Morning Report: Rates back to pre-taper tantrum levels 2/11/16

Posted on February 11, 2016 by Brent Nyitray

Global stock markets are down again on no real news. Whatever comfort markets took in Janet Yellen’s remarks yesterday are over. Bonds and MBS are up, with the 10 year bond yield pushing a 1.5% handle.

Speaking of Janet Yellen’s plan to continue to increase the Fed Funds rate, the markets are not buying. The Fed Funds Futures contracts are forecasting no rate hikes until 2018.

Loan officers, you have been given an unexpected gift with the 10 year. Rates are now at the pre “taper tantrum” level when the Fed started bracing the markets for the end of QE. So I guess the Fed didn’t need to purchase $4 trillion worth of assets to get rates down?

Initial Jobless Claims fell to 269k from 285k last week. It bears repeating that these numbers are exceptionally good and are associated with boom times. The tape doesn’t care, but still…

The Bloomberg Consumer Comfort Index rose slightly to 44.5 from 44.2 last week. Lower gasoline prices are helping improve the mood.

Most commodities have been getting crushed lately, however one has been on a tear: Gold. Gold is a strange animal, in that it is one of the few financial assets that isn’t some else’s liability. The price of gold can be considered to be the (inverse) confidence indicator in the world’s central banks. Gold up, confidence down.

Continuing on the central bank thread, one of the bright spots in the US markets has been auto sales. This has been driven by a couple things: The biggest was that people deferred replacing cars until they absolutely had to due to the lousy economy. However another reason is cheap credit, and some hedge funds think they have found the new “big short” in subprime auto. When you can get an 8 year loan for a new car at a rate below the 30 year fixed rate mortgage, something is awry.

So, yet another pillar holding up the economy was based on cheap credit. Janet Yellen must feel like Michael Corleone: “Just when I thought I was out, they pull me back in.”

The House Financial Services Committee is having a hearing today on FHA MIP. Expect Democrats to push for another cut and Republicans to be against it. The Democrats are in a strange position with the base continuing to push for even tougher regulations for the industry and the affordable housing types getting sick and tired of the tight credit that results.

Filed under: Economy, Morning Report | 76 Comments »

Morning Report: Yellen calms the markets 2/10/16

Posted on February 10, 2016 by Brent Nyitray

Stocks are higher this morning based on prepared testimony for Janet Yellen’s appearance before Congress. Bonds and MBS are down small.

Keep in mind that the Chinese stock market is closed all week in observance of the Chinese New Year, so the biggest catalyst for downside movement in the markets will be absent this week.

Janet Yellen is traveling to the Hill for her Humphrey Hawkins testimony. In her prepared remarks she did spend some time talking about the turmoil in the financial markets and that acknowledgement was soothing enough to stocks to give them a boost. Overall, however the message is that the US economy is improving, and rate are going up gradually. The rest of the testimony will probably be a bunch of ideological questions from various congresscritters trying to get the Chairman of the Fed to agree with their ideological worldview.

Goldman is forecasting 3 rate hikes in 2016. Given the overall weakness in the global economy and the rush to negative interest rates globally, it may not affect long-term interest rates in the US (or mortgage rates for that matter).

Blackrock is forecasting that US growth has probably peaked for the near term as more and more central banks enter the negative interest rate vortex. I wonder what our grandkids will think about today’s PhD standard. If it ends up not working, do we go back to the gold standard?

In New Hampshire, Bernie Sanders won the Democratic primary vote, and Donald Trump won the Republican primary vote. John Kasich had a surprisingly strong showing.

Mortgage Applications rose 9.3% last week as purchases were up 0.2% and refis were up 15.8%. The refi index has had a nice run since rates started collapsing, but we are nowhere where we used to be compared to 2013.

Competition in the jumbo market is fierce, and the typical rate for a jumbo is now 15 basis points below a conforming mortgage. Historically, jumbos have cost an extra 25 basis points to the borrower.

