Morning Report: Markets rally on the French election 4/24/17

Vital Statistics:

Last Change
S&P Futures 2374.8 27.3
Eurostoxx Index 386.0 7.9
Oil (WTI) 49.9 0.3
US dollar index 89.5
10 Year Govt Bond Yield 2.29%
Current Coupon Fannie Mae TBA 102.78
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.98

Stocks are higher this morning after the French election had no surprises. Bonds and MBS are down on the risk-on trade.

We will have a lot of real estate related economic releases this week, however we don’t have much in the way of market moving data until Friday when we get the first look at Q1 GDP. We have Fed-Speak today and Friday.

The French election will pit a centrist against a right wing candidate. The far left candidate did not make it to the next round. Given this is just a first round election, the market’s sugar high probably won’t last all that long.

After the French election, the next big event is the the potential government shutdown on Friday. The sticking point is that Trump wants funding for the border wall, which Democrats are calling a non-starter. If Trump and the Democrats can’t get a deal (or Trump can’t get Republicans to help him out), we will get a partial government shutdown starting Saturday. This will be the big event this week, although markets are probably used to this sort of drama.

It is humorous to pick up the way the potential shutdown is spun in the media. When obama had to deal with shutdowns, it was the irresponsible Republicans who controlled Congress who were the villains. Now that Democrats won’t vote for a CR, the villain is now Trump. Plus ca change…

Note that the last time we had a shutdown, people weren’t able to get 4506-T’s out of the IRS during the shutdown. LO’s should plan accordingly to keep closings on track.

Economic activity took a step back in March, according to the Chicago Fed National Activity Index. Employment related indicators drove the decrease. Not sure how much of that is coming from retailers, who have been struggling as of late. This is a meta-index of leading and lagging indicators, however it certainly shows that the hard data (actual spending / employment / production numbers) is not catching up to the soft data (sentiment surveys).

Tight inventory has home prices on a tear, with the Black Knight Home Price Index up 0.8% MOM and 5.7% YOY. The index has now passed its bubble peak and is making new highs. The FHFA index and the CoreLogic indices have hit new highs as well, leaving only the Case-Shiller index still underwater. Mortgage originators are issuing tons of pre-qual letters, but the offers are not forthcoming since the market is so competitive. Buyers are now making offers without contingencies in order to get the home they want. The hottest market? Seattle, where prices rose 2.7% on a month-over-month basis. This is hard for the first time homebuyer who often needs some help paying closing costs. VA loans allow for seller’s concessions (which don’t cost the seller any money), which means you can get up to a 103% LTV loan.

Chris Whalen has a good piece on what the origination business will look like for 2017. Punch line: lower volumes, increasing purchase activity, and a widening of the credit box. He also speculates that CFPB Chairman Richard Cordroy’s response to Trump staffer Gary Cohn’s request to resign was to launch a new assault on Ocwen. There are rumors that JP Morgan might get back into the FHA lending business, and Wells has cut pricing on FHA loans as well. In terms of home price appreciation, housing affordability is stretched, but low inventories will proved price support.

Homebuilder DR Horton reported strong Q2 earnings as revenues and income rose 17%. New orders were up 14% in units and 17% in value. They took up guidance as well.

20 Responses

  1. The NY Times rewriting history:

    “Mr. Comey owes his job and his reputation to the night in 2004 when he rushed to the Washington hospital room of John Ashcroft, the attorney general, and prevented Bush administration officials from persuading him to reauthorize a classified program that had been ruled unconstitutional. At the time, Mr. Comey, a Republican, was the deputy attorney general.”

    There hadn’t been a court ruling that the Bush program was unconstitutional (and there wasn’t likely to be given that it was classified and secret). Instead, Comey and the Justice Department Office of Legal Counsel had determined that there was no legal basis for the program so they were unwilling to sign off on an executive order to that effect.


    • jnc:

      Instead, Comey and the Justice Department Office of Legal Counsel had determined that there was no legal basis for the program so they were unwilling to sign off on an executive order to that effect.

      Funny, I saw an interesting documentary this weekend about Dick Cheney (on Amazon Prime) in which they went into this very event in great detail. Your description is in line with that of the film.

