Morning Report: Housing starts disappoint again 5/16/17

Vital Statistics:

Last Change
S&P Futures 2399.0 0.5
Eurostoxx Index 395.5 -0.5
Oil (WTI) 49.0 0.1
US dollar index 89.9 -0.1
10 Year Govt Bond Yield 2.34%
Current Coupon Fannie Mae TBA 102.625
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 4.09

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.

Housing starts for April disappointed, rising 0.7% YOY to an annualized rate of 1.17 million. The Street was looking for 1.26 million. This was the lowest reading in a year. Building Permits rose to 1.26 million on an annualized basis, up 5.7% YOY. It is strange to see disappointing starts alongside the strong builder sentiment number reported yesterday, but builders seem content to build fewer homes and to grow the business by raising prices.

Industrial and manufacturing production came in stronger than expected however, growing 1% in April. Capacity Utilization rose to 76.7%. Auto assembly drove the increase, pardon the pun.

The Washington Post broke a story that Donald Trump shared classified info with Russia. There seems to be a shift in the political winds. You are starting to see mainstream Republicans distance themselves from the Administration. Don’t know if this becomes a stampede, but the crowd is looking for their coats and nervously eyeing the exits. I don’t think this is impeachment material (what he did was legal) however, you can probably stick a fork in the Trump legislative agenda.

The machinations in Washington so far are not affecting the stock market, but the dollar is beginning to take notice. Bonds are not yet reacting however don’t forget the 10 year was trading around 1.8% before Trump’s surprise victory. The Trump reflation trade is running on fumes at this point.

The National Association of Realtors estimates that if the mortgage interest deduction and the state & property tax deduction is eliminated, you would see a 10% drop in real estate values. The Trump plan would double the size of the standard deduction, which will go from roughly 12k to 24k. The increase in the standard deduction will make the mortgage interest deduction meaningless for anyone with a sub $600k mortgage because they will be better off taking the standard deduction. This will eliminate one of the advantages of buying versus renting for first time homebuyers, which in theory should create more renters and less buyers. Given all the other advantages of buying, this will probably be a second-order effect. I have a hard time seeing a 10% drop in prices – the FHFA House Price Index only had a 22% drop peak to trough – and inventories are tight.

Absent any changes to the tax code, NAR is looking for prices to rise 7% – 8% this year.

Ex Fed Head Narayan Kocklerakota recommends that the Fed maintain its balance sheet and not let its QE assets run off as they mature.

68 Responses

  1. Personally I will be compelled to take this stuff a lot more seriously when, instead of anonymously running to the WaPo or NYT, “officials” begin publicly resigning in protest to what is going on.


    • I wonder when Tillerson and Ross decide to cut their losses. Neither one has to put up with this shit.


  2. I laughed part 2

    Liked by 1 person

  3. Posted without comment

    Liked by 1 person

  4. Liked by 2 people

  5. Good piece on Richard Spencer.

    “His Kampf

    Richard Spencer is a troll and an icon for white supremacists. He was also my high-school classmate.

    Graeme Wood
    June 2017 Issue”


    • That background must be kept in mind, I think.

      Regarding Putin’s offer of transcripts –

      Is it known whether the Russian possession of a transcript is:

      a] courtesy of the USA or

      b] a product of a clandestine intrusion?

      I am assuming a] and hoping that sharing a transcript of a diplomatic meeting is simply SOP.

      I also assume DJT would only approve this if he were going to release the American version.

      Wouldn’t any other result be ultimately bizarre?


  6. the New York Times reported this afternoon that Israel is the ally whose intelligence Trump inappropriately shared with Russian officials.

    He’d better hope not. The Mossad is less forgiving than even the Russian mob.

    Liked by 1 person

    • The Mossad would assasinate US President in a fit of pique?

      Liked by 1 person

      • Oh, George. And here we thought Flynn was blackmail material.

        Liked by 1 person

        • Ah, ok, it was hyperbole. You can never tell anymore, their are people out there who claim to be rational while simultaneously believing that Trump colluded with commie bastard Beet Eaters to win an election!


      • Congressional Republicans need to grow a pair. If they aren’t willing to govern then stand aside and let Democrats clean up. Again.

        Liked by 1 person

        • Mich:

          …let Democrats clean up. Again.



        • Somebody’s got to do it. And we both know that the GOP won’t.


        • Mich:

          Somebody’s got to do it. And we both know that the GOP won’t.

          It was the “again” part that I found particularly amusing. But anyway, the chances that the R’s in congress hold PDT to account for any abuses of power are infinitely higher than were the chances that the D’s in congress would hold any Dem to account for any abuses of power. Exhibit one: Obama.

          I said back in the fall (can’t remember whether it was pre- or post- election) that one good thing about a Trump presidency would be that, given the animosity towards him even within the GOP itself, his own party was far more likely to act as a check on him than virtually any other candidate, R or D. I stand by that.


        • ‘goose, A R Cabinet will not invoke the 25thA, yet. And a R Congress will be slow to act as a check and balance. But the most serious allegations require the most serious investigation, and I do think the R Senate, at least, is now conducting serious investigations. Surely the FBI is doing that.

          I am willing to accept that Rs will slow play the doom of the R President, but I also think that eventualities may include an R decision to jettison him.