Do you think your underwriters are approving too many shaky loans? Move them to Seattle. Are they too conservative? Move them to San Diego.

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Morning Report: Global growth engines are stalling 2/9/16

Posted on February 9, 2016 by Brent Nyitray

Markets are down after yesterday’s blood bath. Bonds and MBS are up small.

Since the Fed tightened rates at the December meeting, the 10 year bond yield has fallen by 58 basis points. Fun fact: The Japanese 10 year bond yield is now negative.

In economic data, the NFIB Small Business Optimism Index fell from 95.2 to 93.9 last week. This is surprisingly tame given the activity in the markets over the past couple months. That said, small business optimism didn’t ride the post-2009 rally in the markets up, so it probably will be a little insulated on the way down. Hiring plans remain intact, which is a good sign, however finding qualified applicants continues to be an issue.

Job openings are pushing close to new highs, according to the JOLTS job report. Quits are increasing, which is a bullish sign for the labor markets.

Wholesale sales and inventories both fell in December. We are seeing a buildup in inventory, which is bearish for the economy.

Bottom line: the markets are signalling pain in the global economy, but it is hard to draw the conclusion that conditions in the US are driving it. If anything, the US appears to be taking its historical role of the engine of growth in a soft global economy.

The canary in the coal mine (besides oil) has been the absolute carnage in the banking sector, especially overseas. Deutsche Bank has been cut in half since September. Same as Credit Suisse. Citigroup is down 27% since Jan 1. So is BNP Paribas. Not sure what this is signalling (exposure to energy? exposure to China?) but it is a big warning button for the global economy and it is flashing red.

Even though the economy has recovered, the hatred of the financial sector hasn’t changed, and it is being channeled through Bernie Sanders. The ironic thing is that the “Wall Street” they are railing against hasn’t existed for 10 years. Regardless it isn’t an environment conducive to risk-taking.

Speaking of politics, the New Hampshire Primaries are today. Clinton and Sanders look neck and neck, and Trump looks to be ahead of the pack for the Republicans.

Completed Foreclosures fell to 32,000 in December, which is down 2.4% from November and 22.6% year-over-year.

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Super Bowl Rant and Open Thread

Posted on February 7, 2016 by ScottC

I’m watching the pre-game show and naturally CBS cuts to an interview with the Obamas. Sigh. Is there no occasion in this country that can pass without the precious thoughts of a fucking politician being foisted on us?

Newsflash: The president (any president) is a mere politician, not a monarch anointed by the hand of God. We have no need to hear him pontificate on every event, big or small, that takes place in the nation. The guest list for his party is completely unimportant to me. I don’t give a rat’s ass what kind of food he is serving. I couldn’t care less which team he is rooting for. Doubly so for the First Lady, for goodness sake. And I think anyone who does care is a moron.

It is actually quite baffling. The opinion of the ordinary person towards politicians in general is usually one of overwhelming contempt, and rightly so. Yet when a politician is so “good” at all the vile things that politicians do and are that they rise to the highest political office in the country, suddenly we are supposed to wait with bated breath for his sage thoughts on all things big and small. What does he think of the Super Bowl? What does his March Madness bracket look like? What is he saying about the latest tragedy in a small town in the middle of nowhere?

Someone stop the madness, please.

Rant over…open thread.

Filed under: Open Thread | 21 Comments »

Planning for Old Age

Posted on February 6, 2016 by Kevin S. Willis

Anybody have advice/experiences to share in regards to an elderly parent losing their ability to function, yet being entirely uncooperative about doing anything about it?

Right now, we’re struggling to get my dad to the doctor. He doesn’t want to go. We’re trying to get his house to be a little friendlier to his inability to move around, and trying to convince him to put bills on autopay so there’s nothing to forget, and the power won’t get cut off. Again, not very cooperative.

