Morning Report: Housing starts rise 1/19/17

Vital Statistics:

Last Change
S&P Futures 2265.3 -1.3
Eurostoxx Index 362.4 -0.7
Oil (WTI) 51.6 0.5
US dollar index 91.9 0.0
10 Year Govt Bond Yield 2.45%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.13

Stocks are lower this morning after the ECB decision to stand pat. Bonds and MBS are lower after Janet Yellen’s bullish comments on the economy and some decent data this morning.

Janet Yellen spoke yesterday, saying the economy was close to the Fed’s target, which warrants gradual rate hikes. Here are her prepared remarks. “That said, as of last month, I and most of my colleagues–the other members of the Fed Board in Washington and the presidents of the 12 regional Federal Reserve Banks–were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3 percent.” That should have been a relative uncontroversial statement, given that roughly corresponds with the December dot plot. However, bonds sold off anyway.

Housing starts rose to 1.23 million in December from 1.1 million in November. Building Permits were flat at 1.21 million. Starts beat expectations while permits missed. Multifam drove the increase in starts, while single fam fell slightly.

Initial Jobless Claims fell to 234k last week nearly matching a low set in November. You would have to go back to the early 1970s (during the Vietnam war draft) to see claims this low. That is even more impressive when you factor in population growth. Employers are hanging onto their employees.

The Philadelphia Fed survey jumped last month as conditions improved for manufacturing. New orders and employment drove the increase.

Treasury Secretary nominee Steve Mnuchin travels to Capitol Hill today for his confirmation hearing. The questions will largely center on his role in the IndyMac turnaround, as well as his recommendations for the GSEs. He will also be asked about his comments regarding possible tax reform and whether the rich will receive an “absolute tax cut.”

The nonbank share of FHA lending is worrying some in Washington. As banks have retreated from FHA lending, nonbank lenders like Quicken and Freedom have taken up the slack. GNMA is conducting a push to lure banks back into the business.

The Fed’s Beige Book survey was a non-event. Most districts described their employment markets as “tight” and expansion as “modest.”

One bond investor thinks the bond bull market is still going to last a while longer. Why? The velocity of money has hit a floor since the Great Recession and hasn’t picked up. The velocity of money measures how many times a dollar has been “turned over” in different transactions. It peaked at 2.2x in 1997 and is currently sitting around 1.4x. This has been driven by the Great American Deleveraging which began with the bursting of the real estate bubble – income growth has been nonexistent, and the marginal dollar has been saved, not spent. The lower velocity is keeping a lid on inflation.

Bridgewater CEO Ray Dalio sees a mild bear market in bonds as economic growth picks up. He views the nascent populism being exhibited worldwide as a threat to multinational corporations and emerging economies. How politicians direct and engage that populism is going to be critical. Note that the Fed is addressing some of this by launching a new think tank: The Opportunity and Inclusive Growth Institute, which will be run by Minneapolis Fed head Neel Kashkari. Of course there isn’t much the Fed can do to address income inequality, however quantitative easing has largely benefited those that own assets, who are primarily rich.

Here is a good article on determining how much house you can afford.

20 Responses

  1. Meltdown Day Whatever: Russian hacking as the new Zimmerman Telegram.

    https://www.washingtonpost.com/national/secret-wwi-telegram-holds-lessons-for-today-historians-say/2017/01/15/f4a6c1ac-db23-11e6-8902-610fe486791c_story.html

    Do they seriously view WikiLeaks leaking DNC E-mails as an act of War?

    I’m started to be reminded of Hunt For Red October:

    “Admiral Josh Painter: This business will get out of control. It will get out of control and we’ll be lucky to live through it.”

    http://www.imdb.com/title/tt0099810/quotes?item=qt0458293

    Liked by 1 person

    • but Manning is a hero for exposing actual state secrets.

      go figure.

      edit — but they won’t even see their “act of war” thing through. okay, it’s an act of war. so we … issue some sanctions?

      Like

    • i cannot get over how the left is going overboard over some embarrassing DNC emails confirming what we already knew: that the MSM and the D party coordinate messaging, and the DNC thought hillary should get the nom because it was her turn and they wanted a woman.

      Like

    • jnc:

      I’m started to be reminded of Hunt For Red October:

      A great reference. I very much agree.

      The left is creating the very conditions which it claims to be so worried about coming to pass. If Russia actually has the goal of making Americans doubt the legitimacy of their electoral process and hence its government, it couldn’t have a better partner than the post-election left and its mouth pieces in the press.

