Morning Report – Lousy housing starts 4/16/15

Posted on April 16, 2015 by Brent Nyitray

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.

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Morning Report: Hospital Thataway 4/15/15

Posted on April 15, 2015 by Brent Nyitray

Markets are higher this morning as ECB President Mario Draghi speaks and bank earnings continue to trickle in.

Mortgage Applications fell 2.3% last week. Purchases were down 3.1%, while refis were down 1.8%.

Some weaker economic data this morning: the Empire Manufacturing Index fell steeply in April, to -1.19 vs. 6.9 expected, while industrial production fell .6% and capacity utilization fell to 78.4%. Can’t blame this on the weather – blame the dollar.

Bank of America reported that mortgage originations increased 18% QOQ and 54% on a YOY basis. Between JPM, BAC, and WFC, it looks like the mortgage business is improving quite a bit. Maybe the long-awaited turn in the real estate sector is upon us. We will get more data tomorrow with housing starts and building permits.

Hillary officially launched her campaign over the weekend, unveiling her new logo, which looks like “Hospital Thataway.”  Suffice it to say, the H logo appears to be a bomb, and the interwebs are already making fun of it.

Best one so far:

original

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Morning Report – Bank earnings pile in 4/14/15

Posted on April 14, 2015 by Brent Nyitray

Markets are lower this morning as bank earnings pile in. Bonds and MBS are up on the back of a strong bond market rally in Europe.

Retail Sales came in weaker than expected, although some of that is due to falling commodity prices (especially gasoline). The headline number was +0.9% versus +1.1% expected. The control group, which strips out some of the more volatile components increased .3%.

Wells reported that originations increased to $49 billion in Q1 versus $44 billion in Q4. Margins expanded, with gain on sale margins increasing from 1.80% to 2.06%. Given that mortgage banking is so seasonal, it is surprising Wells reports quarter over quarter comparisons. J.P. Morgan reported first quarter originations were up 7% QOQ and up 45% YOY. MSR valuations got hit – their MSR book is valued at 2.53x versus 2.8x at the end of the year and 2.86x last year.

Inflation remains muted at the wholesale level, with the Producer Price Index coming in at .2% month-over-month and falling 0.8% year over year. While the Fed prefers to look at Personal Consumption Expenditure Inflation instead of CPI / PPI, markets still pay attention. This is the other reason why bond yields are so much lower this morning.

Things are still somewhat “meh” for small business, according to the National Federation of Independent Business. The NFIB attributes some of the weakness to the weather.

We haven’t talked about European bond yields in a while, but they continue to fall, which is keeping a bid under Treasuries. The German Bund (their 10 year bond) yields 13.7 basis points. The Swiss 10 year yields negative 12.4 basis points. Yes, it will cost you money to lend to the Swiss government for 10 years. How about the PIIGS (remember them? Portugal, Ireland, Italy, Greece, and Spain) The Irish 10 year yields 68.3 basis points. The US 10 year yield is higher than all but one of the erstwhile PIIGS – Greece.

Bubbles, bubbles everywhere, but especially in Asia. where the Chinese real estate bubble is beginning to deflate, and the Chinese economy begins to slow. Asian stocks are ignoring this however – the Nikkei 225 is up 43% over the past year, while the Hang Seng is up almost 11% in the first two weeks of April. While these markets are still well below their all-time highs, and no one is suggesting stock market bubbles, the Asian markets look frothy. China’s real estate bubble is epic and as it bursts, China will export deflation around the world. Yet another reason for the Fed to sit on their hands.

But we don’t have any bubbles in the US, right? Well, according to Bill Ackman, we do. The student loan debt market is about $1.3 trillion all in, and about 9% is in default. As he points out, there is almost no way that gets repaid. He sees some administration doing a mass debt forgiveness.

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Apple Makes Racism Worse

Posted on April 12, 2015 by Kevin S. Willis

Tell me again how WaPo is a right wing media organ?

Washington Post’s coverage of the new “controversy” regarding Apple’s update of available emojis updated the venerable set of default emojis to include people of color, so it is no longer the exclusionary sea of beige and yellow it was before.

Of course, it didn’t take long for it to become a problem, as now racists were able to use ethnic emojis in sharing their racist nonsense online. The correct take on this, is, of course: what did you expect? People are idiots. WaPo’s editorial take, however, is more nuanced:

Apple on Thursday introduced its new racially diverse emoji, allowing users to cycle through various shades of white and brown to customize their emoji’s skin colors.  Some rejoiced, with choruses of “We made it” flanked by newly black praise-hand emoji filling Instagram and Twitter. Some even professed to cry tears of joy over this sign of racial inclusion. But already, Apple’s well-intentioned gesture to human diversity has taken a turn for the worse. The emoji are being used to make racist comments on social media and insert questions of race in texts and tweets where it may never have arisen before. Instead of correcting its mistake — excluding people of color from emoji — Apple has, in some ways, made the situation worse.

