Morning Report: Housing starts rebound to 1.2 million. 10/20/15

Posted on October 20, 2015 by Brent Nyitray

Stocks are lower this morning after IBM missed earnings. Bonds and MBS are down.

Housing starts rose 1.2 million in September, beating the 1.1 million estimate. These are up 4.7% from a year ago. Building Permits disappointed however, coming in at 1.1 million vs. the 1.2 million estimate. Starts saw an increase in single fam and multi-fam, however permits saw a drop in multi-fam.

Goldman is calling the rally in Treasuries overdone. Their argument is that investors are underestimating the potential for inflation. Not seeing where inflationary pressures are going to come from, with a strong dollar, very little wage growth, and capacity utilization at 77%. The current probability of a Dec rate hike is 33%.

Speaking of wage growth, Wal Mart was hammered last week after announcing that wage increases would cause earnings to drop next year. This will be interesting to watch – do other retailers follow suit or do they maintain lower wages? Some early hints that it will be the former. Turnover for retailers has increased to 65% from 50% and open retail positions are up 31% this year.

The Obama administration rejected calls to re-privatize Fannie and Fred, leaving GSE reform for the next president. The government is making a lot of cash from F&F. Both private investors (especially activist funds who hold Fannie prefs and common) and affordable housing advocates are pushing the government to clarify where F&F stand.

Apparently Joe Biden’s decision of a presidential run will be released any day now.

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