He’s got two dogs he never lets out, and he cleans up after them some if they go to the bathroom in the living room but two of the back rooms were a mess, and we’re going to have the carpets replaced (that in itself will be a challenge . . . his house is very dirty, and crammed with crap). My sister will be putting pee pads down in one of them (already is, and will presumably continue to do so after the carpet is replaced) and is now checking on him daily. He really needs to be in some sort of nursing home, but he is adamant about not having that, and I’m fairly confident all that will accomplish is to kill him quicker. And right now, he’d have to cooperate on that. And he won’t.

My Uncle Don had him doing the accounting for his building company for about 30 years, and now needs information for taxes, and my dad is being uncooperative there as well (and likely does not know where it all is). He has about sixty or seventy baskets in the house (in desk baskets) spread all over the house, filled with all the paperwork from the last few years. Nothing particularly organized. He grows very hostile if someone tries to start going through it, however. Ultimately, I guess that battle will be up to me. Not looking forward to it.

Looking around for an Eldercare lawyer to consult that doesn’t cost an arm and a leg. Also trying to get my ducks in a row as to what sorts of contacts we’ll need. In addition to getting the carpets replaced we just found out he needs a working tub, so we’re likely to replace one of his tubs with a walk-in shower or walk-in tub. Additionally, he could clearly use some strategically placed grab bars. And he definitely needs someone to come in and radically reduce the clutter in the house, but is stubborn about it.

My father at least had the foresight to put my sister’s name on one of his bank accounts, so there’s some access to money (I think the idea was to have money to cover funeral and other related expenses, though, not to provide assisted care, but there should be enough money to cover some of the fixes that have to be made to his house, among other things). But nothing else is planned for. So, good lord, do your children a favor and assume there may come a point where they need a lot of help taking care of you, but you’ll be hostile to letting them, and provide for it. I could do with a list of accounts and bills and necessary numbers and whatnot right now.

My mother, fortunately, is younger, in much better shape, and has planned her estate out to the nth degree. So, I’m likely only going to have to go through this once but still—sheesh, what a pain in the ass.

At some point soon, I need to do a little planning to try and make things easier if I kick off unexpectedly. List of bills and accounts and URLs where I pay them and logins and passwords, that sort of thing. Or I’m going to end up like my dad.

So the lesson is: get your kids set up to take care of your before you start getting dementia!

Any wisdom would be appreciated. Thanks!

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Morning Report: Wage inflation is beginning to creep up 2/5/16

Posted on February 5, 2016 by Brent Nyitray

Stocks are lower this morning after the jobs report. Bonds and MBS are down

Jobs report data dump:

  • Nonfarm payrolls + 151k vs 190k expected
  • Unemployment rate 4.9%
  • Average Weekly Hours 34.6
  • Average Hourly Earnings up 2.5%
  • Labor force participation rate

Overall a good report, Payrolls are disappointing, but the rest is strong. We are starting to see the beginning of wage inflation with average hourly earnings up 2.5%. December’s number was revised upward from 2.5% to 2.7%. Stocks and bonds are down as this report will keep pressure on the Fed to maintain its posture of normalizing rates. The 2-year yield is higher by 4 basis points.

Higher wage inflation coupled with no inflation equates to lower profit margins. Ironically, this is the sort of “middle class economy” that politicians are promising to bring back. Good for workers, not so much for investors.

The rise in the dollar and the corresponding fall in commodity prices is wreaking havoc on other economies though. Citi is saying fear oilmageddon. This will be felt not only in developing economies like Russia and Brazil, but also developed economies like Canada and Norway. Norway’s “economic miracle” may have simply been a massive leveraged bet on oil and real estate.

Obama proposed slapping a $10 per barrel tax on oil. Obviously that is going nowhere..

1 in 3 houses are still bought with cash, according to CoreLogic. This is a drop of 3 percentage points from a year ago.

Filed under: Morning Report | 36 Comments »

Morning Report: Dismal economic numbers this morning 2/4/16

Posted on February 4, 2016 by Brent Nyitray

Stocks are lower this morning after we got some disappointing economic data. Bonds and MBS are up small.

