Morning Report: Starter homes are back 5/11/17

Vital Statistics:

Last Change
S&P Futures 2389.5 -5.8
Eurostoxx Index 394.6 -1.9
Oil (WTI) 48.0 0.6
US dollar index 90.6 0.1
10 Year Govt Bond Yield 2.41%
Current Coupon Fannie Mae TBA 102.06
Current Coupon Ginnie Mae TBA 103.53
30 Year Fixed Rate Mortgage 4.08

Stocks are lower this morning on lousy retailer earnings. Bonds and MBS are down small.

Initial Jobless Claims fell to 236,000 last week which is a 28 year low.

Inflation remains close to the Fed’s 2% target, according to the Producer Price Index. The headline number rose 0.5% MOM and is up 2.5% on a YOY basis, but when you strip out food and energy, it is up 1.9% YOY.

We had some hawkish statements from Boston Fed President Eric Rosengren yesterday, where he urged 3 more hikes this year as the economy is on an “unsustainable pace.” His rationale is the unemployment rate at 4.4%, which is below his estimate for full employment at 4.7%. Of course sub 1% GDP growth is probably “sustainable” ad infinitum, and there is no evidence of much in the way of wage growth. He also doesn’t think the tapering of MBS buying will affect mortgage rates too much, as long as it is gradual.

Inflation isn’t uniform, of course, and the index that measures it has to take this into account. Here is a chart of different goods and services and their inflation rates over the past 20 years:

inflation.PNG

The Canadians have a housing bubble on their hands, and the ratings agencies are getting worried. Canada is bedeviled with the same problem in the US of tight supply, although foreign demand is a big factor as well. Prices in Toronto rose 25% last year. Note that Canada’s economy is highly dependent on strong commodity prices, and indirectly, Chinese demand. If / when the Canadian real estate bubble bursts, it will probably affect property prices in the Pacific Northwest.

More evidence that builders are pivoting away from luxury building and towards more starter homes. In Q1, 854,000 new owner households were formed versus 365,000 new renter households. This is the first time new owners exceeded new renters in a decade. Fannie Mae’s share of mortgages to first time homebuyers has been steadily increasing. We are seeing an increase in the number of new homes smaller than 2200 square feet. Even McMansion giant Toll Brothers is going smaller.

FHFA Director Mel Watt is warning that the continuing sweep of Fannie Mae’s profits to Treasury is risking confidence in the entity. His proposal is to let Fannie Mae retain their earnings in order to re-build its capital cushion. This is to prevent the GSEs from needing another bailout later on. Note that the Obama administration used Fannie’s profits to paper over holes in Obamacare spending.

39 Responses

  1. https://www.washingtonpost.com/world/national-security/trump-to-meet-russian-foreign-minister-at-the-white-house-as-moscows-alleged-election-interference-is-back-in-spotlight/2017/05/10/c6717e4c-34f3-11e7-b412-62beef8121f7_story.html?hpid=hp_hp-top-table-main_usrussia-730a%3Ahomepage%2Fstory&utm_term=.42308e0ec3e8

    Not too concerned about the possibility cameraman planted a bug that could not be detected, but there is that nagging worry and I understand why security advisors in the past never let this happen.

    However:

    The administration official also said the White House had been misled about the role of the Russian photographer. Russian officials had described the individual as Lavrov’s official photographer without disclosing that he also worked for Tass.

    “We were not informed by the Russians that their official photographer was dual-hatted and would be releasing the photographs on the state news agency,” the administration official said.

    As a result, White House officials said they were surprised to see photos posted online showing Trump not only with Lavrov but also smiling and shaking hands with Russian Ambassador Sergey Kislyak.

    They were surprised? I don’t understand how they failed to vet the photographer.

    WRT Russia RWR’s words always make sense: “Trust, but verify.”
    The woman who is now British PM, Theresa May, reiterated that warning publicly when she visited here recently, although without the simple elegance of the original.

    What was the intended message of not letting the American press pool a representative? American press is fake news but Russian news is trustworthy?

    George, you may defend the President and his free loading family from my dislike, distrust, and disdain, and everybody deserves a good defense, but in your heart you know I’m right.

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    • George, you may defend the President and his free loading family from my dislike, distrust, and disdain, and everybody deserves a good defense, but in your heart you know I’m right.

