Morning Report – Lousy housing starts 4/16/15

Markets are lower this morning on European profit-taking. Bonds and MBS are up small.

Very disappointing housing starts numbers this morning – 926k versus expectations of 1.04M. Building permits fell to 1.04M as well. The weakness was both in single fam and mult-fam. It is hard to reconcile these numbers with the NAHB Homebuilder sentiment survey from yesterday, or the trading in the XHB ETF but here we are. You might be able to blame starts on the weather (and even that is a stretch) but you can’t blame permits on that. Punch line: supply will remain tight, and prices will probably be a touch higher than people are forecasting.

The Philly Fed Index improved to 7.5 versus 5 last month.

The Bloomberg Consumer Comfort Index fell to 46.6 last week The perception of the buying climate is improving the most, while people’s perception of the economy and their personal financial situation is improving more slowly.

Initial Jobless Claims increased to 294k last week. At least the labor market seems to be holding up, although wage growth is still lackluster.

The left continues to agitate for “living wage” legislation and is hoping they have the beginnings of a movement. Set aside the fact that these protests are largely rent-a-mobs of union people, professional protesters, bums, and college students, there is something bigger happening here. This is at its core a war between “shareholder capitalism” and “stakeholder capitalism” as the left moves to seize ideological ground it lost 30 years ago. Expect to hear a lot of “If Company XYZ just suspended its stock buyback program, they could pay everyone a living wage” claims.

We will undoubtedly see a lot of demagoguery about wages from politicians, but there really isn’t much anyone can do about it. The Democrats will agitate for minimum wage hikes and living wage legislation while Republicans will blame regulation and an anti-business environment. The only thing that will change it is economic growth, and as long as we have slack in the labor market, wages aren’t going up. Growth will happen, but we are still in the aftermath of a burst asset bubble, and recoveries from burst bubbles can be maddeningly slow. Of course this gives the Fed an excuse to stand pat, although they are creating bigger and bigger imbalances as ZIRP continues.

The German Bund yield is now a single-digit midget. If you lend money to the German government for 10 years, you will get 9 bps. Guess we are headed to negative rates there as well. How are insurance companies like Allianz and Munich Re at 52 week highs? There is no way they can cover their actuarial liabilities in sovereign debt these days. I know the stock has a fat dividend yield of 4.1%, but I wouldn’t bet on that dividend getting maintained. As I have said before, the actuarial tables don’t care that money is free. Insurers are stuck between having to take a lot of risk for a little return or to simply use unrealistic future growth assumptions to remain solvent.

Mel Watt is going to lower fees on Fan and Fred loans in order to increase lending to lower credit scores. The “free market’ versus “housing policy as a means of social engineering” battle has been fought and is over. The social engineers won.

4 Responses

  1. Frist.


  2. “stakeholder capitalism”

    That sounds like an Aletheia dream! 🙂


  3. Jen Rubin has a good piece today:

    “The answer as to how Clinton could do such a thing is simple: She does it because she gets away with it. That’s how she allowed foreign donations in the first place, even when secretary of state. That’s how the foundation took money from donors she promoted. (Somewhere former Virginia governor Bob McDonnell is wondering why he has been prosecuted for somewhat trivial “official acts” on behalf of a donor.) That’s how Clinton set up a private e-mail server and then destroyed e-mails. She does these things because the media, Democratic insiders and, ultimately, Democratic voters never hold her responsible and withdraw support.”


    • Mike Lee channels ScottC:

      In my Senate office stand two towers of documents. The first is only a few inches tall. A collection of all the legislation Congress passed in 2013, it contains about 800 pages. The second tower, which is 11 feet tall, is a collection of regulations federal agencies proposed and adopted in 2013. It contains about 80,000 pages.

      I keep these extraordinarily unequal towers to illustrate a startling reality: The U.S. Congress no longer passes most federal laws, rules, and regulations. Instead, about 99 percent of the rules we must live by issue from an army of unelected federal bureaucrats. Using a classic duck-and-dodge strategy, Congress routinely enacts legislation that purports to solve a genuine problem, but then delegates to these executive-branch bureaucrats the power to make the legally binding rules that determine the law’s real-world impact. It’s a brilliant plan; Congress gets all the credit for the popular goal and none of the blame for a regulation’s controversial—and expensive—particulars.

      One prominent example of this kind of lawmaking can be found in the Clean Air Act. The act essentially declares that “we shall have clean air,” then outlines a broad vision for limiting air pollution. The act contains relatively few details as to how its laudable objectives will be achieved. Instead, it authorizes the Environmental Protection Agency (EPA) to make and enforce legally binding regulations that, far more than the act itself, restrict air pollution.


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