Morning Report: Freddie Mac explores what is driving low inventory 7/31/17

Vital Statistics:

Last Change
S&P Futures 2473.3 3.0
Eurostoxx Index 379.6 1.3
Oil (WTI) 49.7 0.0
US dollar index 86.2 -0.3
10 Year Govt Bond Yield 2.29%
Current Coupon Fannie Mae TBA 102.93
Current Coupon Ginnie Mae TBA 103.81
30 Year Fixed Rate Mortgage 3.95

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

Pending Home Sales rose 1.5% in June, according to NAR. On a YOY basis, the index is up half a percent. Housing inventory is down 7% YOY.

Freddie Mac explores the issue of tight inventory and asks why builders aren’t adding much supply. The issue largely concerns labor, especially skilled labor. The bust laid off about 1.5 million construction employees, who ended up finding new jobs in different sectors of the economy (especially the energy sector). These people are probably not coming back to the construction sector without some sort of catalyst. Second, young people don’t seem all that interested in working construction, and the ones that are cannot pass a drug test. Tighter immigration enforcement and the economy in general have led to a drop in immigrants, who have historically been about 25% of the construction industry. Land costs as a percent of new home costs have been rising as well, which is creating pressure on margins. Land use regulations are also stretching out the time it takes to work through the permitting process.

Speaking of drug tests, a factory owner in Ohio says they have plenty of jobs, but can’t find people who can pass the drug test. 40% of their applicants cannot pass a drug test.

The Fed plans to unveil soon its recommendation to replace LIBOR. LIBOR had been the benchmark interest rate for all sorts of variable rate products for decades, but had one fatal flaw: it was set based on self-reports from a consortium of investment banks. The problem is that the bank could say it was pricing LIBOR at a rate that it wasn’t prepared to actually honor. Since banks have all sorts of products that are pegged to LIBOR, they have an incentive to manipulate the measure in order to get the most favorable mark for their own positions. The group is recommending a broad treasury financing rate based on Treasury repos. This rate will be based on what people are actually paying for financing in the markets, not a survey. There are something lie, $330 trillion of derivatives and loans (everything from mortgages to student loans) that are pegged to LIBOR.

New documents bolster the case for Fannie Mae shareholders that the government lied when began to sweep all of Fannie’s profits. The cover story was that Fannie was in a “death spiral” and this was necessary to hasten the wind-down of their business. The documents show Tim Geithner saying that Fannie will be earning strong revenues and can support the 10% dividend for years into the future. Does that mean shareholders will get anything? They probably shouldn’t, as the government maintained a 20% public minority stake only so it didn’t have to consolidate Fannie’s debt on its own balance sheet. Under any sort of bankruptcy scenario shareholders would have been wiped out. The stock is a litigation lottery ticket.

30 Responses

  1. I’m guessing most of those drug tests are positive in THC?


    • Post says “racism is learned”. I guess what we generally refer to as racism is learned, but tribal prejudices are inherent to being human, and generally the learned component is “what tribe am I a part of/supporting” and “what is cool in expressing my tribal superiority and what is not?”

      Modern leftist and even many liberal blacks practice old fashioned “hate the skin color” racism, and even prescribe many of the same solutions: segregated schools, graduations, clubs, etc.

      Many hyper-partisans transfer their disdain to the other side of the political spectrum, so the other side aren’t all lazy idiots and tainted immoral monsters because of their skin color, but because of their party affiliation (and, while they could “in theory” convert, we all know they never will, because they are constitutionally incapable of the moral and rational reasoning that we, members of the correct tribe, are).

      Still others seethe with literal hate over movie geekdom or sports team affiliation or something else. Racism is, in the modern vernacular, just a word for very narrow description of something everybody does and continues to do, because it’s been hardwired into our brains for hundreds-of-thousands of years. And isn’t frickin’ going anywhere.


  2. Trump has managed to top the chaos of Jimmy Carter’s full cabinet resignation in under seven months:

    “Anthony Scaramucci removed as White House communications director
    By Abby Phillip and Damian Paletta
    July 31 at 2:58 PM”


    JULY 18, 1979”


  3. A different take on Scaramucci. I agree with most of what he says here:

    Liked by 1 person

  4. Liberal Dream Regulations killing Liberal Dream project.

    Joe Biden hardest hit.

