Morning Report: Weak factory orders and strong vehicle sales 11/3/15

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

Vehicle sales are coming in strong this morning, as the US goes through a long-delayed upgrade cycle. The average age of a US car has been at record levels for years, but consumers have been reluctant to spend on a new car.

The ISM New York index jumped to 65.8 from 44.5 last month. This is a surprising reading given that factory orders fell 1% in September and August was revised downward from -1.7% to -2.1%.

Economic optimism fell in November, according to the IBD / TIPP Economic Optimism Index.

Weaker economic data has prompted the Atlanta Fed to take down its fourth quarter estimate for economic growth to 1.9%. Their prior estimate was 2.5%. While 1.9% growth is probably strong enough that we shouldn’t be on the zero bound anymore, it is hard to see how this economy is overheating.

Home Prices continue to climb, according to CoreLogic. Prices rose 0.6% in September and are up 6.4% year-over-year. Interestingly, they put out a map of the overvalued and undervalued real estate markets, and Southern California is largely undervalued. Green is considered undervalued, red is overvalued, grey is normal. Not sure how they are calculating this, but I find these results surprising.

If you wondered what the median house looks like in these supposedly “undervalued” markets, here you go.

Bill Gross is suggesting that the Fed do “Operation Switch” which is the reverse of Operation Twist. The idea is to steepen the yield curve by selling longer-dated bonds and buying shorter dated bonds. Here is novel concept: How about we let the Treasury market be an actual market and let investors determine the cost of money.

Seriously delinquent loans have hit a new post-crisis low, hitting 1.59% in September down from 1.96% a year ago. Seriously delinquent loans hit a high of 5.59% in February 2010. A “normal” rate of delinquency is below 1%, so the numbers are still somewhat elevated. I suspect many of these remaining seriously delinquent loans relate to zombie foreclosures left over from the bubble days, largely in states with judicial foreclosure laws.

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