      Wow.

      I try and fight Gell-Mann Amnesia.

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      • The quark guy had amnesia?

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        • Mark:

          The quark guy had amnesia?

          Not sure whether you are just being snarky, but in case you are unaware:

          http://www.patheos.com/blogs/geneveith/2011/08/the-murray-gell-mann-amnesia-effect/

          Media carries with it a credibility that is totally undeserved. You have all experienced this, in what I call the Murray Gell-Mann Amnesia effect. (I call it by this name because I once discussed it with Murray Gell-Mann, and by dropping a famous name I imply greater importance to myself, and to the effect, than it would otherwise have.)

          Briefly stated, the Gell-Mann Amnesia effect works as follows. You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward-reversing cause and effect. I call these the “wet streets cause rain” stories. Paper’s full of them.

          In any case, you read with exasperation or amusement the multiple errors in a story-and then turn the page to national or international affairs, and read with renewed interest as if the rest of the newspaper was somehow more accurate about far-off Palestine than it was about the story you just read. You turn the page, and forget what you know.

          That is the Gell-Mann Amnesia effect. I’d point out it does not operate in other arenas of life. In ordinary life, if somebody consistently exaggerates or lies to you, you soon discount everything they say. In court, there is the legal doctrine of falsus in uno, falsus in omnibus, which means untruthful in one part, untruthful in all.

          But when it comes to the media, we believe against evidence that it is probably worth our time to read other parts of the paper. When, in fact, it almost certainly isn’t. The only possible explanation for our behavior is amnesia.

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        • I had never heard of it. Thanks.

          I don’t think there is any question of illegality involved with protecting the Trump heirs. It is just unfortunately expensive for us and fortunately saves cash, for them.

          For illegality, we have to look at the awarding of Trump Chinese trademarks to entities controlled by President Trump. He should have divested those, completely.

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        • Mark:

          I had never heard of it. Thanks.

          No prob.

          I don’t think there is any question of illegality involved with protecting the Trump heirs.

          I was questioning not the legality of doing it, but rather the accuracy in characterizing getting such protection as “freeloading”.

          It is just unfortunately expensive for us and fortunately saves cash, for them.

          How does the government providing Secret Service protection save cash for those receiving it? I suppose it is possible that, prior to Trump becoming president, certain security measures would have been taken by Eric Trump’s business whenever he took a business trip, and those are no longer necessary given the protection he gets from the government. But I can’t imagine they would have been all that elaborate or expensive, certainly not nearly as expensive as the cost of Secret Service protection, so it is not as though the government expense is anything like a subsidy of Trump’s continued business.

          For illegality, we have to look at the awarding of Trump Chinese trademarks to entities controlled by President Trump. He should have divested those, completely.

          What is it specifically that is illegal? Failing to withdraw a 10 year old application for a trademark upon becoming the President? Failing to have divested oneself of an asset that didn’t actually exist when one became the President? (Can you divest yourself of a trademark that hasn’t yet been granted?)

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        • The application for the TM could have been transferred and assigned.

          This is a direct result of course of maintaining all his business interests and not even making a pretense of divestiture. Transfer to family never counts in the world of fiduciary blind trust.

          I think he is going to not make it through one term and I am fine with that. Preparing for the Pence Presidency will not involve concerns about a serial con artist and huckster and twitterer. Or whatever you call it.

          See this:
          http://time.com/4775040/donald-trump-time-interview-being-president/

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        • Mark:

          The application for the TM could have been transferred and assigned.

          But is it actually “illegal” not to have done it? Genuine question. I was under the impression that a President was not under any legal obligation to divest himself of business interests at all. It had just become standard practice as a matter of ethics, not law.

          Preparing for the Pence Presidency will not involve concerns about a serial con artist and huckster and twitterer.

          As you know, I am no fan of Trump, and I share your judgment of him as a person. But frankly I don’t think it justifies every conceivable attack or accusation against him and his family. As bad as he is, to me it doesn’t justify the disparate treatment that he receives relative to politicians with the “right” political views. And frankly, if we were really all that concerned about Presidents leveraging their presidencies to make money, Obama wouldn’t be living in a $5 million dollar house or spending month-long vacations at a resort with $3,000 a night accommodations.

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        • I think the Chinese TM is a foreign emolument.

