cite the favorable supply / demand relationship with MBS, which seems to be unaffected by the Fed’s tapering. This speaks to how lousy origination volumes have been this year.

Will the Zillow / Trulia merger do to real estate brokers what Expedia did to travel agents? That is the fear of many, although Zillow adamantly denies that is where it is going. “We sell ads, not houses.” said Spencer Rascoff, CEO of Zillow. That may be true, but given the sheer size of broker commissions, it is probably inevitable that technology will cut in on their business model. Still, this is a merger of #1 and #2 and it could get blocked on antitrust grounds. If the NAR pushes the regulators to block the deal, it might be curtains. FWIW, the risk arbitrage community thinks this one is a long shot, with the arbitrage spread trading at 9.25% gross. This is very, very wide. On a back of the envelope basis, it looks like arbs are giving this one a 1 in 3 chance of blowing up.

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29 Responses

  1. Michigoose, on July 29, 2014 at 10:22 am said:

    Frist.

    I still loves ya, Brent, even if the others would prefer to talk about food and SSM.

    (Which I always read as S&M the first time, so I keep having to go back and re-read).

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  2. Brent Nyitray, on July 29, 2014 at 10:39 am said:

    Thanks. I do dig the B&P stuff more than the S&M stuff. FWIW

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  3. novahockey, on July 29, 2014 at 10:42 am said:

    oh, hi Brent .. Michi
    think i came into the wrong room.
    i’ll show myself out.

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  4. Brent Nyitray, on July 29, 2014 at 12:24 pm said:

    I am now blogging for HousingWire… first post on why Mel Watt isn’t doing principal mods:

    http://www.housingwire.com/blogs/1-rewired/post/30824-the-real-reason-fannie-and-freddie-dont-do-principal-modifications

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  8. jnc4p, on July 29, 2014 at 1:04 pm said:

    Just got our first ACA compliant group plan renewal with all the mandated changes. Should be interesting when these start to hit other companies.

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  9. novahockey, on July 29, 2014 at 1:19 pm said:

    rates go up?

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  11. jnc4p, on July 29, 2014 at 2:54 pm said:

    Somewhat, but it’s within the pre-PPACA range of increases. We are still going through the mandated benefit changes and the associated adjustments to deductibles & out of pocket caps, etc.

    The old plan is no longer offered due to lack of compliance with the PPACA, mostly due to how the previous risk assessments were done(of course) so it’s a matter of picking between four alternative options. The other interesting item that I had missed originally is the new PPACA mandated dental benefits.

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  12. jnc4p, on July 29, 2014 at 2:55 pm said:

    Good David Frum piece on how the bad economy plays into the Democrats vision of the welfare state and how Republicans need a growing economy to counter it.

    “In 1999-2000, it seemed realistic to draw a sharp line of distinction between the vast majority of adults willing and able to work full-time—and thereby earn a living somewhere north of the poverty line—and the small minority of adults whose bad choices or bad situation rendered them dependent on public assistance. But for half a decade now, that distinction has looked blurry. The specific problem of poverty among those who don’t work full-time is no longer so easily separated from the broader problem of pervasive economic insecurity among those who do.

    Liberals and progressives have responded to this grim new reality with proposals for a much higher degree of direct and indirect government intervention in the economy. Conservatives wish to beat them back in order to protect market freedom. That disagreement will divide politics in the next decade. For conservatives to compete effectively, they will want to find ways to enhance economic security that do not put government in control.”

    http://www.theatlantic.com/politics/archive/2014/07/the-outdated-assumption-behind-paul-ryans-poverty-plan/375249/

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  15. jnc4p, on July 29, 2014 at 7:08 pm said:

    If upheld, this will have major repercussions.

    “N.L.R.B. Ruling Holds McDonald’s, Not Just Franchisees, Liable for Worker Treatment
    By STEVEN GREENHOUSE
    JULY 29, 2014”

    Background piece. Apparently it’s been in the works for some time.

    http://www.insidecounsel.com/2014/07/01/prepare-for-nlrbs-new-joint-employer-standard-the

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    • ScottC, on July 30, 2014 at 7:08 am said:

      jnc:

      It’s worse than anyone thought.

      I really don’t think it is debatable any more that we are governed by laws imposed by an unconstitutional branch of government. The fig leaf of congressional authorization of what the regulatory state does is just that, an obvious fig leaf.

      BTW, on this:

      Congress also barred such rules from judicial review. Two federal appeals courts and two district courts have upheld this principle even when the regulation in question was not submitted to Congress as required.

