Morning Report: Job openings flat 8/10/16

Posted on August 10, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2180.0 3.0
Eurostoxx Index 344.3 4.0
Oil (WTI) 42.6 -0.2
US dollar index 86.0 -0.2
10 Year Govt Bond Yield 1.51%
Current Coupon Fannie Mae TBA 103.8
Current Coupon Ginnie Mae TBA 105.2
30 Year Fixed Rate Mortgage 3.52

Markets are up this morning on no real news. Bonds and MBS are rallying

Bond markets worldwide are rallying after the Bank of England tried to buy Gilts as part of its QE program and had a tough time finding sellers.

Mortgage applications rose 7% last week as purchases rose 3% and refis rose 10%.

Job openings were unchanged in June, at 5.6 million. The quits rate at 2% was more or less unchanged. This number is the tell for a strengthening labor market.

The bond market has given back the losses from the strong payrolls report last Friday. The Fed Funds futures markets are pricing in a 45% chance of another rate hike this year. Meanwhile, global bond yields continue to fall, with the German Bund at -9 basis points.

Affordable starter homes are becoming scarce in many parts of the country. We are seeing bidding wars in the hotter markets. Low housing starts are playing a factor here, and government regulation is a big driver of that. Mandates that increase the cost of construction make starter homes too expensive for an entry-level income.

Technology is helping drive down realtor commissions, according to Redfin. Of course Redfin is talking its own book, however many sellers are foregoing the use of an agent, especially at the higher price points, which makes sense.

Filed under: Economy, Morning Report | 28 Comments »

Morning Report: Productivity falls 8/9/16

Posted on August 9, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2177.0 1.0
Eurostoxx Index 342.8 1.0
Oil (WTI) 42.9 -0.2
US dollar index 86.9 -0.2
10 Year Govt Bond Yield 1.58%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.5

Markets are flattish this morning on no real news. Bonds and MBS are flat

Small Business Optimism ticked up last month according to the NFIB. Sentiment remains well below its historical average. The interesting thing is that the inability to find quality workers rose to the #3 problem facing small business after taxes and government regulation. While small business is interested in hiring, they still have very little appetite for capital expenditures. Inflation at the small business level remains nowhere to be found, as small business cut prices on average last month.

The lack of capital investment ties into another economic number this morning: productivity (or lack thereof). Nonfarm productivity fell .5% in the second quarter, making it the third negative quarter in a row. The Street was looking for a positive .5% reading so the number was a big miss. Productivity is also negative on a year-over-year basis.

Unit Labor costs rose 2% which was a little higher than expected. Comp costs were up 1.5% and productivity losses added another 50 bps.

Productivity growth is what increases standards of living, which is why a lack of it makes people feel like the recovery is so weak. Part of the explanation is found in the NFIB report – no capital expenditures. Productivity is tough to measure these days, with so much free technology. You know GoToMeeting increases productivity, yet it won’t show up in the output numbers because no one pays for it. Same thing with Skype, LinkedIn, etc. While academia suspects there is a problem with the way we measure productivity, no one has found a good way to correct for it.

productivity - bls.PNG

Completed foreclosures came in at 38,000 in June, a 4% increase from May and a 5% drop year over year. The national foreclosures inventory stands at 375k homes, which is down 26% from a year ago. The number of mortgages seriously delinquent fell 21% YOY to 2.8%, or about 1.1 million homes. The big judicial states like New York and New Jersey lead the pack in foreclosure inventory.

FHFA says that Fannie Mae and Freddie Mac could require as much as $126 billion in the next housing crisis. Separately, Fannie’s home purchase sentiment index hit a new high, albeit it is a relatively new index.

Wells is saying that the expiration of HARP at the end of the year. Does this mean a dramatic drop in prepay speeds? Not necessarily, in that HARP will probably be replaced with a high LTV refi program.

