Morning Report: Credit explains tight inventory 11/1/16

Vital Statistics:

Last Change
S&P Futures 2124.8 5.0
Eurostoxx Index 338.3 -0.7
Oil (WTI) 47.1 0.2
US dollar index 88.3 -0.2
10 Year Govt Bond Yield 1.87%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.62

Stocks are higher as the FOMC begins its November meeting. Bonds and MBS are down.

The PMI Manufacturing Index improved in October to 53.4 from 51.1. We are starting to see increases in input prices be passed through to customers.

The ISM Manufacturing Index ticked up to 51.9 from 51.6.

Bonds had their worst October in 2 years as European bonds slid on bets that there will be no further stimulus out of the ECB. US bond yields are going to be naturally pulled in the direction of overseas bonds absent any info coming out of the US. If the global economy is truly out of the woods, then the path of least resistance for bonds is down, which means gradually increasing interest rates going forward. However, if the Chinese economy blows up as asset prices fall, then all bets are off.

The FOMC meeting begins today and we will get the announcement tomorrow. The markets are assuming that we will have no change in monetary policy at this meeting. The Fed Funds futures are assigning a 71% probability of a 25 basis point hike in the Fed Funds rate at the FOMC meeting in December. That said, we could see some volatility around the statement tomorrow afternoon if they deviate from the script (which probably isn’t going to happen 1 week before the election).

Home prices rose 1.1% MOM and 6.3% YOY according to CoreLogic. Home equity wealth has doubled over the past 5 years to $13 trillion. This works out to be about $11,000 per homeowner, however the geographic split is pretty wide. In September, CoreLogic reported that 112 markets are overvalued, with 19 of them in Texas. The heat map is shown below, where red = overvalued and green = undervalued.


Part of what is driving home prices into overvalued territory is supply, and as we know, builders are adding to inventory only grudgingly. What is going on? Ultimately credit is a big driver, but not at the residential mortgage level, it is at the bank level. There has been a huge bifurcation in credit over the past several years, where big builders like D.R. Horton or Lennar can access the bond market at very favorable rates, while the smaller builders are having trouble getting loans from their local bank. In addition, most of the lending has gone to multi-fam, not single fam. Second, lack of skilled labor and land are playing a part. The skilled labor part will fix itself on its own as high wages attract more people to the business. Land is a more difficult issue, however the price differential between the exurbs eventually will win out.

If Halloween candy were bonds:

haloween candy.PNG

57 Responses

  1. Saw my first Hillary for Prison sign up here in deep deep blue Westchester County..


  2. Good read.

    “Hillary Clinton’s March to Victory
    The presidential campaign has unfolded in ways she never could have imagined. It is ending in a morass of ugliness. What could possibly come next?

    Molly Ball 5:40 AM ET”

    Liked by 1 person

  3. I’m voting early in-person tomorrow.
    make your case for who i should support. i’m only really showing up to vote against two ballot measures.


    • vote the pothead… he wants to leave you alone..


    • Vote for the person you would actually want to win.


      • jnc:

        Vote for the person you would actually want to win.

        What if I don’t want any of them to win?


        • You could vote 3rd party if you like the notion of 3rd parties. None of those candidates will win, so a 3rd party vote is a vote for a political idea rather than a particular candidate.


        • KW:

          None of those candidates will win, so a 3rd party vote is a vote for a political idea rather than a particular candidate.

          I generally would agree with that, and this is the first election in which I really would have been willing to vote for a political idea rather than a candidate. Unfortunately the 3rd party that usually puts forth an idea I think would be worth throwing a vote away for apparently no longer actually believes in that idea.


        • Then don’t vote for them at all, or write in None of the Above.


        • I’m going to write in Barry Goldwater.


        • I just, er, reacted enthusiastically!


    • NoVA, you should swing by PL just to see them call me a white nationalist.


    • Whichever would be most entertaining.


    • I wrote in jnc for president, then Dems down ballot.

      jnc2016: He Walks the Line


    • …make your case …

      First it is generally agreed among those who have dealt with them that Johnson and Weld are decent human beings.

      Second, they were both successful governors, even with opposition legislatures, as moderate Republicans, who both lowered taxes AND balanced budgets, through patient negotiation and hard lines where necessary.

