Figured Michi might appreciate this one…

An open letter to Michigan football fans:

Dear hated rival,

As a Buckeye fan, let me offer my congratulations on the Harbaugh hire! It really is great news. It makes Michigan football immediately relevant, boosts the Big Ten’s profile, and gives Buckeye fans like me a team – and a rival – that’s worthy of respect. When Michigan is strong, everyone wins: Michigan, Ohio State, the Big Ten; college football.

Sure, watching you guys suffer a seemingly never-ending variety of painful humiliations over the last several seasons has been a rare joy. Not to mention the sweet taste of winning 12 of our last 14 games. But the truth is, it’s hard to get excited about The Game when Michigan is so damn mediocre, even downright bad.

At least in the 90’s, when you were having your way with John Cooper, the Buckeyes often arrived as one of the nation’s top ranked teams, only to see their season ruined at the hands of a multi-loss Michigan squad.

And while those games added to the rivalry’s intensity and mystique, the deeper truth is that they helped mask a trend that became all too clear these last seven years: that Michigan football was in serious, steady decline.

To wit: over the last 22 seasons, Michigan’s average record is 8-4 (184-90). They’ve won just four Big Ten titles, and have only two serious national title runs, converting once in 1997. During that same time, Ohio State has averaged ten wins per season (224-54-1), won 11 Big Ten titles, the 2002 national championship, made three national title game appearances, earned a spot in the first College Football Playoff, and finished in the top-five 13 times.

The comparison is stark, and leads to an inescapable conclusion; that for more than two decades, Michigan has been a second-tier power.

After the debacles known as Rich Rod and Brady, the thought of spending years in the wilderness, maybe never returning to true prominence, had to look not just horrifyingly possible, but feel almost inevitable.

One person, and one person only, could save you from this tragic fate: Mr. James Joseph Harbaugh. And wouldn’t you know it, just when you’d reached a nadir of despair, the numbskulls in San Francisco were kind enough to throw you a bone; a huge, meaty, gravy-slathered bone.

Dumb f-ing luck!

But do you know the last school the football gods blessed so generously? Why, The Ohio State University, who just happened to have one Urban Francis (Frank really, but Francis sounds better) Meyer III, tanned, rested and ready to work, just as we were staring into our own personal abyss.

So what’s that tell you? Well it tells me that Woody and Bo have had enough. It tells me they’ve been busy at work, pulling angelic levers so that our shared corner of the college football universe can once again be in proper alignment.

It means no more Earle and no more Coop. No more Lloyd. No Rich Rod nor Hoke, or Fickell for that matter (though he’s fine as an assistant). No, the time has come for giants to face off in battle. We offered mighty Tress, but the call went unanswered. But this time, Michigan, you picked up the phone, and have bellowed back in a clear, prideful voice, “We are Michigan. We are tired of sucking, and shall suck no longer!”

To which we say, welcome back.

Morning Report – US multinationals flocking to Europe to borrow money 12/30/14

Markets are lower this morning on overseas weakness. Bonds and MBS are up.

House prices rose .76% month-over-month in October (up 4.5%) year-over-year according to Case-Shiller. Prices are back to their Autumn 2004 levels.

Americans spent about 5% more on rent last year, driven by a 2% increase in the number of renters and a 3% increase in prices. Zillow is predicting that rents will increase by 3.5% next year, while housing prices will increase by 2.5%. Note that the homeownership rate fell to 64.4% in Q3, the lowest since the mid 1990s. Is this number simply a return to normalcy, or are we going to see the homeownership rate increase? Certainly, policy makes a difference, and the government is back in the business of encouraging home ownership. So don’t be surprised to start hearing talk about another secular uptrend in housing…

The prospect of QE has driven risk-free rates lower in Europe, which has lured US companies to issue Euro bonds. The spread between investment grade Euro notes and investment grade dollar notes is currently 211 basis points, an all-time high, and a big increase from 145 bp a year ago. Companies like Apple are issuing billion in euro bonds yielding something like 1.65%. If you wonder why the big S&P 500 companies seem to be doing great, in defiance of what we see around us, here you go. International exposure matters. The local muffler shop cannot borrow at 1.65% while multinationals like Apple can. While the economy is improving, the stock market is painting a non-representative picture of the US economy.

Delinquencies ticked up to 6% in November, according to Black Knight Financial Services. Foreclosure starts ticked down to 73,900. Note Black Knight Financial Services (formerly known as LPS or Lending Processor Services) has filed for an IPO.

Morning Report – The week ahead 12/29/14

Markets are down small on no real news. Bonds and MBS are up.

This week promises to be relatively quiet with the New Year’s holiday in the middle of the week. There might be some volatility in bonds as dealers square up their positions for year’s end.

