Morning Report: Awaiting the Fed 9/20/17

Vital Statistics:

Last Change
S&P Futures 2504.5 0.0
Eurostoxx Index 381.8 -0.4
Oil (WTI) 50.0 0.5
US dollar index 85.1 -0.2
10 Year Govt Bond Yield 2.24%
Current Coupon Fannie Mae TBA 103.24
Current Coupon Ginnie Mae TBA 104.21
30 Year Fixed Rate Mortgage 3.85

Stocks are flat as we await the FOMC decision. Bonds and MBS are down small.

The FOMC decision is due out at 2:00 pm EST and Janet Yellen will hold a press conference at 2:30 PM. While no changes in interest rates are expected, there could be some market movement, especially if we see surprising changes to the economic forecast or the dot plot.  At the June meeting, the FOMC was predicting GDP growth of 2.2% for 2017, unemployment of 4.3% and PCE inflation of 1.6%. GDP growth averaged a touch over 2% for the first half, so the Fed is clearly anticipating a stronger second half. The markets are also looking for some guidance on tapering MBS and Treasury purchases. Given how much rates have risen over the past couple of weeks, we could be due for a bit of a “buy the rumor, sell the fact” rally post event.

Mortgage Applications decreased 9.7% last week due to an increase in rates and the effects of Hurricanes Harvey and Irma. Purchases decreased 11% and refis fell 9%. Treasury rates increased 11 basis points. The hurricanes were a big driver of the drop: ex-Florida and Texas, applications increased 13%, however there are all sorts of seasonal adjustments, along with the effect the Labor Day comparison that come into play as well.

Existing Home Sales came in at 5.35 million in August, a drop of 1.7% from the July reading of 5.44 million. SFR sales fell while condos rose. Hurricane Harvey probably had some effect on August sales, however the overriding concern is lack of inventory which fell to 1.88 million homes, which represents a 4.2 month supply at current rates. The median home price rose to 253,500, an increase of 5.6% YOY. The first time homebuyer accounted for only 31% of sales, the lowest in a year. Historically, that number has been closer to 40%.

Hurricane Maria is expected to hit bankrupt Puerto Rico and then move up the East Coast. Most of the spaghetti tracks predict it won’t hit the US East Coast, but it is still very early.

Looking to buy your first house? Trulia advises you to start looking now, as starter home inventory peaks and prices bottom in the seasonally slow period. They find that inventory for starter homes actually rises 7% in fall months and prices are 3% – 4% lower compared to the spring and summer seasons. Separately, tight inventory remains an issue. On a year-over-year basis, starter home inventory is down 20% this quarter, while move up is down 12% and luxury is down 2%. Overall, inventory is down 9% YOY nationally.

In response to Hurricanes Irma and Harvey, HUD, Fannie, and Freddie have provided some disaster relief for borrowers in areas affected by the storms. There will be a 90 day moratorium on foreclosures, as well as increases in SBA loans and 203k loans to help people rebuild homes destroyed in the storm.

Credit card delinquencies are on the rise as consumer borrowing is outpacing income growth (again). Note subprime auto DQs are on the rise too. Mortgage delinquencies are still falling, which is good news.

18 Responses

  1. ANNOUNCING NEW TERMINATOR SEQUEL!

    DealBook
    By Amie Tsang and Michael J. de la Merced
    The Singularity is coming, Masayoshi Son says.

    The founder of SoftBank, the Japanese conglomerate, had the business world chattering on Monday night with his speech at the Appeal of Conscience Foundation. (DealBook is the first to report on it.)

    His main thrusts:

    • The Singularity, when artificial intelligence finally outstrips that of humans, will replace huge swaths of jobs.
    • The number of sentient robots on Earth will rival the number of humans.
    From his speech:
    “Here we have white collar and blue collar. I said a new collar will start: that is metal collar. That metal collar will not only replace most of the blue collar jobs, but many of the white collar jobs. So when they become so smart and the muscles to move, what is the definition of what mankind’s job should be? What should we do if they replace many of our jobs? What is the value of our lives? We have to think once more, deeply.”

    More from Mr. Son on artificial intelligence:

    “I predict 30 years from now, the number of smart robots, the smart robot population on this earth will be 10 billion. By that time, human population will be around 10 billion. So here on this earth we will have 10 billion population of mankind and 10 billion population of smart robots. This is the first time on this earth that we live together with 10 billion robots.”
    “Every industry that mankind created will be redefined. The medical industry, automobile industry, the information industry of course. Every industry that mankind ever defined and created, even agriculture, will be redefined. Because the tools that we created were inferior to mankind’s brain in the past. Now the tools become smarter than mankind ourselves. The definition of whatever the industry, will be redefined.”