Filed under: Economy, Morning Report | 5 Comments »

Morning Report: DJT lays out his financial vision 8/8/16

Posted on August 8, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2179.0 3.0
Eurostoxx Index 351.5 0.5
Oil (WTI) 42.6 0.8
US dollar index 87.0 -0.2
10 Year Govt Bond Yield 1.60%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.5

Markets are flattish on no real news. Bonds and MBS are down.

There isn’t much in the way of economic data this week – the week after the jobs report is invariably data-light. There will be no Fed-speak either.

TIAA agreed to buy EverBank Financial for about $2.5 billion.

3 month LIBOR hit 81 basis points this morning, which is the highest since May 2009. This will affect ARM pricing.

While US Treasuries have some of the highest yields in the world, foreign investors who want to hedge their currency risk are buying them for a negative yield. New money market rules will go into effect this fall, which will change the landscape for banks. Expect tightened credit conditions.

Donald Trump will lay out his vision for financial regulation today with a speech in Detroit. He proposes a moratorium on new financial regulations, a repeal of Dodd-Frank, eliminating the estate tax, dropping the corporate income tax to 15%, creating 3 tax brackets for individuals, and making bureaucrats in DC more focused on creating jobs.

The CFPB updated their mortgage servicing regulations.

The July Fed Labor Market Conditions index rose by a point in July.

Filed under: Economy, Morning Report, politics | 17 Comments »

Morning Report: Strong jobs report 8/5/16

Posted on August 5, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2179.0 14.0
Eurostoxx Index 341.0 3.0
Oil (WTI) 41.3 -0.6
US dollar index 87.0 -0.2
10 Year Govt Bond Yield 1.56%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.52

Markets are higher after a stronger than expected jobs report. Bonds and MBS are down.

Jobs report data dump:

  • Nonfarm payrolls +255,000
  • Unemployment rate 4.9%
  • Labor Force Participation rate 62.8%
  • Average hourly earnings +0.3% (2.6% YOY)

Overall, a good report. Not sure it moves the needle with the Fed in September, but it looks like May’s super-weak report was an aberration. The underemployment rate increased however, which suggests that the long-term unemployed may be coming back to the market, but they have to settle for part time jobs.

Bonds sold off on the report, with the 10 year yield up about 4 basis points, and the 2 year up 6.

Filed under: Economy, Morning Report | 10 Comments »

Morning Report: The Bank of England cuts rates, sending Treasuries higher 8/4/16

Posted on August 4, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2160.0 3.0
Eurostoxx Index 336.9 1.0
Oil (WTI) 40.8 0.0
US dollar index 86.5 -0.5
10 Year Govt Bond Yield 1.51%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.5

Stocks are higher this morning after the Bank of England cut rates and instituted QE. Bonds and MBS are up.

In response to Brexit, the Bank of England cut rates and introduced a bond-buying program for corporate and sovereign debt. This is causing global sovereigns to rally, and the German Bund is now trading at -7 basis points again. The US 10-year seems to correlate the most with the German Bund lately, so if it continues to rally, look for lower rates in the US.

Job cuts increased in July to 45,346, which is up 19% from last month, but is down 57% from a year ago. Military discharges and continued cuts in the energy sector drove the increase. Texas and California bore the brunt of the job cuts.

Initial Jobless Claims ticked up to 269k last week, however we have been below 300k for months, which is a very low level.

The Bloomberg Consumer Comfort index ticked up slightly last week to 43 from 42.9.

Factory Orders fell 1.5% from a downward-revised -1.2% in May. The manufacturing sector continues to exhibit a slowdown.

The ISM Services Index ticked down to 55.5 from 56.5 last month. The ISM Services index has been much stronger than the manufacturing index.

Nationstar reported better than expected earnings in the second quarter, although they took a big hit on their servicing portfolio. That said, while others are running from the servicing business, Nationstar is doubling down, and looks to build their business, with the addition of Seneca and USAA as clients. USAA had used Dovenmuhle in the past. Originations were up 24% QOQ and consumer direct accounted for 60% of the volume. Nationstar was up 12% for the day and is the highest in 9 months.

