Morning Report: Durable Goods orders rise 3/23/18

Vital Statistics:

Last Change
S&P futures 2648.75 5
Eurostoxx index 365.94 -3.21
Oil (WTI) 64.54 0.24
10 Year Government Bond Yield 2.84%
30 Year fixed rate mortgage 4.46%

Stocks are higher this morning after yesterday’s bloodbath. Bonds and MBS are down small.

Troubles with Facebook and the potential for a trade war with China caused a 3% decline in the stock market yesterday. This pushed the 10 year bond yield down towards 2.8%.

New Home Sales came in at 618k, more or less flat on a MOM and YOY basis.

Durable Goods orders came in much stronger than expected, increasing 3.1% MOM and almost 9% YOY. Ex-transportation, they rose 1.9% MOM and 8.1% YOY. Core Capital Goods orders (a proxy for business investment / capital expenditures) rose 1.8% MOM and 8% YOY. We might see some strategists bump up their Q1 GDP numbers on that reading.

KB Home reported first quarter earnings that missed on the top line; however the stock was up regardless after hours. Operating Margins improved, driven by an increase in gross margins. Bottom line numbers are not really comparable given the big adjustment to deferred tax assets as a result of the corporate tax cut. It is interesting to see an increase in gross margins, which have been falling pretty much across the industry. Perhaps it is a sign that home price growth is again outstripping cost growth (particularly labor and commodities).

The Senate passed a $1.3 trillion spending bill that will keep the government open. Donald Trump is mulling a veto over wall funding, but that is probably just noise.

Historically, house prices and the homeownership rate have correlated rather closely, but that broke down after house prices bottomed in 2012. What is going on? The first question to ask is whether the increase in homeownership that started in the mid-90s was due to increasing home prices or something else. We know that the Clinton Administration began to pull on some policy levers (and jawbone the GSEs) to increase lending to underserved markets and areas.

The wealth that was being created in the stock market rally probably helped as well. Easy credit during the bubble also pulled some people into the housing market as well. Once the bubble popped, many people lost their homes and became renters. Finally, tight supply in the aftermath of the bubble is preventing many from buying, and professional investors who are buying starter homes to rent them out are exacerbating the problem.

Prepayments hit a 4 year low, according to Black Knight Financial Service’s First Look on February mortgage performance data. Foreclosure starts fell 25% MOM after spiking in January. Hurricane-related delinquencies fell. says that this Spring Selling Season is set to become one of the most competitive ever, with lots of buyers who were unable to find anything last year competing with new homebuyers. How are homebuyers reacting to the environment? Increasing down payments, increasing earnest money, and bidding through the asking price.

33 Responses

  1. Anyone care to explain to why I should give a shit that information provided by facebook was used for political purposes?

    Liked by 1 person

  2. Click to access 15-1439_8njq.pdf

    9-0 Important case because it recognizes state court power to adjudicate these claims.

    Kagan’s first paragraph is a model of clarity that only Roberts ever approaches.

    JUSTICE KAGAN delivered the opinion of the Court.

    This case presents two questions about the Securities
    Litigation Uniform Standards Act of 1998 (SLUSA), 112
    Stat. 3227. First, did SLUSA strip state courts of jurisdic-
    tion over class actions alleging violations of only the Secu-
    rities Act of 1933 (1933 Act), 48 Stat. 74, as amended, 15
    U. S. C. §77a et seq.? And second, even if not, did SLUSA
    empower defendants to remove such actions from state to
    federal court? We answer both questions no.

    Liked by 1 person

  3. Why did the ten year rate go down?


    • Think it is just a risk-off trade happening… People selling stocks to hide in bonds over the weekend.


      • But -but -but – if short term demand for bonds went up, which I would have expected, why didn’t bond rates rise? Or is it that premiums were being charged so effective rates dropped?


        • When bond prices go up, rates fall. When everyone wants bonds, the one who is willing to take the lowest rate wins.

          Liked by 2 people


    Should the right to counsel extend to pre-indictment plea negotiations? 6th Circuit, bound by Supreme Court precedent, says “no”, but healthy discussion of precedent and text and original intent follows. When this case goes to Supremes which argument will prevail?


    • Mark:

      I don’t know know how the relevant words were understood at the time of the founding, so I don’t know the right answer. But I thought this was interesting.

      Judges Eric Clay and Helene White also wrote separate opinions concurring in the judgment arguing that prevailing Supreme Court precedent is wrong, but nonetheless controlled the outsome in Turner.

      Do these judges take an oath to uphold the Constitution or to uphold Supreme Court precedent? If the former as I suspect, then I think they are obligated not just to say that precedent is wrong, but to rule against it.


      • In short, we inherited the concept of precedent from the English common law and the notion that the standard interpretation of the law – the correct reading – comes from the superior court and an inferior court is bound by it. Any other theory of jurisprudence would be chaotic. When lower court opinions follow the Supremes but criticize their reasoning it opens up an opportunity for the higher court to revisit its precedent.

        And I am interested in seeing whether the Supremes take this up and how they will split, if at all.


        • Mark:

          In short, we inherited the concept of precedent from the English common law and the notion that the standard interpretation of the law – the correct reading – comes from the superior court and an inferior court is bound by it.

          Then judges should take an oath to follow SCOTUS precedent, not the Constitution.


  5. And they are the same hectoring intolerant breed of cat..


  6. Your assigned reading should your curiousity get the better of you and find you watching 60 Minutes tonight.

    I will not be so I look forward to your comments if you do.


  7. The takeaway from the Stormy Daniels interview is that Trump (or his handlers) are more than willing to pay to keep something quiet. I don’t know what anyone else has, or what he’s willing to pay, but I’ll bet Mr Mueller either knows or is looking into it.


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