Dismal economic numbers all around this morning

Productivity fell 3% in the fourth quarter and unit labor costs rose 4.5%. This is a recipe for falling profits in 2016. Given the tepid GDP growth being forecast for next year (sub 2%), companies will focus most on cost-cutting. Given the excess capacity in the manufacturing economy, companies have been reluctant to spend on capital expenditures, which has depressed productivity. Definitely not a recipe for releasing the animal spirits, although if builders start to address the tight supply, it will provide a good boost for the economy.

Factory orders fell 2.9% in December, which was below the Street estimate. November’s numbers were revised downward as well.

Durable Goods orders fell 5% in December as well. Capital Goods orders (a proxy for capital expenditures by business) fell by 5%. This directly relates to the lousy productivity numbers above.

Announced job cuts increased 41.6%, to over 75,000 according to outplacement firm Challenger and Gray. Most of the cuts are coming in retail and energy.

Initial Jobless Claims rose 285k last week.

The Bloomberg Consumer Comfort Index fell from 44.6 to 44.2 last week.

Don’t underestimate the Fed, which is the message from major strategists. Goldman Sachs Chief Economist Jan Hatzius is calling for a 3% 10 year by the end of the year.

On the other hand, mortgage REIT American Capital Agency is calling for the Fed to abandon its “tightening bias” by the end of 2016. They see a hard landing in China, continued weakness in emerging markets, and undervalued Treasuries versus other benchmark sovereigns.

In a testament to the change occurring in the financial markets, lenders like Quicken and SoFi will be advertising during the Super Bowl this year.

Both Republicans and Democrats agree the economy is lousy, and both sides are going back to their boilerplate explanations. Democrats blame Wall Street and the rich, while Republicans blame government. The funny thing is that the “Wall Street” they rail against hasn’t existed for almost 10 years.

Filed under: Morning Report | 12 Comments »

Morning Report: How’s that working for you? 2/3/16

Posted on February 3, 2016 by Brent Nyitray

Stocks are higher this morning after oil rebounds overnight. Bonds and MBS are down.

Mortgage Applications fell 2.6% last week as purchases fell 7% and refis rose 0.3%.

The ISM Non-Manufacturing Index fell to 53.5 from 55.8 in January

The ADP Employment Change report came in at 205k. The Street is forecasting 190k in Friday’s jobs report.

Bill Gross’s latest Investment Outlook takes some shots at central bankers, and asks why we think negative interest rates are going to generate growth. As he says “How’s that working for you?” While the consumer has deleveraged over the past 10 years, corporate america has not. That said, corporate america has taken advantage of record-low interest rates to refinance and extend high coupon debt with lower coupon debt. When people are willing to lend you money at 2% for 20 years, why not take it?

Speaking of negative interest rates, it seems the only nation anymore that isn’t playing the beggar thy neighbor devaulation game is the US. Exports are falling, while imports are rising. This is the reason why we are seeing everyone – from Republicans to Democrats – willing to take potshots at free trade. Of course foreigners can accept one of two things in payment for their imports: goods and services from the US or IOUs (Treasuries). So far, they seem to want the IOUs. Which means interest rates are lower than they ultimately would be. Still manufacturing job losses are easy to point to versus interest rates and the benefits of cheaper imports.

Another day, another settlement with the banks: Wells is paying FHA $1.2 billion over “failure to properly review early payment defaults in 2010-2012.” And the government is scratching its head wondering why banks like JP Morgan are reducing / exiting FHA lending… At what point do these constant suits and settlements become simply a surtax on banking?

Filed under: Morning Report | 4 Comments »

Refuse to Go Red for Women

Posted on February 2, 2016 by ScottC

According to the American Heart Association, the prevalence of heart disease among men is greater than among women in every age demographic. In the 60-79 age bracket, the prevalence among men is more than twice what it is among women. More than 1.4 times as many men as women have had a diagnosed heart attack or fatal coronary disease across all age groups.