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        • Mark:

          I think the Chinese TM is a foreign emolument.

          I suspect that would be a pretty difficult case to make. A trademark in and of itself does not produce any returns or income. It simply prevents anyone else from earning returns by using the trademarked symbol or name. In other words, it simply restricts any returns that might be derived from the name or symbol to the person who owns the trademark. But it doesn’t provide or guarantee any returns at all.

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        • acslaw.org/sites/default/files/pdf/Trump%20and%20the%20Emoluments%20Clause.pdf

          Remember that TMs themselves are intangible property, even before the first royalty, that may have market value even at inception.

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        • Mark:

          Remember that TMs themselves are intangible property, even before the first royalty, that may have market value even at inception.

          Perhaps, but any such value derives from the thing being trademarked, not from the trademark itself. Putting the name “Trump” on a building has value whether or not the name is trademarked. Putting the name “Callahan” on a building has no value even if it has been trademarked. It isn’t the trademark that provides the value. What the trademark does is prevent whatever value exists in the first place from being diluted or captured by anyone other than the trademark owner.

          There might be a case to be made with regard to revenues derived from foreign government use of his hotels, but it seems to me that making an emoluments argument with regard to the TM issue is a much bigger stretch.

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        • Mark:

          I just thought of an analogy. While Obama was President, 6 books were on the market under his authorship, including 2 which came out after he became president. Does the fact that Obama was given copyright protection for these books by nations across the globe mean that he was in violation of the emoluments clause?

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        • Maybe. Depends on how it was dealt with.

          Like

        • Mark:

          Depends on how it was dealt with.

          What do you suppose the odds are that Obama divested himself of his rights to his book sales revenues?

          Edit: Turns out the odds are zero.

          https://www.forbes.com/sites/danalexander/2017/01/20/how-barack-obama-has-made-20-million-since-arriving-in-washington/#229322c45bf0

          Like

        • Probably the same answer, but I would want to know if he was issued foreign copyrights while he was POTUS and if those, and any concomitant foreign revenues, were placed in a blind trust.

          Like

    • Mark:

      his free loading family

      I’m curious what this is a reference to.

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      • The actual millions we taxpayers now are paying for his sons and daughter and son-in-law while they are on personal and private business deals, globally.

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        • For security? Or are they just given bags of cash?

          Like

        • McWing:

          I just found this article.

          http://www.cbsnews.com/news/how-much-does-protecting-trumps-children-on-overseas-business-trips-cost-taxpayers/

          By Wednesday, Eric Trump will have gone to four countries on Trump company business since January 1st, each with Secret Service agents in tow.

          In early January, it was a trip to Uruguay for a glitzy party to promote a new property, with a reported $100,000 in hotel bills for Secret Service and other U.S. government personnel.

          Then just a few weeks after the inauguration, he flew to the Dominican Republic — but not before Secret Service agents first went for a routine advance planning trip.

          Within weeks, Eric and his brother Donald Jr. flew to Dubai for the gala opening of another Trump property.

          And Tuesday night night, it’s Vancouver’s turn: a new Trump hotel that will be the city’s second-largest skyscraper. Both brothers are expected to attend, and their Secret Service protection goes with them.

          The Secret Service won’t say how much all those trips cost the agency, but taxpayers are footing the bills.

          If these are the expenses Mark is talking about, it is hard for me to justify characterizing it as “freeloading”. If it is, then Sasha and Mailia were freeloaders as well, albeit probably less expensive freeloaders. Protection at a school probably costs less than it does at a hotel in Uruguay.

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        • Considering how the Secret Service behaved under Obama, I’m assuming that 75% of those millions went to pay for their hookers.

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        • Michelle and Barack…freeloading for the rest of their lives?

          http://politicalticker.blogs.cnn.com/2013/01/10/obama-signs-bill-gets-secret-service-protection-for-life/

          I wonder how much his non-stop travels are costing the us?

          http://www.cnn.com/2017/03/17/politics/where-in-the-world-is-barack-obama/

          And today, Obama may be sitting pretty, in the middle of the Pacific Ocean, on a tiny French Polynesian island called Tetiaroa.
          There are reports, unconfirmed by CNN, that Obama is going to spend a month on the island, which is north of Tahiti and features only one luxury hotel, aptly named “The Brando” because the Island was once owned by Marlon Brando. The eco-friendly hotel has one-, two- and three-bedroom villas, according to its website. It’s been a favorite destination for more current celebrities like Leonardo DiCaprio. Prices range from $2,000 per night, depending on accommodations and date.

