Morning Report: The Street is short Treasuries 2/23/18

Vital Statistics:

Last Change
S&P Futures 2722.3 10.8
Eurostoxx Index 380.9 0.5
Oil (WTI) 62.7 0.0
US dollar index 83.6 0.1
10 Year Govt Bond Yield 2.89%
Current Coupon Fannie Mae TBA 103.591
Current Coupon Ginnie Mae TBA 103.688
30 Year Fixed Rate Mortgage 4.4

Stocks are higher this morning on no real news. Bonds and MBS are up small.

No economic data today, but we do have a lot of Fed-Speak.

Speculative short positions in US Treasuries are at a record. This means in plain language, that a lot of speculators are making the same bet: that interest rates are going higher. In practice, crowded trades like this often will behave in a perverse manner, especially when you get data points that don’t support the prevailing view.  Right now, the Street thinks inflation is rising and they are negative on Treasuries. Any data point that supports that view will probably have a muted effect, while any data point that doesn’t support that view will probably have an outsized reaction. To give an example: Say next week’s GDP number comes in higher than expected – maybe 3%, with an increase of the GDP deflator (inflation) at 2.8%. Bonds might sell off from something like 2.9% to 2.92%. However, if GDP comes in light (say 2%), and the GDP deflator comes in at 2% as well, we could see bonds rally from 2.9% to 2.85%. These sorts of movements are generally short-lived (lasting a morning or a day), but they do provide opportunities to lock at good prices if you are nimble. Big picture, rates are going higher, however since there are so many speculative bets against Treasuries at the moment, it will provide some opportunities to lock in at good rates if you are quick.

Lenders are loosening requirements to get a mortgage, particularly for first time homebuyers. We are seeing a modest drop in overall credit scores, and a slight increase in LTV and DTI ratios. This indicates a move towards low down payment loans. As rates increase, the credit box will almost invariably increase as lenders fight for fewer and fewer loans. Some lenders are also changing the way they treat student loan debt, even excluding it altogether if a parent is making the payments.

Who is the biggest mortgage lender out there? If you said Wells Fargo, you would be correct for all of 2017. However the biggest lender in the 4th quarter was Quicken.

HUD is providing foreclosure relief for victims of the 2017 hurricanes in Texas and Florida. Homeowners affected by these disasters (and some others) may be able to get a loan that covers their mortgage payments for a year, payable upon sale of the property or a refinance.

How much do you have to make to be in the top 1% these days? Just shy of half a million. To be in the top 10%? Just under 150k.

This weekend is Buffetapalooza, or the annual shareholders meeting for Berkshire Hathaway in Omaha. It has been called a Woodstock of Capitalism, where shareholders dance with the Froot of the Loom guys, eat See’s candy and have dinner at Warren’s favorite steakhouse. The climax will be his letter to shareholders, which is usually chock full of folksy advice for investors, along with observations on the economy and the state of affairs politically. Warren is the second-biggest corporate holder of short term Treasuries and is probably itching for a deal. That said, I think the last big deal he did was several years ago when he bought Precision Castparts.

There is a rumor going around that the Fed will begin holding press conferences after all FOMC meetings, not just the Mar, Jun, Sep and Dec meetings. That could be a setup to begin making interest rate changes at these meetings as well. As of now, the markets expect them not to. Don’t forget, press releases after a FOMC meeting is relatively new. Historically the Fed wanted to be opaque, as they believe that their policy is more effective if it is a surprise to the markets. Greenspan was known for changing interest rates between meetings.

31 Responses

  1. Cause gay liberals totally don’t have a voice today

    Liked by 1 person

  2. Why I have no respect for Vox:

    “Firearms killed more 15 to 19 year olds than cancer, heart disease, and diabetes combined in 2016.”

    Liked by 1 person

    • Are they retarded? I mean, seriously.

      Almost *everything* kills more 15 to 19 year olds than cancer, heart disease, and diabetes. How many 17 year olds are going to die of heart disease? Might as well have included “dementia” and “osteoporosis” in the comparison.

      I love this: “Arming teachers or bolstering mental health programs, as Trump has suggested, isn’t going to fix this problem.”

      But making more gun laws *are* going to fix the problem. Because in a country where there are more guns than people (which vox knows: ), limiting the sales of new firearms isn’t going to reduce the supply appreciably.

      600,000 guns are stolen every year in the US, supposedly. A lot of guns get stolen from the police every year. The idea that a few more gun restriction will help any more than bolstering mental health programs is just silly. Arming teachers might actually help, but is never going to happen, so not worth talking about.


    • i’m honestly surprised that heart disease killed 300. i’d have taken the under on that.

      Liked by 1 person

  3. Dropped in on PL for the first time in months. I guess anyone who disagrees with the current orthodoxy is a Russian Troll.

    Cons is the same old cons, though he thinks libertarians are fascists somehow…

    Liked by 1 person

    • i gave up the PL for Lent. although, having been gone for a week+, i’m beginning to view it as less of a sacrifice. now, going back will feel like penance.

      Liked by 1 person

    • Engaging with Cons and his various sock puppets is a complete waste of time and only serves to validate him.

      This was literally a perfect PL response to one of my posts though:

      “This person is a Russian troll. Their goal is to get people fighting and bickering among themselves.

      Think about the motivations of the posters (what they hope to do) before responding to them. And the citation is from a Russian propaganda site. Just research It was founded by two Russians to bring ‘alternative interpretations’ of the news to America.

      Just ignore the trolls.”

      Glenn Greenwald has called it:

      “At some point, everyone is going to end up snagged by this climate being cultivated about Russian infiltration of the US. Bernie Sanders spent the last year faithfully supporting the Democrats’ script on Russia, only to spend the last week being vilified as a Kremlin tool.”

      Liked by 1 person

    • Am I the only one who reads Con’s posts in the voice of Rik from the Young Ones?


  4. By all means, lets surrender our rights, then government will take care of us.

    Liked by 1 person

  5. The certainty that Manafort has something to trade in regards to Trump is fascinating.

    Liked by 1 person

  6. It’s hard not to read this piece as anything but a defense of their sources. See, our sources are plugged in, it’s Trump that’s not plugged in. So, keep believing our stories cause they know what’s going on.

    Liked by 1 person

  7. Was it over when the Germans bombed Pearl Harbor? Hell No!

    Liked by 1 person

  8. Interesting to see the defense of Fraidy Cop(s) on the left, considering the whole-hearted embrace the overwhelmingly white DailyKos members made of Black Lives Matter. What would there attitude be if the Fraidy Cop(s) were white and the students predominantly black?


    • This comment cracks me up, in this telling, dad’s the woke 8 year old.

      Bartskid1 druind Feb 24 · 01:46:03 PM
      I was at a shooting range in Tallahassee, years ago, visiting my dad..a police detective..He always felt I need to learn to shoot a handgun or be exposed to it “just in case”…I refused to own any gun to this day, and have never needed one..

      We both heard a man shoot off what I thought must be a damn canon, right through our ear protection without warning…My dad a 35 year detective on the force, said..”That guy has no business with that damn gun”. “It’s not for target practise, and he has no need for one unless he intends to kill someone, and he shouldn’t bring it to the range”..Other people also left the range when we did, because of this kid with an assault weapon.

      I asked, “Then why do they sell them..He turned to me as he gathered up our 2 handguns and said. “Greed honey, it’s goddamn NRA greed, and a lot of stupid people with no idea what those things do to a human body”.

      Liked by 1 person

  9. gotta love the left sometimes…

    is there any sort of meal they would accept as non-cultural oppression? Pill meals like the Jetosons?

    Liked by 1 person

  10. If true, wow.


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