      Like

  2. Good interview with Keith Ellison by Ezra Klein on the DNC chairmanship.

    http://www.vox.com/policy-and-politics/2017/1/19/14322998/keith-ellison-dnc-ezra-klein

    This is an interesting point for him to make give how often I see progressives make the fixed pizza or cookie analogies vis-a-vis the rich taking too much:

    “Because I’m going to tell you right now, if they framed resource allocation as a basic issue of scarcity, we going to lose that one. There’s not enough. Obviously you’re going to pick you and your family over somebody you don’t know and have heard a lot of bad things about.”

    & the classic divide over taxes:

    “Ezra Klein:
    Right, so if you get the mortgage interest deduction, that’s money that’s yours. You got it back; it’s not a government program helping you out.

    Keith Ellison:
    That’s exactly right. Even if you went to the EITC [earned income tax credit], a lot of people, one, don’t take advantage of it, but even for the folks who do, there’s just this idea that the government’s not helping you. They’re just giving you back your own money. The truth is that based on the tax code, that’s actually the government’s money that we’re allowing you to keep.”

    Like

    • “There are no statewide Republicans in Minnesota. Not any, not one. Amy Klobuchar, Al Franken, Democrats. Mark Dayton, our governor, Democrat; Attorney General Lori Swanson, Democrat. We don’t have no statewide Republicans. We used to. You remember Tim Pawlenty, who used to be the governor, and you remember Norm Coleman. Why can’t a Norm Coleman or a Tim Pawlenty get back into statewide office? Because in the Fifth Congressional District, we spike the vote so high they cannot get in.”

      somebody learned how to putt.

      Liked by 1 person

      • Yeah, he seems to get it better than most. Again, like with Biden, not a single word about Russia, Putin, or Comey vis-a-vis Clinton’s loss. Instead he noted this:

        “There’s a lot of reasons why Hillary Clinton didn’t win. In fact, she got more votes than the other side, but if you want to talk about in the Midwest, with Michigan, Wisconsin, and so forth, I think she was put in a very difficult position because of the president’s advocacy of the Trans-Pacific Partnership. It was just hard for her to get people to believe her on trade, even though I believed her.”

        Like

    • “The truth is that based on the tax code, that’s actually the government’s money that we’re allowing you to keep.”

      Thus why they’ll always have trouble winning across the country, but will handily sweep California.

      Like

  3. what a quote:

    “I find it hard to believe that he rushed to some hotel to meet girls of loose morals, although ours are undoubtedly the best in the world,” Putin said.

    https://www.bloomberg.com/politics/articles/2017-01-19/kremlin-said-to-fear-trump-won-t-be-such-a-great-deal-after-all

    Like

    • This really was a good read:

      “Classic Putin is both a master bureaucrat and a salt-of-the-earth guy; he is fluent both in cunning bureaucratese—as when he described the alleged prostitutes referred to in the dossier as “women of decreased social responsibility”—and in the language of the muzhik, the hearty, salty Russian man—as when he then joked that, regardless of anything else, Russian prostitutes “are undoubtedly the best in the world.” (The beauty of Russian women is a matter of national pride, though a common joke in Russia is that, in addition to oil and gas, they are Russia’s other export.) We’ve seen a little less of the latter Putin over the years as he has finally grown into the role of international statesman, but once upon a time, this was just how this guy from the mean streets of Leningrad talked. He said he would get terrorists in the outhouse, and told journalists not to smear their snot on paper and call it journalism.”

      https://www.theatlantic.com/international/archive/2017/01/putin-trump-press-conference/513401/

      Like

  4. Someone gets it:

    “A friend of mine, a professor of English with left-of-center tendencies in politics, likes to say that “the rhetoric of consensus is always coercive.” Any time you talk about what “we” believe as Americans — what “this country” was founded on, who “we are” as a nation — you’re forcing a certain kind of unity that many of your listeners, maybe most of them, are excluded from. The rhetoric of consensus may be appropriate on occasions of high ceremony — an inauguration, a State of the Union address — but otherwise it sounds false and cheap to everybody but the winners.”

    https://www.washingtonpost.com/blogs/post-partisan/wp/2017/01/19/at-least-this-time-we-dont-have-to-pretend-the-presidents-good/

    Liked by 1 person

  5. Liked by 1 person

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