Morning Report: Initial Jobless Claims lowest since 1969 4/26/18

Vital Statistics:

Last Change
S&P futures 2652.75 8.25
Eurostoxx index 382.29 2.12
Oil (WTI) 68.61 0.56
10 Year Government Bond Yield 3.00%
30 Year fixed rate mortgage 4.62%

Stocks are higher this morning on strong earnings from Facebook. Bonds and MBS are up.

The ECB maintained its current policy and made some cautious comments, which is pushing up bonds in Europe. US Treasuries are following along on the relative value trade.

The 10 year has made a pretty sizeable move over the past month or so, and mortgage rates typically lag. So don’t be surprised if mortgage rates continue to tick up, even if the 10 year finds a home at the 3% level.

The homeownership rate was flat in the first quarter at 64.2%. It is up from 63.6% a year ago however. It bottomed in the second quarter of 2016 at 62.9%.

Durable Goods Orders increased 2.6% in March, following a strong February. Ex-transportation, they were flat however and core capital goods, which is a proxy for business capital investment, fell slightly. February’s already strong numbers were revised up slightly.

Retail inventories fell 0.5% while wholesale inventories increased by the same amount.

Initial Jobless Claims fell to 209,000 last week, which is the lowest number since 1969. When you adjust for population growth, the number becomes even more dramatic:

Deutsche Bank is scaling back its US operations to focus on becoming a more Euro-centric bank. It is hard to believe, but almost 20 years ago, the bank decided to make a big foray into the US market by buying Banker’s Trust and Alex Brown.

Moody’s is worrying about the next area of opportunity in the mortgage market: cash-out refinances. As many CLTVs are approaching 75%, homeowners may choose to do a cash-out to either consolidate higher rate debt, or perhaps do home improvements. The other opportunity remains refinancing FHA loans that have accumulated enough equity to qualify for a conforming loan without MI. Finally, those who still have ARMs might find the relative attractiveness of a 30 year fixed to be a compelling switch. In an environment of rising home prices and rising interest rates, these will be the only game in town.

Homebuilders are facing rising input costs – sticks and bricks, if you will. Framing lumber prices are up 16% this year, and plywood is up 33%. Inventory is so tight that builders are able to pass these costs onto homebuyers. A tight labor market remains an issue for the industry as well. All of this points to higher home prices going forward.

For those wondering if we are indeed at the end of the credit cycle, here is WeWork’s bond offering, which came in at $700 million with bonds paying 7.875%. Borrowing money at 7.875% for 5% cap rate office space? Set that aside for the moment. They introduced a new financial concept, called “community-adjusted EBITDA,” which not only strips out interest, depreciation and amortization, and taxes, but also ignores general and administrative, marketing, and design / development costs. That has to be the first time I have ever heard this term before, and it should just be renamed EBBS – or earnings before bad stuff.

25 Responses

    • jnc (from the article):

      Someone imagining a scenario to validate the Republican talking point about the Democratic “plantation” would dream up a jobs guarantee.

      If Dems are actually proposing things that tend to validate Republican “talking points”, reason suggests that one should cease viewing them as simply “Republican talking points” and start recognizing them as reasonable observations.

      Like

  1. “Finally, those who still have ARMs might find the relative attractiveness of a 30 year fixed to be a compelling switch. In an environment of rising home prices and rising interest rates, these will be the only game in town”

    I’ve got an ARM. it’s a 5/15. right now it’s 2.85. not getting rid of that. and when it does reset in 3 years, I’ll only have 10 years left on the loan. which times out to about when my son should start college. i can pay ($250) to lock the rate for another 5 years (at the prevailing ARM rate at the time) figure that’s worth the gamble.

    Like

    • If the home is a good bet to appreciate then pump more into it. Whatever you can.

      It will do triple duty as home, as real estate investment that earns more on your investment than other choices, and by lowering your potential repayment schedule after the 5 year lock option is exercised. The amplitude of the lowered repayments schedule is of course dependent on the amount you invest now.

      A potential fourth advantage is the possibility you are investing into an asset at least partially exempt from creditors other than the mortgagee.