In light of those statistics, it makes perfect sense, of course, that this Friday is Go Red For Women Day, during which the American Heart Association encourages people to wear red in order to “help support educational programs to increase women’s awareness and critical research to discover scientific knowledge about cardiovascular health.”

According to the AHA:

In 2003, the American Heart Association and the National Heart, Lung and Blood Institute took action against a disease that was claiming the lives of nearly 500,000 American women each year – a disease that women weren’t paying attention to. A disease they truly believed, and many still believe to this day, affects more men than women.

Um…it does affect more men than women. It is rather unbelievable that the AHA is attempting to disabuse women of a plain and simple fact.

This is all of a piece with our increasingly female-centric culture which attempts to instruct us that whatever problems exist, they are inevitably worse for women. (Climate change to hit women hardest!) It is bad enough we have to suffer through sports seasons in which players, coaches and officials are pressured to where pink in order to “raise awareness” for breast cancer several times a year. At least women do in fact suffer from breast cancer more than men do, even if the “awareness” of the disease far outweighs its dangers relative to other women-killers. But this is just taking things to an absurd level.

Whatever this says about the AHA in particular or our screwed up society more generally, I highly encourage everyone to refuse to wear red this Friday, to protest this sexist denial of reality. Don’t believe it and don’t accept it. And keep your eye out….if, on Friday, you see more people without red on than with it, know we are winning the battle!

(BTW, I found out about this Red Day foolishness because my HR department, in that cloying way that only HR departments can achieve, sent around a circular encouraging all employees to wear red on Friday. When I presented them with the statistics on heart disease and wondered if they had ever promoted to employees a “men’s awareness” movement of any kind whatsoever, they replied, again in typical HR manner, “We are always looking for volunteers to promote important causes across a wide range of missions.” I’m taking that as a firm “No”.)

Filed under: Open Thread, Politically Correct Bedtime Stories | 17 Comments »

Morning Report: Marco and Bernie real winners in Iowa 2/2/16

Posted on February 2, 2016 by Brent Nyitray

Stocks are getting roughed up a little as overseas markets and oil continue to fall. Bonds and MBS are up sharply, with the 10 year trading just below 1.9%.

The ISM New York Index fell from 62 to 54.6 while the IBD / TIPP Economic Optimism Index ticked up slightly to 47.8.

The winners in Iowa last night were Ted Cruz and Hillary Clinton. Unofficially, the winners were Rubio and Bernie. The losers? Donald Trump and the pollsters who had him in the high 40s. He came nowhere near that. Note that there are allegations of tomfoolery on the Democratic side with vote counting..

The correlation between global stock markets and the price of oil is somewhat strange – historically, high oil prices were considered bad for stocks, not good. While the drop in oil prices is certainly not good news for the big integrated energy companies, it is great news for consumers. Overall, the US benefits from low oil prices. The action in the stock market may be viewing the oil price as the canary in the coal mine for the global economy.

For the time being, the drop in commodities and stocks is keeping a lid on interest rates, which is a good thing for originators. The 10 year is heading back to late winter / early spring of 2015 lows. Fun fact, since the Fed raised the Fed Funds rate on December 16th, the 10 year bond yield has dropped 42 basis points. The trader in me says bond yields have fallen too far too fast.  Loan officers, if you have someone floating, try and lock ’em.  And wake up any potential borrowers who missed out on refinancing the last time around.

Delinquency rates continue to fall, according to Fannie Mae. In December, the seriously delinquent rate fell to 1.55% from 1.58% in November and 1.89% a year ago. Home price appreciation and an improving job market are doing their jobs.

With house price appreciation increasing well in excess of wage inflation, how affordable is housing these days? It depends on the statistic you use. If you look at the median house price versus the median income, you would conclude that housing affordability is approaching the lows of the bubble. However, if you look at the mortgage payment on the median house divided by median income, housing is at pre-bubble levels affordability-wise. Another argument to find people with ARMs and refi them in to 30 year fixed rate mortgages.

Filed under: Morning Report | 9 Comments »

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