          OTOH, D control of both houses in January 2019 would lead to quicker resolution [from that time] of one sort or another. One sort of resolution could be Impeachment, of course. Another sort could be a legislative impasse and heavy duty oversight. Like what the R Congress did to BHO.

          I wish DJT could be led off the stage quickly. I don’t even think a D majority in both houses would fulfill my wish quickly enough. In fact, I would rather that the Cabinet determined him to be unfit under the 25thA, tomorrow.
          That would be a non-partisan event that could have a healing rather than a divisive effect.


    • So the Times is published classified secrets?


      • nova:

        So the Times is published classified secrets?

        It certainly is interesting. “Trump reveals highly classified info to the Russians!!! (And we’ll reveal it to everyone else!)”


  7. “Again”.

    Well, in my lifetime, it has taken Carter to clean up after Nixon/Ford, Clinton to clean up after Reagan/Bush I. And then Obama to clean up after Bush II. So I’m not quite sure what you find amusing.

    The GOP has an abysmal record of failure. But, hey, laugh away.


    • Now that is funny!


    • Mich:

      So I’m not quite sure what you find amusing.

      Well, the idea that the failed Carter presidency represented a “clean up” of anything is pretty funny to me. As is the idea that there was anything to “clean up” in the first place after Reagan/Bush (which, BTW, existed alongside a D house for all 12 years and an entire D Congress for 6 of those years).

      That Obama had to “clean up” after W has been a D talking point since Obama’s first day in office, so that one is less amusing than it is a tedious, partisan cliche.


    • “it has taken Carter to clean up after Nixon/Ford”

      Carter made things worse. Reagan cleaned up Carter’s mess.

      Bush I didn’t leave a “mess” either. If anything, his budget deal (which cost him his second term) handed Clinton a good fiscal basis to start his presidency with.

      More to the point, the premise that recessions can be avoided with proper fiscal policy is misplaced to begin with. If you are going down that path, then you can blame Clinton for handing Bush II the stock market bubble.


  8. Mark, if you think that Ryan or McConnell are going to do anything about Trump you’re more naive than I think you are.


    • They will when it’s in their interest to do so.


    • Do what, exactly?

      Have an intervention and say, “Mr. President, we are sorry to say that you suck at your job. You need to resign.”

      DJT: “You both are high. I’m the best ever! Get out of my office!”

      Then what?


    • Well, investigations leas to strange places.

      Example: If the FBI decides Bayrock’s partnership with Trump Enterprises is a money laundering vehicle for Russian oligarchs and indict everyone involved naming DJT as an unindicted co-conspirator I could see 25th A consequences, at least.

      And I could see a resignation if it would help keep the sons out of prison.

      Caveat: I made all of that up except for Bayrock as a partner and as a Russian tool.

      There are a hundred ways an investigation could go, and while I don’t think direct Putin control of DJT will be the one at the end of the trail, the smell factor that has been amplified by DJT’s behavior is not going to help him.

      If I were a R Congressman I would want DJT out [and Pence in] if I could get away with it in my CD. There are investigation results that could make that possible, Ryan and McConnell notwithstanding.


      • I am replying to myself, but Joe has probably thought about this too.

        If the investigation of the Russian connection to the campaign is an intelligence investigation fueled by FISA warrants and NSA taps, there will be no admissible evidence from those sources in a criminal case.

        I assume obstruction of an intelligence investigation can be a criminal matter of obstruction of justice, but I don’t know that.

        And I assume any money laundering investigation came out of the SDNY, has continued from before the campaign, and involves the NYC office of the FBI.

        We are throwing around lots of stuff rather loosely because the media often obfuscates from lack of knowledge.


        • Mark:

          And I assume any money laundering investigation…

          Has there been any indication that such an investigation actually exists, or are you just speculating/hoping that it does?


        • I don’t know the current state of it – there was one a few years ago that ended up with Trump getting cleared during the immediate slew of indictments. Currently the NY AG has a RICO type case pending on Trump U.

          Deutsche Bank took a hit for money laundering recently –

          and supposedly it has been a funnel to Trump entities since his slew of bankruptcies made him persona non grata with NYC banks.

          From the article:

          Deutsche Bank said that it’s still cooperating with other investigations by regulators and law enforcement agencies into the Russian trades.

          But the connections are speculative by anyone not actually investigating them and may not exist. I just used the example because it would be a test of the firewall between “criminal” and “intel” at FBI if these are concurrent investigations, or if in order to complete the intel investigation money trails are pursued.

          In the special counsel’s mandate we see these words:

          “If the special counsel believes it is necessary and appropriate, the special counsel is authorized to prosecute federal crimes arising from the investigation of these matters,’’

          Could be problematic for the introduction of evidence.

          re: Bayrock:


  9. Lulz, just saw q car with a ERA Yes number sticker.


  10. Heh.

    SUSAN RICE: Don’t ‘Allow Twitter Wars to Become Shooting Wars’. “Former national security adviser says Trump ‘looks at the world and sees only threats: Immigrants. Refugees. Muslims. Mexicans.’”

    This, from the woman who claimed that a YouTube video incited an attack on the American consulate at Benghazi?


  11. Good thing the D.C. Police are such dicks about concealed carry and guns in general, wouldn’t want citizens able to protect themselves when the police won’t protect them.


  12. Like

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