      On the other hand, if the appreciation expected is very modest or non-existent, fuggedabout it and keep your out-of-pocket cash flow as low as possible.

      If this is acute insight into the obvious forgive me. I hab a code in my head.

      Like

      • I will probably be selling my house some time in the next year. Going to be taking a gigantic hit. Bought in July 2006, the very peak of the market, in Connecticut, pretty much the only place in the entire US that has never recovered from the worst of 2008. The only question now is whether I lose even more money between now and when I can finally dump it.

        Sad.

        Like

        • That sucks! I’ve been very lucky in that every house I’ve owned in either Texas (San Antonio), Arizona (Tucson) or Texas again (two in the Houston area) have all appreciated.

          Where are you moving to, going to a non-income tax state?

          Like

        • have you considered just not paying? “strategic default” was trendy a few years back. i’m sure it’ would wreck your credit. so it always seemed like awful advice, but at the same time very appealing.

          more seriously — sorry to hear that and hope it works out.

          Like

        • nova:

          I will still get some equity back, just not nearly as much as I put in. Current market suggests the house is down roughly 25% from when I bought it (my neighbor sold his house very aggressively last month, pissing off virtually everyone in the neighborhood), and I put quite a bit into it, most notably an entirely finished basement. So in reality I am probably down over 30%. Really sucks, but at some point you have to cut your losses. Especially given the current state of Connecticut and its dismal prospects for the near future.

          Like

        • Anything over $1MM isn’t moving in these parts… I can count on one hand the number of 1MM spec homes built around here in the past decade and its all still for sale.

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      • “If the home is a good bet to appreciate then pump more into it. Whatever you can.”

        it’s inside the beltway (just barely but it is). I think federal law requires it to appreciate.

        Like

      • I did the craziest thing possible. I paid mine off early.

        Like

  2. This should get good:

    “Jill Stein Defies Senate Intelligence Document Request, Calling It “Overbroad”
    Zaid Jilani

    April 26 2018, 6:44 a.m.”

    https://theintercept.com/2018/04/26/russia-jill-stein-senate-intelligence/

    Like

  3. More grist for the internal Democratic party food fight:

    “Secretly Taped Audio Reveals Democratic Leadership Pressuring Progressive to Leave Race
    Lee Fang

    April 26 2018, 6:00 a.m.”

    https://theintercept.com/2018/04/26/steny-hoyer-audio-levi-tillemann/

    Oh, the schadenfreude if this comes to pass:

    “The National Republican Congressional Committee, the DCCC’s counterpoint, has gleefully sent each example of activist/DCCC strife to reporters. The DCCC’s greatest test of the cycle is just weeks away, in a series of California primaries where the state’s top-two runoff system could lock Democrats out of the general election, if they split the vote between too many candidates.”

    https://www.washingtonpost.com/news/powerpost/wp/2018/04/26/pelosi-defends-party-intervention-in-democratic-primaries/

    Like

  4. Jesus.

    “But a doctor treating Alfie, who cannot be named for legal reasons, said that for Alfie to be allowed home would require a “sea change” in attitude from the child’s family, and they feared that in the “worst case” they would try to take the boy abroad.”

    I’m the least friendly here to the concept of a Right to Life, however, how does starving a two year old to death constitute dignity?

    receives the care he deserves to ensure his comfort, dignity and privacy are maintained throughout.

    https://www.telegraph.co.uk/news/2018/04

    Like

  5. Does anybody here think Mark Felt would have snitched had he been made FBI Director after Nixon shitcanned Hoover?


    I can imagine a situation where the wrongdoing was so serious within the Trump administration or campaign that the anti-Trump leaks would be justified as an act of civil disobedience, akin to the leaks by FBI Associate Director Mark Felt (aka Deep Throat) during Watergate.

    I don’t.

    https://www.weeklystandard.com/jack-goldsmith/leaks-trump-norm-breaking-and-false-choices

    Like

  6. This is interesting.

    May suspicion is that Comey was vague enough in his answer that the interpretation could go either way. Probably why the transcript has not leaked.

    Like

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