      According to the film, Comey had already convinced Ashcroft not to reauthorize the program without certain changes even before Ashcroft went into the hospital, and was actually acting on behalf of Ashcroft in refusing to sign off on the reauthorization while Ashcroft was hospitalized. The night before the existing authorization was set to expire, Bush, who had been unaware of Comey’s objections until the day before (a fact which the film blamed on Cheney) called Comey into a private meeting to ask him why he was scuppering the program at the last minute. Comey told him it wasn’t a last minute thing, that he had presented his opinion 3 months before along with the changes needed to get Justice’s sign-off. Bush was surprised that he hadn’t been informed, and agreed to make the changes.

      According to the movie, this was the beginning of the decline in the relationship between Bush and Cheney.


  2. If this isn’t simply brilliant satire, it is astounding. It is “Free to Be You and Me” for your nether regions..


  3. Worth noting:

    “Obama’s hidden Iran deal giveaway

    By dropping charges against major arms targets, the administration infuriated Justice Department officials — and undermined its own counterproliferation task forces.
    By Josh Meyer
    04/24/17 05:00 AM EDT”


  4. Slate is actually spot on:

    “The Problem With the March for Science
    Our culture’s understanding of science is very, very broken, and on Saturday, it was impossible to ignore.
    By Jeremy Samuel Faust

    Being “pro-science” has become a bizarre cultural phenomenon in which liberals (and other members of the cultural elite) engage in public displays of self-reckoned intelligence as a kind of performance art, while demonstrating zero evidence to justify it.”


  5. Fuckin’ A it means you’re a bigot!

    Gotta admit, a dude telling a broad how to be a lesbian is hawt!


  6. Whitey ain’t shy, just a bigot.

    Now, start banging trannies unless you want to add transphobe to the list!


  7. JNC, if you have read anything about this, do you know what the mechanics are of the Admin not having filled 80% of its appointed jobs?

    Is this entirely by design? Is it because DJT ignores paperwork or fails to delegate? Is it because the vetting process is unusually stiff? Is it because no one wants a job there?


  8. Mark:

    I’m curious what you think about the seeming implication of the SCOTUS ruling you highlighted yesterday. If property taken upon a conviction can be declared to have been taken in violation of the due process clause upon a later reversal or vacation of that conviction, wouldn’t it necessarily also be true that liberty taken upon the same conviction must also have been taken in violation of the due process clause? And wouldn’t that imply that the state would owe the newly un-convicted person for time spent in jail, just as it owes him the property that it took?


    • That’s interesting to think about, Scott, and I will.

      Some states permit restitution by statute and some grant standing for litigation but I would want to get a feel for the current state of the law and the arguments that are being made, particularly about “due process”. Whatever the current state is, I think these cases force one to confront the limits of procedural due process and whether there will be a continuing theory of “substantive” due process.

      Procedural due process does not guarantee a correct result, only a fair and impartial hearing after due notice of the charges, with opportunity to testify and confront witnesses, etc. So one way to look at it might be to look at why the conviction was reversed. Was it because the underlying procedure was unfair and denied procedural due process? It would be easy for me to justify damages for loss of liberty if exculpatory evidence was suppressed by the prosecution or the case was a frame-up by the police. The state should not be able to avoid restitution for its own actual wrongdoing.

      But if the conviction were overturned because the legislature retroactively decriminalized marijuana I would have no sympathy for the restitution idea. Even if the courts decided that “substantive due process” demanded the release of all perps of victimless crimes I would not accept that as requiring damages be paid for loss of liberty.

      In any case, I will want to read more and I don’t have a ready one-size fits all answer.


      • MarK:

        I appreciate the thoughts.

        Procedural due process does not guarantee a correct result

        Exactly my thinking. Which suggests to me that maybe Thomas’s opinion is not as crazy as it intuitively feels on the surface.

        So one way to look at it might be to look at why the conviction was reversed.

        Agreed, and presumably that is what Colorado’s Exoneration Act was designed to do, ie look at the particulars of each case and the reasons for reversing/vacating the conviction, before making a decision on whether to return of fines/fees paid upon original conviction.

        Even if the courts decided that “substantive due process” demanded the release of all perps of victimless crimes I would not accept that as requiring damages be paid for loss of liberty.

        And, by implication then, I assume it would also not require the re-payment of fines or fees paid as a result of the original conviction.

        I”m slowly beginning to convince myself that Thomas may have the better argument.


        • I’ll think about it some more.

          It seems to me the majority is saying that if liberty is to be restored so property should be as well.

          In other words, the property taking cannot become irrevocable.

          You chew on it, too.


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