          Let’s conservatively say he has 3 SS agents assigned to him, and they are all going to share the same room while at this Pacific paradise. A 2-bedroom condo that sleeps 3 costs EUR 6,000 per night (I actually looked it up), which is about $6,500. That’s $195k in accommodations alone for 30 days. Not including airfare or food. Or hookers.

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        • Maybe we should amend the Constitution so that eligility for Presideny also contains a means test.

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        • I’ve seen stories about vacations costing money for Secret Service protection, but I haven’t seen anything about financing private business trips. Is there a recent example?

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  2. Textbooks are an interesting case, vis-a-vi inflation. I note when purchasing my daughter’s textbooks that they come with access codes that are essentially software licenses, non-transferable and non-reusable. So you cannot resell, buy used, or rent these text books. They are single use. Also, they pack on online access of materials as an unavoidable “extra”, I guess rationalizing larger expense while making it impossible to buy the book from anyone but them. Then some of them actually come with some form of hardware that interfaces with stuff in the classroom . . .

    I wonder if the inflation has anything to do with the impossibility of buying many textbooks as used, or renting them, as could be done in years past.

    Like

    • In all a sincerity that is diabolical. When I was in school I would drive professors crazy because I’d buy very old texts or check out old texts from the library, the pagination is ALWAYS the first thing changed from edition to edition. One dude even told me that I should drop his class if I couldn’t afford school.

      Liked by 1 person

      • McWing;

        One dude even told me that I should drop his class if I couldn’t afford school.

        Probably a lawsuit-worthy offense these days.

        Liked by 1 person

      • The thing that always pissed me off was when professors assigned their own over-priced books for class. Talk about a racket.

        Liked by 1 person

        • I made it my mission to not buy their books. One of the biggest scams out there.

          Liked by 1 person

        • I took a sociology class once (don’t ask) taught by an out-and-out marxist professor named Eve Spangler, which made her requirement that we buy and read her own book for class a bit ironic. I called her out on her hypocrisy one day. We did not get along.

          Liked by 1 person

        • I took this English class from s flaming lib, this was during the ’88 election cycle, so it might have been ’87. Anyway, the prof just loooooooved Jesse Jackson and once asked, rhetorically, how anyone could not support him, I responded by saying maybe she should ask the people that live in Hymietown.

          The C I received in that class was deserved, I turned in shitty work, but my hymietown question killed any attempt at talking my grade up to a B. She even mentioned it at my begging meeting.

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        • McWing:

          …maybe she should ask the people that live in Hymietown.

          Awesome. Hopefully you at least got a few laughs.

          Liked by 1 person

        • While my economics profs were Friedman-Marshall capitalists, I did take a History of American Thought class from a Marxist.

          I went to him after he wrote all over my first test that while I understood the subject matter I was simply not showing that I had understood his lecture points! I made a deal with him that I would outline his views but then shoot them down [if I could] if he would grade me fairly. I did. He did. I made an A. Probably didn’t do him any good. Guy apparently died a Marxist, a few years later.

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        • not a lawyer, but why hasn’t there ever been an antitrust investigation?

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        • Brent:

          not a lawyer, but why hasn’t there ever been an antitrust investigation?

          Great question.

          Like

    • My daughters were definitely able to rent certain text books for their classes, and I’m pretty sure they will be able to sell back other ones to be resold as used. I think one of my daughters actually rented a few books from Amazon as well as the school bookstore.

      Liked by 1 person

  3. But everything else that’s reported is rock fucking solid.

    Liked by 1 person

  4. The most interesting suggestion so far has come from Sen. Mike Lee (R-Utah), who tweeted that Trump should select none other than Garland. A Lee spokesman explained that Garland is “eminently qualified and has the reputation needed to restore public confidence in the FBI.” Before joining the federal bench, Garland was an assistant U.S. attorney in the District of Columbia, deputy assistant attorney general in the criminal division and principal deputy to the deputy attorney general, where he led the teams that tried Oklahoma City bomber Timothy McVeigh and Unabomber Ted Kaczynski.

    Thiessen

    Liked by 1 person

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