    Why It Matters

    SoftBank has made waves with its $93 billion Vision Fund technology investment vehicle. But many in the industry have been asking: What is Mr. Son trying to do?
    In the speech, Mr. Son said that it all went back to artificial intelligence and robots:
    “What is my belief and vision for this investment? I have only one belief — Singularity.”

    The Context

    • Mr. Son isn’t the only tech mogul obsessed with the Singularity, of course. Elon Musk has warned that it is the “biggest existential threat” to human survival. He also thinks it’s more ominous than North Korea. “If you’re not concerned about AI safety, you should be. Vastly more risk than North Korea.”
    • Among Mr. Son’s interests is the ride-hailing industry, in which SoftBank has invested billions of dollars, and which is at the vanguard of the autonomous driving movement. (Remember that SoftBank is said to be close to striking an investment in Uber, which is hard at work on the technology.)

    Like

    • I was supposed to have a personal flying vehicle that transitioned into a briefcase by now…

      Liked by 1 person

    • • The Singularity, when artificial intelligence finally outstrips that of humans, will replace huge swaths of jobs.

      True.

      The number of sentient robots on Earth will rival the number of humans.

      In active service? Doubtful. If it becomes true, it will probably be a long time before it becomes true. Active hyper-ai in service might outstrip people fairly quickly, but it will be in our phones and watches and tvs and so on, not mobile robots.

      As with most industrial revolutions, previous sectors will be marginalized as jobs transition towards AI management, maintenance, and installation positions.

      The lawyers and doctors and bankers and so on will mostly still have jobs, but their jobs will be managing the directing the AI that does most of the day-to-day analysis/drudgery/low-level-decision making.

      Elon Musk has warned that it is the “biggest existential threat” to human survival. He also thinks it’s more ominous than North Korea. “If you’re not concerned about AI safety, you should be. Vastly more risk than North Korea.”

      I think that’s nonsense. We are both conscious and ambitious in the pursuit of resources because of how we evolved. AI will be designed, and will be vulnerable to flaws or attacks but will not have a natural desire to control the world. It is unlikely AI will ever be conscious. But not impossible.

      Warnings are worthless. Also, the “smart robot” thing . . . cost of production of physical robots is going to slow down that change. Most of the “smart” robots will be the equivalent of roombas. Most AI is going to be in our phones and watches and other consumer devices, not in our robot butlers.

      I do predict one area of astonishingly rapid robot advancement: sex robots.

      Real people may not be all that excited about a robot butler. Truly life-like sex robots, that’s another story.

      Like

      • I believe it was an early Vonnegut short story in which men could buy beautiful humanoid femailes from vending machines for $5, who were compliant sensual creatures that suddenly aged and died after 24 hours in service.

        The easy availability was first thought to be useful to tame foolish young single men who had previously engaged in reckless behavior to become noticeable to women.

        But then marriages began to unravel. The entire nation was coming apart at the seams.

        Turned out it was a dastardly Commie plot hatched by the Russkies to kill America with kindness.

        Liked by 1 person

  2. White guilt isn’t just for white people anymore.

    “Straight Black Men Are the White People of Black People
    Damon Young
    Yesterday 4:11pm”

    http://verysmartbrothas.theroot.com/straight-black-men-are-the-white-people-of-black-people-1814157214

    It’s impressive how much effort goes into figuring out one’s place on the hierarchy of victims everyday.

    Liked by 1 person

  3. For the first time in many years, maybe in our lifetime, the moral arc of the universe, as Dr. King used to call it, was not bending in the direction of fairness, equality and justice for all. The baseness of political debate, the jingoism, the atavistic fervor of Trump’s verbiage reminded us that we were dreaming if we thought evolution applied to consciousness. Democracy is a blip in history and it requires a lot of focus and concentration to keep it intact.

    Europeans crack me up.

    http://www.rollingstone.com/music/features/bono-on-u2s-new-album-taking-on-donald-trump-w503260

    Like

    • From the genius, Bono:

      we nearly lost the European Union, something that has helped keep the peace in our region for nearly 70 years.

      The EU came into being in 1992, 25 years ago.

      You’ve had the same sort of disaffection in the United States with the rise of a new kind of constituency, people on the both left and right who have lost faith in political process, the body politic, in political institutions. These sentiments are easily played and manipulated by the likes of Donald Trump.

      …and politicized entertainers like Bono.

      After the election, some people on the left were almost grieving I’d say and when I try to understand this, I realized there was a kind of mourning, a mourning for innocence that was lost.

      Demonstrating just how naive, moronic, and self-absorbed some people on the left actually are.

      Like

    • Democracy is intact. It elected Donald Trump. Done!

      Like

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