Greece is back in the news, as political wrangling risks the rescue package they have from the ECB. The 10 year Greek bond yield is up 130 basis points this morning, to 9.8%. At the margin, this will help keep a bid under Treasuries.

Home Prices are up 4.5% year-over-year, according to Black Knight Financial Services, which puts prices about 10% off of their peak levels in June 2006. We will get Case-Shiller tomorrow.

Will 2015 herald the return of the first time homebuyer? It is looking like it might happen, as lending loosens up, the job market improves, and supply comes on line. Note the homebuilders like D.R. Horton and KB Home are rolling out more starter homes.

Holiday spending was strong, according to data released by MasterCard. They saw spending up 5.5%, while the National Retail Federation saw sales up 4.1%. Online sales rose 14%. Pent-up demand is beginning to be satisfied. Low gasoline prices are a big help.

Boxing Day Faux Morning Report

It being Boxing Day in the UK and a Friday for the rest of the world, there is no European markets open and no Asian markets to follow our own. So the US is pretty much dead today, despite being officially open. I posted this mainly to avoid having to despoil the Merry Christmas post with a link to Matthew Yglesias.

Merry Christmas

Merry Christmas to everyone still hanging around ATiM. Here’s a classic Christmas tune from an up and coming talent to help you celebrate.

Morning Report – Pre-holiday data dump 12/23/14

Markets are higher as decent data comes in. Bonds and MBS are down small. Almost all of this week’s data is being released today. Today is a full day, Wed will be a half day, and Friday will be a full day (so far).

Third quarter GDP was revised upward to to +5% from +3.9%. Personal Consumption was revised upward from 2.2% to 3.2%. Inflation remained unchanged at +1.4%.

Durable Goods orders on the other hand came in weaker than expected, down .7%, after the Street was expecting +3%.

New Home Sales fell to 438k from 458k last month. This is the seasonal slow period, so I wouldn’t read too much into it.

Personal Income rose .4% in November, while Personal Spending rose .5%. The PCE deflator (the preferred inflation measure for the Fed) was down .2% on a month-over-month basis and up 1.2% on a year-over year basis.

The University of Michigan Consumer Sentiment Index ticked down to 93.6 in December. The Richmond Fed Manufacturing Index rose to 7 from 4.

The FHFA Home Price Index rose .6% in October after a flat September. On a year over year basis, home prices increased 4.5%. The index is roughly 5% lower than its April 2007 peak. Remember, this index only looks at homes with a conforming mortgage, so it is a narrower sample than Case-Shiller.

Ocwen stock got slammed yesterday as they announced a settlement with New York State and its founder stepped down. Ocwen will not be able to purchase any more MSRs without New York State approval. They also were fined $150 million. The stock got rocked for 27% yesterday, and is down 70% for the year.The stock is down another 3 bucks (19%) this morning.. This one may be a value trap, folks.

Rick Santelli from CNBC spells out the yield curve flattening scenarios. The yield curve has been flattening (the spread between long term rates and short term rates has been narrowing), and many traders continue to have “flattening” trades on. Essentially, this is what i was talking about yesterday with the Fed – the Fed could raise short term rates yet the 10 year (and mortgage rates) might not move all that much because of global demand for long-term sovereign debt. He also points out the big caveat to this: that ECB President Mario Draghi pursues a less aggressive policy than the market is already pricing in. This would put pressure on Euro sovereigns with microscopic yields (like the German Bund at 59 basis points), and could cause world sovereign bond markets to sell off in a co-ordinated fashion. Remember the economic backdrop in the US: A 5% GDP growth rate and a 2.2% 10 year bond yield are strange bedfellows. Note that a sell off in bonds might not guarantee a rally in the stock market either…

Finally, the MR will be on hiatus for the holidays. Wishing you and yours all the best.

Morning Report – Further home price appreciation probably limited until wage growth returns 12/22/14

This week is for all intents and purposes a two day week. Markets will close early on Christmas Eve and many will take off Friday.

The big deluge of data is tomorrow, with GDP, personal income, personal spending and a host of other indicators.

The risk-on trade continues this morning, with stocks up small and bonds down a tad. Oil continues to fall.

Existing Home Sales fell 6.1% to a seasonally adjusted annual rate of 4.93 million, according to NAR. Housing inventory was tight and bad weather didn’t help things either. The median existing home price was 205,300, which is 5% above November 2013. According to Sentier Research, the median income in the US was $53,700 as of the end of October. This makes the median home price to median income ratio just over 3.8, which is above its historical range of 3.15x – 3.55x. This means home price appreciation is probably going to be hard to come by until wage inflation begins to pick up.

The Chicago Fed National Activity Index hit +.73 in November, which is a very strong reading. Production and employment drove the increase. Housing and Consumption remained small headwinds.

