Morning Report – FOMC data dump 12/18/14

Posted on December 18, 2014 by Brent Nyitray

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.

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12 Responses

  1. Brent Nyitray, on December 18, 2014 at 9:34 am said:

    Courtesy of Cantor Fitzgerald:

    ‘Twas the Night Before Rate Hikes *

    ‘Twas the night before rate hikes, when all through the land,
    Not a REIT team was stirring, their strategies were planned;
    Their portfolios were positioned to outperform with ease,
    Provided central bankers continued to hand them the keys.

    Investors and analysts were all huddled by a candle;
    While visions of the ten-year danced south of a 2-handle;
    And Janet in her ‘kerchief, and Jacob in his cap,
    Had just settled their minds on a dovish little rap.

    They dreamed of mergers as big as Essex and BRE,
    Or MAA and Colonial, who overlap to a tee.
    And of unsecured pools so still and so deep,
    The benefits of which the REITs will continue to reap.

    For Prologis an end to supply-driven fears,
    That wreak havoc in the sector, like a sleuth of old bears.
    And for Cousins and Parkway an end to turmoil,
    Caused by the plummeting cost of a barrel of oil.

    They dreamed of storage demand that will grow to the sky,
    Driving CubeSmart and Sovran to kiss vacancy goodbye.
    And in DC some rest for a market so weary,
    Where supply burns off, and rents rise—in theory.

    They dreamed that DuPont found a leader, in a space that’s so bumpy,
    While data grows ever bigger, making shareholders less jumpy.
    And in San Fran may the techies march into spec towers,
    Giving Boston and Kilroy development world powers.

    But despite all these visions of happy REIT things,
    The dreamers quietly feared an end to eternal springs.
    After all, it was five years since the Great Recession,
    When the Fed’s fiscal pump had avoided Depression.

    Suddenly through the exchange, there arose such a clatter,
    We sprang from our desks to see what was the matter.
    Up above on the flat screen there appeared a bright flash,
    As the yield curve turned up, the long end making a dash.

    Out the window, the moon lit development cranes,
    And gilded returns after a year of strong gains.
    When what to our wondering eyes did we see,
    But a sleigh full of revisions to global GDP,

    At the reigns was a driver cloaked in longer duration,
    We knew in a moment he must be Inflation.
    More rapid than supply, his coursers they came,
    So stealthy were they, as he called them by name:

    “Now Output! now Yields! now Consumption and Prices!
    On Fundflows! On Assets! On Monetary Devices!
    To the top of the exchange! to the consumer price index!
    Now drive up core costs, and pass ‘round the Kleenex!”

    And then amidst the chaos, we heard on the roof,
    The sound of yields rising, as the carry trade went “poof.”
    As we closed up our blotters, and turned our heads ‘round,
    Down the chimney Inflation came, with nary a sound.

    He was dressed in pure gold, from his head to his boots,
    The shine, it illuminated our dull grey suits.
    A bundle of tools he had tucked in his briefcase,
    Aimed at low rates, with the goal to displace.

    He was ruddy and wry, a right jolly old banker,
    And we laughed when we saw him, despite our deep rancor;
    But a few soothing comments and a nod by the Fed,
    Soon let us know we had nothing to dread;

    “With Japan in recession, and Europe unstable,
    We just can’t put rate hikes back on the table.
    So enjoy these low rates, and the compression to follow,
    For a policy of tightening, the Fed just can’t swallow.”

    So he sent his sleigh off, full of riskier investing,
    Then he locked in his Uber, as his patience she was testing.
    He then jumped in a car, and out the window he leaned,
    “Happy rate hikes to all, but not ‘til sixteen!”

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  3. Michigoose, on December 18, 2014 at 11:03 am said:

    Heh. I’ve been reading Brent’s MRs for long enough now that I actually understood that. Well played!

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  4. Michigoose, on December 18, 2014 at 11:16 am said:

    NoVA (re cigars):

    I grew up with a dad who smoked cigars; they stink (I don’t care where they come from). I used to beg him to smoke his pipe rather than a cigar. But I think that you and Brent are right and they’re going to become trendy again for a while.

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  6. Kevin S. Willis, on December 19, 2014 at 12:23 pm said:

    “Sample size of 1, of course, but still…”

    It’s a trend!

    ….

    I don’t normally agree with Clooney (except when he espoused a philosophy of not getting married, but instead serial dating hot, increasingly-younger-than-him women) but this is good (on the Sony hack): “With just a little bit of work, you could have found out that it wasn’t just probably North Korea; it was North Korea,” he said. Clooney also criticized the press for focusing on emails rather than the implications the hack could have on the future. “Here, we’re talking about an actual country deciding what content we’re going to have,” he said. “We cannot be told we can’t see something by Kim Jong-un, of all f*cking people.”

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  7. Kevin S. Willis, on December 19, 2014 at 12:30 pm said:

    @novahockey: “who could have predicted that.”

    Anyone. And it doesn’t end with the tax hikes, either, as the expense of the concomitant fraud would bankrupt the state. Such a system doesn’t just encourage more in-state fraud of the fake-billing-and-pay-for-my-narcotics-which-I-then-sell variety but the huge number of residents in nearby states that will be able to successfully forge residency (or find some quasi-legitimate claim) in order to have Vermont pay for their medical care, too.

    That’s one of the many thing that happened with Tennessee failed TennCare (a system designed, like Obamacare, to cover the uninsured, not provide single payer, but still) . . . and it quickly became one of the most expensive parts of the state budget, as well.

    http://www.heritage.org/research/reports/2000/04/lessons-from-tennessees-failed-health-care-reform

    Republican Don Sundquist advocated for a state income tax in order to help cover, while not mentioning it, instead talking about education and the state police and how expensive those things were, not mentioning that TennCare had become the most expensive thing the state was doing. He did not get his sales tax. The subsequent Democrat ended up scaling down TennCare radically.

    Pull quote: “TennCare’s rich benefits package and ease of entry made it a magnet for abuse. According to new reports, TennCare spent $6 million covering 14,000 dead enrollees; 16,500 enrollees lived out of state; of 98,000 enrollees studied, 20 percent were found ineligible to be in the program; and 450 of those who were ineligible were state employees who had access to the state’s health insurance plan.”

    Imagine what a single payer system would have ended up costing.

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  8. Kevin S. Willis, on December 19, 2014 at 12:34 pm said:

    Another thing about Obamacare. One of the problems constantly brought up with being uninsured is the poor person who must declare bankruptcy because of being diagnosed with a very expensive illness or needing very expensive surgery. Why not propose a single payer solution for a list of expensive diseases (with negotiated discounts) that step in to help people when they get leukemia or something, instead of insisting on a program that covers every minor medical visit to encourage preventative care?

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