    Liked by 1 person

  5. Interesting read from the past:

    “The Man Who Broke Atlantic City

    Don Johnson won nearly $6 million playing blackjack in one night, single-handedly decimating the monthly revenue of Atlantic City’s Tropicana casino. Not long before that, he’d taken the Borgata for $5 million and Caesars for $4 million. Here’s how he did it.

    Mark Bowden”


  6. So, people that voted for Obama twice (a criminal act, in my opinion) suddenly turned Grand Kleagle Byrd racist?

    Zakaria also blamed racism and diversity on Trump’s rise.
    “He knew that the election of a black president had stirred a kind of ugly racial animus. A small subset but he knew how to get them” Zakaria said.

    I’m fascinated by people that believe this.

    Liked by 1 person

    • The left has considered every Republican candidate (and voter) since Eisenhower to be a screaming racist.



    • “”There’s a part of America that is sick and tired of being told what to do by this overeducated population that Hillary Clinton perfectly represented. That’s why they’re sticking with him””

      I think that’s true. I also think the liberal definition of racism is basically being white and nostalgic and resentful of anyone not on the same page, so allowing that definition, the “stirring a kind of ugly racial animus” could be arguably asserted, although it’s cliche. Trump’s primary messages were anti-Mulsim-terrorist and anti-Illegal-Mexican immigrant, which is animus against very specific groups, not everyone who isn’t white.

      What I find interesting is there seems a sense of mild surprise that people in flyover country are tired of people told what to do and having their lives micromanaged by urban elites. And also that the word “arrogant” didn’t come up.


    • Fareed actually understands how hectoring the left is these days. It isn’t enough to to be neutral in the social wars. If you aren’t flashing the pop-poms enough you are deducted enthusiasm points. And they never rest. They are never happy. And they never shut the fuck up. And they are oblivious. They think they are Dave Jennings, but they really are Neidermeyer.

      That said, I think the fundamental difference between white working class America and the coastal elites is that the white working class thinks terrorism is a bigger sin than Islamophobia and the coastal elites care more about Islamophobia than terrorism.

      I do find the “gorillas in the mist” psychoanalysis articles to largely be a hoot though.


      • I linked this earlier but in it, the author says that lefties virtue signal by being cops.

        The woke world is a world of snitches, informants, rats. Go to any space concerned with social justice and what will you find? Endless surveillance. Everybody is to be judged. Everyone is under suspicion. Everything you say is to be scoured, picked over, analyzed for any possible offense. Everyone’s a detective in the Division of Problematics, and they walk the beat 24/7. You search and search for someone Bad doing Bad Things, finding ways to indict writers and artists and ordinary people for something, anything. That movie that got popular? Give me a few hours and 800 words. I’ll get you your indictments. That’s what liberalism is, now — the search for baddies doing bad things, like little offense archaeologists, digging deeper and deeper to find out who’s Good and who’s Bad.

        View at

        Could Blazing Saddles be made today?


        • “Could Blazing Saddles be made today?”

          The first time I heard that question, maybe 10 years or 15 years ago, I think it probably could have been. But I think it was a prescient question. By then, it probably would not have been. But I think it could have been without theaters being burned and death threats being issued to everybody involved and an active campaign to put the studio that released it out of business.

          Now, I don’t think so.


        • Hell, the left is bitching about Dunkirk..

          Liked by 1 person

      • “And they are oblivious.”

        I think this is an important point. They’ve got no idea how they come off. How repetitive and tedious they can be even to be who substantially agree with them on most things. How horrible they are at convincing anyone, other than themselves and the occasionally new identity-cult member, of anything. And they have no sense that any other viewpoint could have any value, or exist for any other reason than hatefulness and evil and probably Satan (appropriate agnostic, new-age version).

        I think there might be a fissure coming on the left. One that dwarfs anything going on on the right. The right has its cliques, and its snitches, but there are some very smart, very liberal people growing exhausted with the moral scolds and more left-leaning than thou types. And I think there’s more of them that we hear from that worry over campus segregation and safe-spaces and other efforts to take the tools of the early 20th century bigots and ruling identity-groups and say “now, it’s ours!”

        But they, too, may just end up standing athwart history, commanding it to stop.


  7. So, requiring Senators to use something these very same Senators require millions of Americans to use is a “threat”?


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: