Morning Report: Trump causes jump in Fannie stock 11/21/16

Vital Statistics:

Last Change
S&P Futures 2186.8 6.0
Eurostoxx Index 340.0 0.7
Oil (WTI) 47.0 1.3
US dollar index 91.1 -0.5
10 Year Govt Bond Yield 2.31%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.99

Stocks are higher this morning on no major news. Bonds and MBS are up small.

Should be an uneventful week with the Thanksgiving holiday. Markets will be closed on Thursday, and SIFMA is recommending an early close on Friday.

Donald Trump continued to interview candidates for cabinet posts over the weekend. For Secretary of the Treasury, he talked to famed investor Wilbur Ross, Blackstone head of real estate Jonathon Gray, and David McCormick of Bridgewater. The “in-depth” discussion with Gray “included the economy, global capital markets and the world financial situation as well as “future legislation regarding the tax code and long-term debt. The Ross meeting covered “negotiating the best foreign deals, American manufacturing and job creation,” as well as “engaging Ambassadors to participate in creating more economic opportunities for America,” Trump’s office said. With McCormick, Trump and Pence talked “global financial markets, currency and the American economy,” and “special emphasis was placed on restoring long-term economic growth rates on an annual basis of four to five percent.” Trump insider Steve Mnuchin and Congressman Jeb Hensarling are considered to be the front-runners, however.

Mitt Romney is under active consideration for Secretary of State.

The Chicago Fed National Activity Index improved to -.08 from a downward-revised -.23. Overall economic activity remains slightly below trend.

Traders are now pricing in a 100% chance the Fed hikes next month.

Ever since Trump won, shares in Fannie Mae and Freddie Mac have been soaring. Hedge fund giant John Paulsen has a huge position in the shares and investors are betting that a Trump administration may be more shareholder-friendly than Obama was. Just as Fannie Mae was beginning to turn a profit, the Obama administration re-wrote the rules of the bailout and has taken all of Fannie’s cash flows for the government. The bailout money has now been paid back and shareholders are in litigation with the government over what to do now. Just some numbers: Market cap: 18 billion. 2015 earnings 11 billion. P/E: 1.6.

AIG is looking to boost its investment in residential mortgages. They intend to make “direct investments” into the sector, which may mean buying whole loans instead of MBS.

The CFPB is appealing a Federal Appeals Court ruling that says the agency’s structure is unconstitutional. Regardless of the outcome, the agency is probably going to have at least some changes.

Quick, what has been the best-performing IPO of the tech sector since the Great Recession? It isn’t the names you would think of like Facebook or Tesla. It is Ellie Mae, who makes software that helps automate the mortgage process. Bears are beginning to bet that a Trump administration will be more friendly to the big banks, who will get back into the mortgage business, which is bad news for Ellie Mae’s clients, who are smaller independent lenders.

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