Mortgage REIT Annaly Capital reported a drop in book value per share as volatility hurt results. Given the widening of MBS spreads at the end of the second quarter, this is to be expected, although peer American Capital Agency did report a small increase. Annaly just completed its acquisition of Hatteras. Aside from the Fed, mortgage REITs are some of the biggest purchasers of mortgage backed securities, and can move around TBAs which influences mortgage rates, so it pays to keep tabs on how they are doing.

Separately, Fannie Mae reported a drop in net income.

Filed under: Economy, Morning Report | 8 Comments »

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

Posted on August 3, 2016 by Brent Nyitray

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.

Filed under: Economy, Morning Report | 16 Comments »

August 1, 1966

Posted on August 2, 2016 by markinaustin

UT map

I had just walked out of the Law School.

A chunk of limestone chipped off Townes Hall 30’ over my right shoulder and then I heard the c-r-a-c-k. Bullet had beaten the sound.

I had no idea what was happening. Went to my junkie little ‘62 Falcon, turned on the radio, got an earful. Drove out of range to a girlfriend’s apartment where we listened for more than an hour.

Later I learned that folks I knew had been under direct fire – nobody got hit when he shot to the northeast, where I had exited Townes Hall, only on the Mall and on Guadalupe {the Drag].

An acquaintance who later became a friend was then a grad student and a USAF Captain at Bergstrom. He walked out of the then grad library in the Tower and immediately realized what was happening. He ducked back into the doorway and listened to the shots and figured out the timing as Whitman moved around the parapet. He ran out, and pulled someone who was alive into the bushes in front of the plaza. He stayed down. I think he pulled four living victims into the shrubs over the 90 minutes. Later he was stationed in Germany and got his PhD in German military history at Heidelberg, came back to UT and went to law school, and became a lawyer in Austin as a civilian.

My later law partner’s wife was shopping on the Drag when the shooting and the panic ensued. She thought it was “The Revolution”. They owned an old black ’51 Mercedes which looked like a limo. It was 98F or so, typical August 1 in Austin. It was parked on the Drag. She got in and lay down on the floor board for more than an hour. Scared and dehydrated.

That night, at Scholz’s, the famous biergarten a few blocks south of campus, our group of law students drank under the oak tree. She downed a pitcher by herself in half an hour, and couldn’t stop shaking. Rifle shots. People running, screaming, some obviously in pain, and she too scared to get up from the floorboard, unable to help, not actually knowing if it would ever end, or what was actually happening.

Filed under: This Day in History | 13 Comments »

Morning Report: The refinanceable population grows 8/2/16

Posted on August 2, 2016 by Brent Nyitray

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

Construction spending fell 0.6% last month as both private and public spending fell. Homebuilding was down 0.1% MOM and is up 2.4% YOY. The prior 3 months were revised downward as well. This at least partially explains why the Q2 GDP print was so low.

Personal Incomes rose 0.2% in June while personal spending rose 0.4%. Just more evidence that the consumer is holding this economy together. The core PCE rate (the inflation measure preferred by the Fed) rose 1.6% YOY.

The Fed Funds futures have been slowly taking down the probability of a September rate hike – it is now below 20%. Between the weak GDP numbers, the weakness in manufacturing, etc it is hard to make a case that the Fed needs to move in September.

Governments worldwide are looking at policies intended to inflict capital punishment on investor portfolios. Whether the result is protectionism, Keynsian spending, or expropriation, look to own real assets (like real estate) versus financial assets. In terms of relative value, real assets are at their lowest ever. The world’s central banks are on a mission to create inflation, and eventually they will succeed. Note that policies that attack corporate profitability are also inflationary – in fact that is the end the line for socialist economies like Venezuela: everyone has money in their pockets, but there is nothing to buy.

Brexit has created a massive opportunity for lenders. According to Black Knight Financial Services, the refinanceable population is the highest since 2012. Below are charts of the number of candidates that are refinanceable, and the other is a histogram of mortgage rates.

Filed under: Economy, Morning Report | 4 Comments »

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