Morning Report: Non-QM AAA rated securitization coming 12/8/16

Vital Statistics:

Last Change
S&P Futures 2238.5 2.0
Eurostoxx Index 351.0 3.0
Oil (WTI) 50.2 0.4
US dollar index 91.3 0.0
10 Year Govt Bond Yield 2.37%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.08

Stocks are up after the European Central Bank extended its quantitative easing plan. Bonds and MBS are down as the ECB lowered the monthly stimulus amount unexpectedly.

Initial Jobless Claims ticked up to 258k last week. We are still bumping around 40 year lows on initial jobless claims..

Nomura lays out 10 “black swan” events that could roil markets in 2017. Black swan events are things that are highly improbable, but not impossible. While most of these are overseas events (China floating the yuan, etc) there are a couple for the US. First would be a jump in US productivity, which would be good news for the economy as a whole, and the second would be a fight between Trump and the Fed, which would be bearish. Trump has been a critic of the Fed’s low interest rate policies in the past, however he is now a politician, and politicians love low interest rates. I wouldn’t be surprised to see a more hawkish nominee for the Fed when Yellen’s term is up, however.

I would add one more: that Donald Trump begins to douse the animal spirits by naming and shaming companies which do things he doesn’t like. Granted, politicians have always intervened in potential plant movings, etc, but they did it quietly behind the scenes, not via Twitter. This could become an issue going forward and would be bearish for the economy and the stock market. Good for bonds, however.

JP Morgan is out with a call saying the Fed will only hike interest rates twice next year – at the June and December meetings. They also are forecasting 1.9% GDP growth for 2017, which is slightly lower than the Fed’s forecast of 2%. They also warn of protectionism and a possible trade war if Trump follows through on renegotiating NAFTA and other treaties, which will be a drag on the economy. They also believe Congress will be willing to pass only a portion of the stimulus that Trump is looking for.

Is the private label securitization market returning? We are starting to see some green shoots, as securitizations of non-QM paper by Caliber and Sterling will get AAA ratings. Over half the loans are in California and the average FICO is 712. The big question is how overcollateralized these bonds are.

31 Responses

  1. Just got an email frome someone who attended a Trump breakfast in DC. Highlights:

    priority #1 lower corporate taxes. goal is looking like 20% – 20% versus 15% on the campaign trail and 35% currently.

    jobs: will continue talking to companies to push them to keep production in US. has been talking to Tim Cook at Apple about manufacturing phones here

    trump will focus on what he does best: making deals for our country and creating jobs and opportunities.

    mnuchin will dial back regulation, with repeal & replace for dodd-frank. wants less regulation, but wants to prevent another 2008 from happening.

    Like

    • Anyone ever consider marginal tax rates for corporations? Seems like it would be a good way to cut taxes on the first $100k, $500k, $1m in revenues, with the top rate (after $10m) maxing out at the present 35%? Something like that?

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      • KW:

        Seems like it would be a good way to cut taxes on the first $100k, $500k, $1m in revenues, with the top rate (after $10m) maxing out at the present 35%?

        Seems to me like a good way to dispense with equal treatment before the law.

        I’ll never understand the attraction of progressive taxation outside of socialist desires to redistribute wealth.

        Like

        • Well, fair enough. We’ll always disagree on that point, I expect. 🙂

          Like

        • BTW, I assume you actually meant implementing a progressive tax on profits, not revenues. I ask only because I recently had a discussion with someone who is adamant that corporate revenues, not profits, should be taxed, so I am wondering if this is starting to be a new thing, taxing revenues instead of profits.

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        • IMO the left is dying to tax revenues, because then it is an easy path to characterizing legitimate deductions as “corporate welfare.”

          All part of the left’s mission to make everything the property of the state, which it benevolently hands out.

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        • Brent:

          All part of the left’s mission to make everything the property of the state, which it benevolently hands out.

          Yup. And any amount of income that is not relinquished as taxation is an example of the government “subsidizing” the act of living.

          Like

        • “BTW, I assume you actually meant implementing a progressive tax on profits, not revenues”

          Correct. My apologies for saying “revenues”. Extremely sloppy of me!

          Like

        • I figured I understood you correctly, but just wanted to make sure.

          Liked by 1 person

  2. From comments at PL:

    http://www.economist.com/news/leaders/21711314-president-elect-has-new-approach-dealing-corporate-america-it-not-all-good

    And as president of the world’s largest economy, Mr Trump will be able to ride roughshod over firms for longer with impunity than politicians in smaller places ever could. But over time the damage will accumulate: misallocated capital, lower competitiveness and reduced faith in America’s institutions. Those who will suffer most are the very workers Mr Trump is promising to help. That is why, if he really wants to make America great again, Mr Trump should lay off the protectionism and steer clear of the bullying right now.

    What’s the general perception here that Trump’s crony-capitalism is going to produce misallocated capital, lower competitiveness, and reduced faith in America’s institutions? What is Trump likely to do in regards to carrot-and-sticking individual companies that wouldn’t be offset by a reduction in corporate taxes?

    Could the author have said anything more meaningless than his last sentence? Nothing that comes before suggests that laying off protectionism and steering clear of bullying would do a singly solitary thing to improve America’s overall condition.

    Like

    • the left was in favor of running roughshod over firms with impunity before they were against it.

      Liked by 1 person

    • KW:

      What’s the general perception here that Trump’s crony-capitalism is going to produce misallocated capital, lower competitiveness, and reduced faith in America’s institutions?

      It will undoubtedly result in the first 2. I don’t pretend to know or understand what drives the psychology of the last one, though.

      Nothing that comes before suggests that laying off protectionism and steering clear of bullying would do a singly solitary thing to improve America’s overall condition.

      I think what comes before does suggest that protectionism will worsen America’s overall condition.

      Like

    • “Those who will suffer most are the very workers Mr Trump is promising to help.”

      I don’t see that as self evidently true at all.

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    • has the depression phase begun for the left? perhaps.

      Like

    • nova:

      Doesn’t the WaPo have some kind of duty of care not to facilitate the self-embarrassment of emotionally unstable people?

      Liked by 1 person

    • I don’t want to go all man-o-sphere but this:

      My ability to multitask and keep everyone’s schedules on track would sit next to his ability to fix cars, cook or read books in silly voices.

      Sounds like another way of saying: “My ability to tell him what to do would sit next to his ability to do what I tell him.”

      I’ve known multitaskers who can keep everyone’s schedules on track. 😉

      Like

  3. Pope chimes in:

    http://www.miamiherald.com/news/nation-world/world/article119490013.html

    I’m sure the headline writer was tempted to write “Holy Shit!”

    Liked by 1 person

    • Indeed. Love the article (and I like Tina Fey al lot). But at the end of the Newsbusters piece she blames Trump for the crudeness and hostility of the Internet. Because apparently 15 years ago Internet people knew Donald Trump would be president. Or something.

      Liked by 1 person

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