Morning Report: Buy real estate, sell stocks and bonds 8/3/16

Vital Statistics:

Last Change
S&P Futures 2149.0 -4.0
Eurostoxx Index 334.7 -1.0
Oil (WTI) 39.9 0.4
US dollar index 86.3 -0.5
10 Year Govt Bond Yield 1.54%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.51

Stocks are lower this morning as oil and emerging markets move lower. Bonds and MBS are down.

Mortgage Applications fell 3.5% last week as purchases fell 2% and refis fell 4%. Rates fell a lot last week, but the biggest move was on Friday, so perhaps we’ll catch up this week.

The ADP payrolls report shows 179k jobs were created in July. Friday’s jobs report is looking for an increase of 185k. The number to watch on Friday isn’t so much payrolls, it is the increase in average hourly earnings.

Shades of the bubble years: Over 50% of all listings in San Francisco and Seattle end up selling for over the listing price. In Washington state, there is 2 month’s worth of inventory for sale and in California it is 2.5 months. A balanced market is 6.5 months.

Once bitten, twice shy. 2010 marks the peak of the foreclosures from the bubble years, and next year, the foreclosure black mark drops off their credit reports. So far, we are only seeing a gradual return to the real estate market.   Many borrowers are unaware that FHA is more forgiving than other programs – you can apply for a loan after 3.5 years with only 3.5% down and a 580 FICO.

Bill Gross is on the “buy real assets” versus financial assets bandwagon. He dislikes stocks and bonds here, and prefers real estate and gold. With sovereign debt, you are making the bet that inflation is never, ever coming back. Governments seem to be coming to a consensus that more fiscal stimulus is needed, and that should be bond bearish. Theoretically, companies should be investing in property, plant and equipment instead of buying back their own stock. This isn’t good for stock prices short term (and will drive the activists batty), but it is good long-term, provided these investments cover their cost of capital and aren’t just empire-building exercises. You want stock prices supported by a future earnings stream, not artificially low interest rates. Problem is, capacity utilization is already pretty low, so there isn’t much need for additional PP&E, at least at the moment.

While the chart below is complicated, it does suggest that real assets will outperform financial assets going forward. For most people, the biggest “real asset” is their home. With rental inflation still high, having your mortgage payment set for 30 years isn’t a bad deal at all.

a9d26-real2bassets2bversus2bfinancial2bassets

Note both Donald Trump and Hillary Clinton are advocating fiscal stimulus packages. Post-Brexit UK is looking at taking that route as well. FWIW, the bond market is betting nothing comes of it.

16 Responses

  1. Worth a note. The Republican Establishment Strikes Back.

    “Tea party favorite Tim Huelskamp loses Kansas primary
    By Catherine Ho
    August 3 at 11:01 AM”

    https://www.washingtonpost.com/news/powerpost/wp/2016/08/03/tea-party-favorite-tim-huelskamp-loses-kansas-primary/

    See also:

    http://www.theatlantic.com/politics/archive/2016/08/a-tea-party-defeat-in-kansas/494210/

    Like

  2. I suspect the Trump nuke comments is a fed liberal bullshit story, but I wouldn’t put it past him…

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    • I’d nuke Raqqa without hesitation, why wouldn’t you?

      Like

    • “Obviously, this isn’t gospel; it’s a thirdhand report of a conversation that may or may not have happened.”

      http://www.vox.com/2016/8/3/12367996/donald-trump-nuclear-codes

      Good enough for the MSM to run with.

      Like

      • Why is the CW that it hurts him?

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        • there is that aspect of off it.
          nuke ISIS? i’m sure the polling on that sucks. right.

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        • I am just seeking clarity here. Despite recent talk of nukes here, I assume that none of you see using nuclear weapons in Syria or Iraq as either tactically or strategically sound.

          Right?

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        • Incorrect, I advocate it.

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        • I’m open to suggestions on how to modernize the ME. but my bias is that it is not possible and that this a blight on the world — that will need to be dealt with eventually.

          This “new normal” thing of disgruntled teenagers hitting soft targets can’t last. and if we can’t weed them out, we can eliminate their source of inspiration and money.

          if ‘m POTUS, i’m on the phone to the various ME leaders. “next time one of your guys fucks up, i’m blaming you. get a handle on this. cut of the imams who are preaching this nonsense or i’m going to take it out on you”

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        • I think one of the recruiting elements is success, the Strong Horse concept, that’s why eliminating Caliphate strongholds, completely and thoroughly is so important. I also think that these entity’s are utterly unworthy of potential American sacrifice, a continued air campaign with eventually result in a captured American that will once again have to be ransomed, using tactical nukes is the only way to minimize the risk that I can think of. Finally, nukes will send the message that certain types of behavior, state sponsored or inspired terrorism for example, will be met with the ultimate response, permanent annihilation.

          Like

      • Trump is just channeling his inner Ron: “My idea of a perfect government is one guy who sits in a small room at a desk, and the only thing he’s allowed to decide is who to nuke. The man is chosen based on some kind of IQ test, and maybe also a physical tournament, like a decathlon. And women are brought to him, maybe…when he desires them.”

        That said, this third hand speculation is just bullshit. i swear they are making it easier and easier for me to go into the voting booth and turn my key and push my nuclear launch button.

        Like

  3. J/W sound pretty good on CNN…

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    • If not this year, then it’s never going to happen.
      I wonder if turnout will be down across the board and people just get disgusted and don’t bother.

      Like

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