Morning Report: CoreLogic: Half of MSAs are overvalued 4/3/18

Posted on April 3, 2018 by Brent Nyitray

Vital Statistics:

Last Change
S&P futures 2589 14
Eurostoxx index 368.88 -2
Oil (WTI) 63.15 0.14
10 Year Government Bond Yield 2.76%
30 Year fixed rate mortgage 4.41%

Stocks are rebounding after yesterday’s bloodbath. Bonds and MBS are down small.

No economic data today. Neel Kashkari speaks at 9:30 this morning.

The replacement for LIBOR begins trading today, when the New York Fed begins listing its new Secured Overnight Financing Rate. The NY Fed will also publish a couple other rates: the Broad General Collateral Rate and the Tri-party General Collateral Rate. Details can be found here. The appeal of SOFR will be that it is based on arms-length transactions and not quotes from banks that may or may not be real.

Prepayment speeds collapsed in early 2018 as rates rose, according to Black Knight Financial Services. Prepayment speeds are generally a proxy for refi activity, which has dried up as more of the refi opportunities are out-of-the-money. From this point onward, refi activity will be driven by home price appreciation more than interest rates. As home prices rise, the opportunity will be cash-outs, FHA with MI to conventional without MI, and ARMS into 30 year fixed. As the yield curve flattens, the relative decrease in the monthly initial ARM payment decreases.

Home equity topped $5.4 trillion last quarter and beat the record set in 2005. 75% of that is in mortgages that are out-of-the-money, or below the current 30 year fixed rate mortgage.

Home Prices rose 1% in February and are up 6.7% YOY, according to CoreLogic. They are forecast to be flat in March and up 4.7% YOY. Much of the torrid growth has been in the West / Mountain states, especially WA, NV, ID, and UT. Affordability has fallen and home price appreciation is expected to slow going forward. About half the MSAs are now overvalued, as home price appreciation and mortgage rates have outstripped income growth.

Filed under: Economy, Morning Report | 36 Comments »

Morning Report: Trade tensions and construction employment 4/2/18

Posted on April 2, 2018 by Brent Nyitray

Vital Statistics:

Last Change
S&P futures 2633 -10
Eurostoxx index 370.87 1.61
Oil (WTI) 64.92 0
10 Year Government Bond Yield 2.77%
30 Year fixed rate mortgage 4.45%

Stocks are lower this morning after investors come back from the long Easter weekend. Bonds and MBS are up.

The big event will be the jobs report on Friday. The Street is looking for 167,000 jobs, which seems small, however weather-related effects in the Northeast and Midwest are undoubtedly driving some of that. The consensus for wage growth is 0.2% MOM and 2.7% YOY. This number is the one that matters the most as far as the bond market. Until the report bonds will probably take their cue from the equities market, zigging when stocks zag.

Inflationary pressures can come from strange places. In the US, spot trucking freight rates are up 28% as driver shortages and new technology limit hours. So far, retailers and producers have not passed this cost on to consumers, but at some point they will. Even long-term rates, which are more stable than spot rates, are up 12%. Note that this is with moderate diesel prices – it isn’t fuel driven.

Trade tensions with China are increasing, as the Chinese imposed some restrictions on US agricultural exports which kick in today. China is urging more trade talks to prevent further damage. A trade war will have a push-pull effect on the US economy: on one hand, higher tariffs on imported goods will increase inflation, however trade wars also act as a damper on economic activity which should keep the Fed at bay. Since inflation remains well below the Fed’s target I suspect they will focus more on the depressing effects on a trade war than they will on the potential inflationary pressures of one.

The Fed studied how student loan debt impacts homeownership and found that as student loan debt increases, the person’s likelihood of owning a home decreases. This shouldn’t be much of a surprise, but it does show that the increase in salary from having a college education isn’t offsetting the increase in debt, at least when you look at debt to income ratios.

For new graduates looking for a job, head to the Midwest. There are more job openings there than there are unemployed workers.