Catch that? Apple has made things worse. This is Apple’s fault. Not the nutburgers and trolls using the new emojis in racist way, but Apple, for somehow not preventing it.

In trying to advocate for racial inclusivity in its iOS 8.3 update, Apple has allowed for further racial segregation with these new emoji. Because I’m black, should I now feel compelled to use the “appropriate” brown-skinned nail-painting emoji? Why would I use the white one? Now in simple text messages and tweets, I have to identify myself racially.

See what Apple has done! It’s forcing minorities to identify themselves racially in text messages. Apple did this. Not all the people who have been complaining it was racist that there weren’t ethnically-correct emojis. Apple.

The author goes on to suggest that Apple should have made the emojis even more ethnically identifiable, somehow, not just white emojis with a paint job. Yet I can think of no way to add additional ethnic identifiers to emojis and have that go over better. And it would certainly be used be racists to, you know, be racist.

… there’s nothing specifically “black” about an emoji with browner skin. Deepening the skin color of a previously white emoji doesn’t make the emoji not white. It’s just a bastardized emoji blackface. The blond-haired emoji man and the blue-eyed emoji princess are clearly white, but you can slip them into a darker-colored skin. These new figures aren’t emoji of color; they’re just white emoji wearing masks.

And, finally, the author blames Apple for the Political Correctness run amok:

 The company should’ve never made race a question, making the emojis raceless with yellow faces and leaving it at that.

Because Apple made it an issue. Cuz, you know. Capitalism. Or something.

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Morning Report – GE is exiting financial services 4/10/15

Posted on April 10, 2015 by Brent Nyitray

Stocks are higher this mornings on no real news. Bonds and MBS are up.

Import prices fell .3% in March and are down 10.5% year over year. As we are seeing in the data elsewhere, the strong dollar is beginning to affect the economy. Q1 earnings will be interesting – how many multinationals will report weaker numbers due to weaker overseas demand.

GE is ending its decades-long dalliance into financial services, by selling its lending business and real estate assets. GEFS basically has been a Old timers will remember when GE owned an investment bank – Kidder Peabody – which blew up in the 90s. Investors like the news – GE is up about 7% pre-open.

Hillary Clinton announced she will announce her candidacy on Sunday, supposedly via Twitter. Are you ready?

Christine Lagarde of the IMF is warning that the financial markets could get bumpy when the Fed starts raising rates. Consider this: the Fed hiked rates in 94, 99, and 05. In the process, they blew up the MBS market (remember Orange County?), the stock market, and the real estate market. Asset prices are handicapping a 100% probability that the Fed can raise interest rates without any one blowing up. The Fed may in fact be able to stick the landing and exit ZIRP without a crisis, but that is not a foregone conclusion. The old market saw of “sell in May and go away” may turn out to be good advice this year.

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Morning Report – FOMC minutes review 5/9/15

Posted on April 9, 2015 by Brent Nyitray

Stocks are lower this morning as the ECB raises aid to Greece. Bonds and MBS are flat.

The FOMC minutes really didn’t have much new information in it and bonds ignored the release for the most part. The decision to remove the word “patient” was not intended to signal that a raise is imminent, just that they will continue to be data-dependent. The strong dollar is beginning to have an effect on the economy, or at least the big multinationals. The stronger dollar is what drove them to revise their near-term GDP forecasts down.

They didn’t discuss housing much except to say that the pace of activity was “slow” and noting the decrease in starts. FWIW, the homebuilders seem to be seeing a bit brighter picture. We’ll get a better idea when D.R. Horton and Pulte report in a couple of weeks. Regarding credit, they said that credit conditions were pretty much easy for everything but mortgages, where credit remains tight. For borrowers who can qualify, rates are low.

Alcoa kicked off earnings season last night with a miss on the top line as demand for aluminum is expected to grow at 6.5% in 2015 compared to 9% last year. They see a glut lasting through 2015. Interestingly, Alcoa continues to shutter production while China increases output. They already have tremendous overcapacity in steel, and are contending with a deflating real estate bubble.

Initial Jobless Claims came in at 281k, more or less in line with expectations. The Bloomberg Consumer Comfort Index rose to 47.9. Wholesale inventories rose while sales fell in February.

Consumers are getting a little more bullish on housing, according to the Fannie Mae National Housing Survey. They expect home prices to rise 2.7% over the next 12 months. Last February had a blip where more people thought the economy was on the right track than the wrong track, but it has reverted back to normalcy.

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Morning Report – Awaiting the FOMC minutes 4/8/15

Posted on April 8, 2015 by Brent Nyitray

Markets are higher this morning as we await the FOMC minutes. Bonds and MBS are up small.

Earnings season kicks off this afternoon with the traditional report from Alcoa. The deluge of releases begins next week with the banks reporting.