      Third, they have actually been screwed worse by the mass media than anyone else. Ignored and mocked.

      Fourth, you have seen them. They each have a sense of humor. They don’t take themselves too seriously.

      Fifth, getting 5% of the vote assures the continuance of the L Party in a healthier mode, next time.

      Personally, I want a softer edged L Party – one that does not have as a purist tenet of faith that drivers licenses are an infringement on liberty. But I take that as secondary to the character of the nominees.


      • The Libertarian party is, ultimately, too puritanical. Gary Johnson said he was fine with driver’s licenses and got booed. For driver’s licenses!


      • Do you think Weld voted for the ticket he’a on?

        I don’t.


      • mark:

        one that does not have as a purist tenet of faith that drivers licenses are an infringement on liberty.

        Is that really an L party position?


      • “Personally, I want a softer edged L Party – one that does not have as a purist tenet of faith that drivers licenses are an infringement on liberty.”

        I’m pretty sure they are good with drivers licenses at this point.

        The real cleave is those who still hold out on the right of private businesses to discriminate as they see fit. That’s what always is used to trip up the Rand Paul’s when they try to be consistent in interviews.

        What will be interesting is to see how that collides with AirBnB. Can private owners be forced to rent out their residences to anyone as a condition for participating in AirBnB as a host?


        • Depends on who is doing the renting. Have you faced historic discrimination? Then you are entitled to more protections. If you haven’t, you lose any say when you enter commerce.


    • Voter Vermin Supreme. He wears a boot on his head and promises you a pony, and admits he won’t deliver on any of his promises.


  4. Uh…


  5. Apparently this “no bad news for 60 days” guideline is now taking on the trappings of a Constitutional right:

    Someone else didn’t appreciate FBI leaks in the October of an election year either:

    Edit: The Vox piece shows nicely how Clinton defenders want it both ways:

    “But federal investigators ultimately concluded that the Clintons hadn’t done anything wrong.”

    No, that’s not what it showed. It showed that there likely wasn’t enough evidence to successfully bring a prosecution. But once people like Vox start using that as an argument that they “hadn’t done anything wrong” that’s when the agencies in question start feeling the need to set the record straight in public.


  6. Vox is hilarious with their lack of self awareness:

    “For obvious reasons, nobody wants to hear about how hard a bunch of white people have it”

    No, no one at Vox wants to hear it because it doesn’t fit into their preconceived world view.

    And they wonder why things are splitting they way that they are.


    • And there it is “I can’t be bothered to listen to you, but i’m shocked that you gravitate toward someone who at least makes a token effort to acknowledge your concerns.”

      The truth of it is that the left doesn’t think “people of walmart” are entitled to those concerns.


    • ““For obvious reasons, nobody wants to hear about how hard a bunch of white people have it””

      Except white people practicing their own identity politics. I don’t particularly want to see white people practicing identity politics, myself, but I’m not going to win that battle. Also, while I like Ezra Klein, and understand why he is a shill for Vox . . . Vox is a cesspool of millennial nonsense-thinking. IMHO.


    • I would love to find out what percentage of taxes white men pay. For some inexplicable reason we have sliced and diced every bit of demographic data except that one. Wonder why…


    • Brent:

      Ratings are down for the NFL because of racism. Or something

      Surely it can’t be that people are sick of having politics shoved down their throats during a sporting event. Or that they dislike Kapernick because of his politics. Or just because he seems to be a dick. Or that the don’t like being lectured to about oppression by a guy who gets paid more money in a year than they will get paid in a lifetime. No, none of those can possibly be he explanation. It could only be because they’re racists who don’t like a “free” black man.

      I’m sure the author of that piece is a reasonably smart guy, but I never cease to be amazed at how gobsmackingly stupid smart people can be.


    • Ratings are inherently inaccurate, anyway, and might simply be becoming more accurate because of cord cutters (thus changing the assumptions of ratings gathering) . . . as folks moving to Internet only for their TV don’t make sports, ESPN, or the NFL channel high priority, and ESPN used to be a channel everyone had to subscribe to whether they wanted to or not.

      All the hoo-hah about protesting the national anthem, which will by it’s very nature offend, disgust, or cause painful eye rolling in 50% of the country and 75% of NFL fans, certainly can’t help.