Construction spending increased 0.1% MOM and 3% YOY in February, according to Census. This was a touch below consensus. Residential construction increased 0.1% MOM and 5% YOY.  The National Association of Homebuilders conducted a study on where the construction workers are in the US, and unsurprisingly most of them are out West, where the fastest growth appears to be.

Manufacturing eased slightly in March, according to the ISM report, however it is still quite strong. The potential tariffs are beginning to concern businesses. One quote from the report: “Much concern in the industry regarding the steel and aluminum tariffs recently [imposed]. This is causing panic buying, driving the near-term prices higher and [leading to] inventory shortages for non-contract customers.” (Machinery). Others mentioned it will take a few weeks to gauge the impact of tariffs. That said, the reading of 59.3 is usually associated with real GDP growth pushing 5%, so it is still a strong report despite the decrease.

Filed under: Economy, Morning Report | 15 Comments »

March 31, 1968.

Posted on April 1, 2018 by markinaustin

LBJ announced on national TV and radio that he would not run for President in 1968.

I heard the news with 31 other sailors and marines in the orthopedic ward of Newport Naval Hospital.  I was one of two patients who had not been wounded in combat.  The other was a sailor who had fallen from the mast in a storm.  I had reinjured a herniated disc that I first crushed working in a factory in high school.

The Army had rejected me as 1Y but I thought my back was cured and I passed my somewhat less rigorous Navy OCS physical, for which I volunteered.  Unfortunately I only made it about ten days through OCS when a 4 AM calisthenics workout completely buckled my back sometime between sit-up 72 and 75.  My squad leader, a Stanford PhD, gently kicked me in the ribs and told me to get moving.  I told him I couldn’t even get up.  I was carried to the hospital.

Doctors made rounds in the orthopedic ward on Wednesdays.  Our daily contact was (Nurse) Commander Jensen.  She ordered me to strict bed rest and gave me pain killers.  I couldn’t actually walk.  Had to yell for an orderly to get a bedpan.  One night, maybe the third or fourth, I had to piss at midnight.  I yelled for a bedpan.  The giant Marine sergeant across from me who had one leg blown off  growled “Pipe down, OC.”

I climbed out of bed and crawled on fours to the head, pulled myself semi-erect on the porcelain, and pissed.  I crawled back to my bed.  Commander Jensen was waiting for me.  I don’t know why.  She reminded me brusquely that I had been ordered to strict bedrest.  When I started to respond she pointedly told me that she had not asked me a question.  Then she had an orderly pump me full of something that knocked me out for 30 hours.

The stay at NNH was the closest thing to living in Yossarian’s world I could have imagined.  Second Wednesday on rounds, the Marine sergeant reported a seaman for uncontrollable farting [true] even in the face of having been ordered by the big Marine to control himself.  The seaman was moved out on doctor’s orders and we were told he was moved to Section 8 [psych ward] for evaluation.

Third Wednesday on rounds  a USN Regular doc suggested fusion surgery, but I asked him if traction were available as an alternative because it had worked nine years before.  He told me the surgery was no big deal and moved on.  A trailing doc came over to me and whispered that he was a Reservist and a surgeon.  He whispered “Did that monkey say he wanted to operate?” I nodded.  He said “Don’t let those monkeys touch you.”

When I told Commander Jensen that I refused surgery she came back with forms for me to sign.  Waiver of Vet bennies.  My thought was that because I had passed the OCS physical the Navy could not rely on pre-existing condition.  Well, we all know the Navy wins that one and I had no ability to get to a law book from strict bed rest, anyway.  So eventually I signed the waiver.

On my last Wednesday the docs gave me the going away present of 400+ horse pill sized Darvons in a gallon jug.

Lady Madonna was the most played song on the radio.  Nobody in the ward wanted LBJ to quit.  And that’s how it was 50 years ago this weekend.

 

 

 

Filed under: This Day in History | 6 Comments »

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