The FOMC minutes will be released around 2:00 pm. The markets will be focusing on the discussion around the removal of the word “patient” and will also want to see if the Fed believes that the Q1 weakness was transitory or not. The “weather” excuse has worn out its welcome given that the March data (payrolls especially) came in weaker than expected. The Street has been backing away from their forecast of a June rate hike, and Goldman has it as a toss-up between September and December.

The elephant in the room will be the Fed’s massive bond portfolio. The Fed owns $4.2 trillion worth of Treasuries and MBS. They have already said they do not plan to sell their MBS holdings, but Treasuries are more interesting. As of now, all maturing proceeds are being re-invested back in the market. Next year, about $216 billion will come due, which is about 5 months worth of peak QE buying.

The other big concern at the Fed is the shape of the yield curve. They generally prefer a steeper, upward sloping yield curve. The fear is that an increase in short term rates would make the dollar so attractive that foreign money piles into Treasuries, making the yield curve flatter.

Mortgage Applications increased .4% last week, which is impressive because it was a short week. Purchases were up 6.8% while refis were down 3.3%. Purchases are the highest they have been since early 2013, which bodes well for the spring selling season. That said, we are still way below normalcy, and you would have to go back to 1997 to see similar levels pre-bubble.

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Morning Report – The low end of the housing market is outperforming 4/7/25

Posted on April 7, 2015 by Brent Nyitray

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

The ISM Services index slipped to 56.5 in March, while job openings hit their highest yet at 5.1 million.

It looks like the big bond rally on the weak jobs report was overdone. That said, there is no denying it was a lousy report, with payrolls coming in at 126k versus 245k expected, and the labor force participation rate falling back to its post-disco lows of 62.7%. About the only bright spot was the increase in wages. Can’t blame this jobs report on the weather, although we may be starting to feel the effects of the stronger dollar.

Tomorrow, we will get the minutes from the FOMC meeting last month. The focus will be on the thinking behind the removal of the word “patient.” Given the weakness in the economic data lately, the Fed may choose to make its first move in September.

We are starting to see the low end of the housing market outperform the high end, according to CoreLogic. Prices rose 5.6% in February and remain about 12% below the peak. House prices at the lower price points increased over 9%, while the high end increased about 5%. CoreLogic says this is the hottest price appreciation prior to the Spring Selling Season in 9 years. They are forecasting another 5% increase in prices this year.

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OPEN THREAD 4/6/15

Posted on April 6, 2015 by markinaustin

Wiscy has a 53% chance against the Dukies, according to Nate Silver.

Doesn’t mean any single game would be close, of course, and Duke beat Wiscy by ten or twelve early in the year (I forget the exact score).

 

The Economist explains the outlined Iran deal here:

http://tinyurl.com/lu9sbbx

 

Latest Alzheimers research news is here:

http://tinyurl.com/l9ojy7t

 

NoVA, did you know that you can watch NHL games on your computer at CBC.com?

 

I am going off the cable at the end of the month.  Going to use Roku with some subscription services.  Has anyone here already cut the cord to ATT, ComCast, Cox, TWC, Dish, DirecTV?  Tell, please.

 

 

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Morning Report – ADP Employment misses 4/1/15

Posted on April 1, 2015 by Brent Nyitray

Stocks are lower this morning after the ADP jobs data came in light. Bonds and MBS are up.

Construction spending fell by .1% in February and January was revised down by 1.7%. Residential construction continues to lag the economy, however office construction is picking up. Surprising since vacancy rates are still somewhat elevated.

The ISM Manufacturing Index fell to 51.5 in March, showing some of the slowdown is not simply weather-related.

Payrolls increased by 189k in March, according to ADP. The Street is currently predicting that Friday’s jobs report will show an increase of 245k. Note that the government will be open on Good Friday however the stock markets will be closed and bonds will have an early close. We could see some volatility in bonds if the payroll data is unusually weak or wage inflation in unusually high.

It looks like the dumb money is piling into the Chinese stock market, and much of it is leveraged. This was after the government started telling people that stocks were cheap. The government already has problems with an over-built real estate market and is pulling policy levers to support prices. Historically governments have never been able to manage the deflation of asset prices in an orderly manner, and it is unlikely the Chinese government will be able to either. Their banking system is already on shaky ground. What that means for the US is unclear. We should see Chinese money exit the luxury real estate market in the US, but what happens to Treasuries is anyone’s guess.

Student loan debt is a big problem for the first time homebuyer, as everyone knows. At the same time, there is a movement to begin debt strikes, where students refuse to pay back their loans. At the moment, it is limited to the failing private for-profit universities, however if this gains traction, it could spread. The left, led by Elizabeth Warren, has been egging this on a bit, but they are playing with fire. The government backs these loans and will have to eat the losses if this movement grows.

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