Morning Report: Sentiment lowest in 18 months 4/11/16

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

No economic data today – in fact this week looks pretty data-light. We will get retail sales, inflation and industrial production data this week, but none of these should be market moving, unless inflation comes in way higher than expected. The Fed doesn’t really pay too much attention to the CPI and PPI numbers.

Earnings season kicks off this week in the traditional way, with Alcoa reporting after the close. The first week is usually pretty slow, and dominated by the banks. JP Morgan and Citi report Wednesday and Friday, respectively. The banks are being squeezed by a flattening yield curve as the Fed is tightening while long-term rates are falling. This compresses net interest margins and cuts profits. The stock market has been hitting the financials lately, which you can see below with a relative performance graph of the S&P SPDRs versus the XLF financials ETF

Consumer home purchase sentiment is the lowest in 18 months, according to Fannie Mae. Pessimism over the economy is spilling over into the real estate market. They haven’t been this pessimistic about the economy since March of 2014.

Want to hear something depressing? Check this out: Hillary’s take on the banking industry…(feel free to ignore the commentator) She thinks lending discrimination is rampant in our industry, which is a preposterous assertion in the age of automated underwriting systems. The ironic thing is that if the government was on a mission to restrict credit to poor people, push mortgage origination to the biggest TBTF banks, and depress the economy, they would be doing exactly what they are doing. Worse, they don’t even realize it.

Following on that theme, Wells just settled with the DOJ for $1.2 billion over errors in its FHA loans from 2001 to 2008. According to the settlement, Wells Fargo “admits, acknowledges, and accepts responsibility” for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance. Wonder if Wells is going to follow JP Morgan in de-emphasizing FHA loans.

21 Responses

  1. The Fed doesn’t really pay too much attention to the CPI and PPI numbers.

    Really? Do they use a different measure of inflation?



  2. Why shouldn’t women adjust to the new reality of public exposure? As a guy, I’ve had to share public showers for years, I have zero problem showering with broads, why are they allowed to be bigots? I guarantee there were gay men in those showers some if whom undoubtedly looked at me in a sexual way, whoop-tee-fucking-doo!


    • One of my 7YO twins is very observant of human behavior, very adaptable, and very popular. She is also a tomboy and will play with boys as easily as with girls.

      She told me this morning that it seemed that only boys got into trouble and got “yellows” in First Grade. I asked her if she thought it might be because the teachers were women. She thought for a long time and said “maybe”. Then she said that the boys who did not get into big trouble still got into some trouble almost daily, and that was what she thought was because all the teachers were women. She told me that I would have given a “yellow” for the boys in big trouble if I were a teacher but I would have let little stuff go or made a joke.

      I was her guesstimated model of what a male teacher would do, if there ever was such a thing in First Grade.

      I have no idea if this is an insight from her, or confirmation bias for me, or both.


    • You’re flattering yourself, George.

      I doubt that my middle age sag would attract any looks. Then again, there’s always chaser.



  3. Krugman comes out against the rule of law:

    “What determines whether a firm is systemically important? There aren’t any cut-and-dried rules — there can’t be, because if there were, corporate lawyers would find ways to evade them. Instead, it’s a judgment call. But financial giants that don’t like being regulated are trying to use litigation to question those judgments.”


    • I cited the article earlier this morning for what I saw as his slap at Sanders.

      He isn’t so much questioning the rule of law there as questioning Due Process.

      We probably mean the same thing, but if we don’t, I see him as wanting to put regulatory discretion, which is a practical necessity, beyond the reach of the courts to determine abuse, which is required by Due Process.


      • Correct. The law means what the regulators say it means and they can change their opinion at any time, which he supports.

        The “rule of law” jab was due to his aversion to “cut-and-dried rules” because we certainly wouldn’t want to know what was legal ahead of time.

        Liked by 1 person

        • jnc:

          The “rule of law” jab was due to his aversion to “cut-and-dried rules” because we certainly wouldn’t want to know what was legal ahead of time.

          And a good jab it was.

          Regulatory discretion is supposed to mean discretion in enforcing the law, not discretion in defining the law. The fact that congress passed a law which ostensibly regulates “systemically important financial institutions” but which provides no objective definition of that actually means, leaving it entirely up to regulators to decide who qualifies and why, is a good demonstration of how the regulatory bureaucracy is not, in fact, merely enforcing the law but is instead writing it. Which is entirely unconstitutional.


    • The CFPB regulates via enforcement action.. You have to read settlements to know what the rules are.


    • I don’t think I’ve been in a bank lobby in months. I have direct deposit and just get cash back at the grocery store or use an ATM machine for deposits. My wife deposits checks by cell phone camera. The only hand-written checks we make are to our dog sitter and house cleaner.


    • The buried lede:

      Median annual pay for tellers, meanwhile, has risen 35 percent, to $32,250 as tellers are increasingly required to be well-versed in technology.

      Liked by 1 person

      • They deserve a living wage! Which ultimately makes automating their jobs more and more cost effective. When expert systems and AI start making more of the human decision making expendable . . . oops, already happening. That goodness I can program!


  4. “She thinks lending discrimination is rampant in our industry”

    There is some discrimination, isn’t there? Against folks who’ve recently declared bankruptcy, who load up a bunch of credit cards just before applying for a loan, who have horrible credit and just missed their last seven car payments . . .


    • In theory, recent bankrupts are better risks than the average debtor. They cannot go bankrupt again for several years.


      • Mark:

        In theory, recent bankrupts are better risks than the average debtor. They cannot go bankrupt again for several years.

        I suppose that makes them better legal risks, but not economic risks. The inability to legally declare bankruptcy doesn’t make one any more able or willing to pay one’s bills. I would have thought that a recent bankruptcy would place a debtor at the bottom of the risk barrel, and only time showing a willingness and ability to pay debts would allow the debtor to move back up.


        • Scott, that is often the case, which is why I wrote “in theory”. However, it is often the case, JNCP can tell you how often, that one crushing unexpected debt, not profligate credit card use or systematic spending beyond means, is the cause of bankruptcy, and given a fresh start, creditors should be aware of the circumstances.

          For example, when the S&L crisis hit Texas in the late 80s, builders were caught with work in progress with loans outstanding on real property. The Resolution Trust would close down the banks and call the open loans due, long before the projects were finished. Bankruptcies followed. However, on review of these situations, some builders immediately regained their good standing with suppliers, whom they had never stiffed, and with their subcontractors. They were able to rebuild, but slowly, because they had no interim financing available for land purchases. So they went into either home remodeling or mall build outs or the like where they did not have to buy land.

          Another common one time bankruptcy used to be from the unexpected medical bill that was not covered by any insurance, or was excepted to as “preexisting” or as outside total policy limits. Families that had these situations force bankruptcy were generally good credit risks.

          Take your credit card abuser or my second former wife and her shopping habit off the table and there are many bankrupts who are truly better risks after the event. The price of my second divorce included assuming all her many credit cards to pay off. Her next husband, aware of her shopping habit, found a way to deal with it. She could buy whatever she wanted as long as she took it back the next Saturday. She wasn’t a pack rat; although I thought she was, I was wrong. She was a serial shopper. It turned out that she was quite willing to take it all back each week if it meant she could max out her credit card the next weekend. She is the grandmother of my 1 YO grandson so I must remain cordial. ‘Nuff said.


        • Mark:

          ‘Nuff said.

          Yikes. Sounds like a nightmare.


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