The strength in the US bond market is likely to continue into 2015 as global bond investors see (relatively) high yields underpinned by a strong dollar. The punch line is that even if the Fed starts hiking rates, global demand for the 10 year bond means that mortgage rates could pretty much stay where they are for the time being. In other words, the Fed could hike rates and we could simply see the yield curve flatten. That is good news for the real estate industry, obviously.

One other thing to keep in mind: a flattening yield curve is a classic “tell” that the economy is slowing down, and by all accounts, it looks like the economy is accelerating. This will be another situation where the classic investing playbook isn’t going to help you all that much. In other words, if the Fed starts hiking rates and mortgage rates stay where they are, don’t all of a sudden dump your portfolio and pile into defensives like Proctor and Gamble or General Mills.

Morning Report – Quits lead raises 12/19/14

Markets are flattish this morning after a torrid 2 day run courtesy of Santa Yellen. Bonds and MBS are up small.

Fannie Mae is forecasting that wage growth is just around the corner and focuses on an interesting indicator out of the JOLTS job report – the quit rate. The quit rate is a leading indicator for job growth, and it has has been moving up for quite some time while wages have been flat. Another reason to be somewhat optimistic about 2015.

Are the high premiums for FHA loans creating an adverse-selection problem? The MBA thinks so. Creditworthy borrowers are going for the cheaper Fannie and Freddie loans, leaving only the borrowers with poor credit in the FHA risk pool. The new 3.5% down Fannie Mae loans will undoubtedly exacerbate this trend.

The drop in oil prices is causing pain in economies that rely on oil revenues, particularly Russia and Venezuela. It looks like Russian banks are going to need some sort of bailout. This could have impacts on the US real estate market, particularly at the high end. On one hand, Russian billionaires will want to move assets out of Russia ahead of the capital controls that are probably coming, On the other hand, in a crisis, you sell what you can, not necessarily what you want to. Not sure how this will shake out, but it bears watching. It will probably be a preview of what happens when China’s real estate bubble bursts as well. The Asian Crisis of the late 90s did have some reverberations in US credit markets, so we may feel a bit of credit tightening as banks back away from each other.

Morning Report – FOMC data dump 12/18/14

Stocks are continuing yesterday’s Fed-driven melt-up. Bonds and MBS are down hard. That window where rates were around 2.05% did not last long.

As advertised, the FOMC statement basically substituted “patience” for “a considerable time.” That said, it still contained the “considerable time” language, but referred to it in the past tense. Probably the biggest surprise was their downward forecast for 2015 inflation to a range of 1% – 1.6%. Their September forecast was 1.6% to 1.9%. They also took down their 2015 unemployment forecast to 5.25% from 5.5% in September. The Street seems comfortable that rates are going up in the second half of 2015.

Initial Jobless Claims fell to 289k last week, and we have been solidly below 300k for quite some time. The leading indicators have been strong for a while, however we have not been seeing the wage growth. That said, I am seeing anecdotal evidence that wage inflation might be be around the corner. At lunch I noticed the “help wanted” placard had taped over the starting salaries and increased them by a buck an hour. Sample size of 1, of course, but still…

The Markit US PMI came in weaker than expectations. The Bloomberg Consumer Comfort Index ticked up to 41.7 from 41.3 last week. The Philly Fed Index fell from 40.8 to 24.5 and the Index of Leading Economic Indicators was flat at .6%.

Obama moved to normalize relations with Cuba yesterday. Lifting the trade sanctions requires Congressional approval, so I don’t know how this impacts your humidor quite yet.

The feds are going after Ocwen again, this time for dragging their feet in short sales.

Mortgage lenders are worrying more about lackluster demand impacting margins, according to the latest Fannie Mae Lender Sentiment Survey. The biggest headache remains regulatory, of course. Lenders anticipate a modest housing expansion in 2015. It seems like the homebuilders agree. It is all going to hinge on the return of the first time homebuyer.

Morning Report – Awaiting the FOMC 12/17/14

Markets are higher this morning on no real news. Bonds and MBS are down.

Oil continues to fall, with a barrel of West Texas Intermediate now down below $55 a barrel. This is putting pressure on prices. The Consumer Price Index fell .3% in November. Ex food and energy, it rose .1%. Will be interesting to see how the Fed addresses (if at all) falling energy prices in the FOMC statement.

Mortgage Applications fell 3.3% last week. Purchases were down 6.9% while refis were flat.

The FOMC will announce their decision at 2:00 pm. Expect volatility around that time and after as the press conference starts.

“A considerable time.” Sounds like a novel. Anyway, that is the phrase that will be the focus of the Fed statement. Will the Fed drop the language that states that rates will remain near zero for a “considerable time?” The new expected buzzword? Patience. Given how far bonds have moved to the upside already I don’t know how much a dovish statement will move them further. If anything the risks are on the downside.

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