      How can it possibly be constitutional for congress to pass a law which declares itself immune from judicial oversight? This is Twilight Zone stuff.

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  18. novahockey, on July 30, 2014 at 7:56 am said:

    I don’t follow Greg on Twitter — I keep that to sports and libertarian/conservative politics. also beer making and star wars* and Simpsons jokes.

    but my timeline blew up with Plum line news last night. I couldn’t put my finger on why I didn’t think he was making the case he thought he was.

    *Death Star PR is worth following.
    also thinkgeek and Simpsons QOTD

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    • markinaustin, on July 30, 2014 at 8:15 am said:

      Scott and JNC – the reporting requirement to Congress rather than the traditional reporting only to the Federal Register for (cost-somebody-money) regulations was a Republican idea so that Congress could vet all regulations without reading the Federal Register like everyone else. But that provision making regs beyond judicial review was apparently a tradeoff in the bill for forcing a 90 day notice to Congress. Stupidly written, like SO MANY STATUTES with too many cooks, it leads to this.

      The statute shoud simply be repealed and Congress should have to read the Federal Register like everyone else.

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      • ScottC, on July 30, 2014 at 8:41 am said:

        Mark:

        The statute shoud simply be repealed and Congress should have to read the Federal Register like everyone else.

        But congress is not “like everyone else”. It, and it alone, is responsible for promulgating the laws by which we all are forced to live. It should at least know about, if not actually approve (which would be more proper), the new laws being imposed by the regulatory state before they actually get imposed.

        The regulatory agencies are, at least ostensibly, accountable to congress. That congress should have to find out what they are up to only after the fact by reading about it “like everyone else” shows just how nefarious the idea of the regulatory state is and how far removed we have become from the structure of government envisioned and authorized by the constitution.

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  20. novahockey, on July 30, 2014 at 8:18 am said:

    “The statute shoud simply be repealed and Congress should have to read the Federal Register like everyone else.”

    but Mark .. that’s one my value adds. Won’t anyone think of the lobbyists.

    you’d be surprised at how many clients don’t know what the Fed Reg is. but, i suppose they are too busy actually running their businesses.

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    • markinaustin, on July 30, 2014 at 9:42 am said:

      NoVA, explain the Federal Register to Scott. He may think that publication is tantamount to codification. He may not understand the tortuous path through NoVA that a proposed reg must travel.

      Scott, I think the statute that foisted no judicial review gave Congress the same notice period that the Federal Register requires for public comment. I think it was duplicative. Perhaps it was intended for a Congress that would actually read shit, or as some sort of failsafe calendar reminder. The way it used to work [NoVA will correct me if I am wrong] is that publication in the FedReg of a proposed reg that an industry did not like put a bunch of lobbyists to work at both the bureacracy issuing the proposal and with various congresscritters. Then my clients would write actual snail mail letters with formal objections to the proposal and we would obtain delays and rewrites, and if possible, selective congressional attention.

      Regardless of your fear of the bureaucracy, it has been with us since the beginning. It is clearly MUCH BIGGER now, of course. But the mechanisms for regulating have been similar from the start. The MUCH BIGGERNESS is in non-Cabinet level alphabet agencies spawned by a cooperative venture between the executive and the legislature to make semi-autonomous operations that were not subject to daily political pressure – like the SEC.

      You know that.

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      • ScottC, on July 30, 2014 at 10:03 am said:

        Mark:

        He may think that publication is tantamount to codification.

        Yes, I thought that the federal register was where new “rules” (ie laws) being implemented were officially written down and maintained.

        I think the statute that foisted no judicial review gave Congress the same notice period that the Federal Register requires for public comment.

        My question isn’t how it came to be in this particular statute, but how it could be seen as constitutional in any statue. Congress unilaterally declaring that a duly enacted law is not subject to judicial review can’t make it so.

        It is clearly MUCH BIGGER now, of course.

        Much bigger, and increasingly imposing laws all on its own unlike it has ever done before.

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        • markinaustin, on July 30, 2014 at 10:09 am said:

          Congress unilaterally declaring that a duly enacted law is not subject to judicial review can’t make it so.

          Yep.

          I gotta read a case to see what court approval of no judicial review is all about. As reported, it makes no sense. So there could be a flaw in the reporting.

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  21. Fairlington Blade, on July 31, 2014 at 2:52 pm said:

    If a certain job move goes through, I’ll be interested in seeing how the Fed coverage I get now compares to a private plan. Both are with United Healthcare.

    BB

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  22. Fairlington Blade, on July 31, 2014 at 2:53 pm said:

    The item on Red State is poorly worded.

    BB

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