      In terms of explaining it, I’m not a huge fan of blaming what I see as collective human frailties and limitations on a particular political ideology, but where as the right has a whole menu of things to view the left’s decisions and actions (or problems in the general culture) through, a great deal of the left only has bigotry, sexism, and racism or some combination as their menu choice. So, everything that happens is because racism/sexism/homophobia. As @jnc4p has so effectively pointed out so often (thus, the conclusion he is a white nationalist) the majority of the left is so wedded to identity politics they cannot imagine another explanation for any event. All action and reaction, everything that happens, is rooted in identity politics.


  7. McWing and Mark:

    You two especially may find this podcast worthwhile. The Federalist interviews Evan Smith, CEO and co-founder of The Texas Tribune talks about the state of Texas. Interesting stuff.


    • Thanks.

      I doubt this is news to either of us, but it was a neat capsule.

      I do think that there are more nuances here than Evan Smith could touch upon in a brief interview, but he did well. I also, having lived in Austin for 52 years, remember when Austin was actually weird.


  8. Hunh. Noting to see here.

    Peter Kadzik, assistant attorney general, sent his son to seek a jobon the Clinton campaign given his personal relationship with Podesta. He was invited to a small birthday gathering for Podesta’s lobbyist brother last year. Kadzik also dined with Podesta at his home in January, when the first FBI probe was well underway.


  9. Mark, I think your GJ vote was negated by his running mate.


    • It has been a long time since a nominee has been that generous to an opposing nominee. Maybe never, at the national level. We have had judicial races in Texas where each candidate praised the other but pointed out positive reason why they might be better choices (for example, “I served as a trial court judge on both civil and criminal matters for 12 years before running for the appellate bench” vs. “I have been a practicing lawyer who has had cases on both sides of the docket, representing individuals, corporations, the County, and indigent defendants over my 30 years of practice and I would bring to the bench a wealth of experience in the law and with people from all walks of life.”)

      I would bet Weld voted for his ticket, but realistically identifying the two major nominees as being the main show, at this point, after his own ticket missed out on the debates, is a plus for rationality. That he favors HRC from his personal experience with both of them isn’t all that surprising, is it?


  10. Plum Line commentor on the ambush of two police officers by mentally ill redneck:

    8:48 AM CDT
    I didn’t see it in the article, but were the two slain officers AA or Hispanic?”

    The most important issue isn’t, say, did they have children, will their families be taken care of, were they wearing armor, what are the police doing to avoid such ambushes, etc., etc. No: it’s, how quickly can we establish this white guy was a Trump supporter and a racist, and killed these cops not because he was crazy, but because he was a racist Republican.

    Shrink said killer was a “Stars and Bars Trump cracker” (and linked to an article about the shootings) and, while he might have been a stars and bars cracker, I don’t see anything about Trump in the actual article, or anything else I’ve read about the killer, so I’m not sure how “Trump” gets drawn into except by assumption. Yet the commenters on the same article start talking about it if it’s just established fact he was on team Trump and simply taking a break from his campaigning for Trump to kill police officers.

    Not sure if I’m missing something or this just demonstrates the distorting bias of humans to project their expectations on every event.


    • Shrink acting with bias? You’d think a “psychiatrist” of his caliber would be more self aware, no?


      • I don’t believe psychiatrists are any more self-aware than your average person of a similar education level. I think there are people who legitimately develop greater self-awareness through the study of brain science . . . when you start looking at how all the gears and levers actually turn, when you’re deep into the numbers and the statistics and start looking at how bad people are at predicting their own actions, how we make up explanation for things we do, how we rewrite and retcon our own memories and truly believe them to be accurate, and so on and so forth, it becomes harder—I think—to hold on to the blissful ignorance of not knowing how the mental sausage is made. Psychology and psychiatry really don’t delve into that, and seek much higher level explanations and treatments for mental distress, generally. So being a psychiatrist is unlikely to give you greater insight into yourself. Also, makes you more comfortable diagnosing other people without worrying about your own mental constraints.


    • None of this is new.


      • No, it’s not. Just when I see it fresh, I sometimes feel like observing it, though I see no point in confronting them directly. Sort of like trying to point out to a goldfish that its swimming in water.


  11. Normally I like Douhat but I’ve seen less drama from a 15 year old girl who’s parents won’t buy her the newest smartphone.

    Get a grip princess.


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