Morning Report: Housing starts disappoint again 5/16/18

Vital Statistics:

Last Change
S&P futures 2705 -3.5
Eurostoxx index 393.19 0.82
Oil (WTI) 70.93 -0.38
10 Year Government Bond Yield 3.06%
30 Year fixed rate mortgage 4.65%

Stocks are lower this morning after North Korea pushed back on the proposal to end their nuke program. Bonds and MBS are higher after the the 10 year decisively pushed through the 3% level yesterday.

The 10 year hit 3.10% yesterday on no real news. If the inflation numbers aren’t all that bad, why are rates increasing? Supply. The government will need to issue about $650 billion in Treasuries this year compared to $420 billion last year. Note that one of the downsides of protectionism will be seen here – when the US buys imports from China, they usually take Treasuries in return. Less trade means less demand for paper.

Rising rates may present problems for active money managers. The average tenure is 8 years, so this is the first tightening cycle they have ever seen. For the past decade, cash and short term debt have not been any sort of competition for stocks and long term bonds. Note that the 1 year Treasury finally passed the dividend yield on the S&P 500. Stocks and bonds are going to see money managers allocate more to short term debt.

Despite rising rates, financial conditions continue to ease. The Chicago Fed National Financial Conditions Index is back to pre-crisis levels. Note that doesn’t necessarily mean we are set up for another Great Recession – the index can stay at these levels for a long time, and we don’t have a residential real estate bubble. That said, this index can be one of those canaries in a coal mine for investors – at least selling when it goes from negative to positive.

Mortgage Applications fell 2.7% last week as purchases fell 2% and refis fell 4%. The refi index is at the lowest level in almost 10 years, and the refi share of mortgage origination is at 36%. The typical conforming rate fell a basis point to 4.76%.

April Housing starts came in at 1.29 million, down 4% MOM but up 11% YOY. The Street was looking for 1.32 million. Building Permits 1.35 million which was right in line with estimates. Multi-family was the weak spot. Note that March’s numbers were unusually strong (relative to recent history), so April was a bit of a give-back.

Industrial production rose 0.7% last month while manufacturing production rose 0.5%. Capacity Utilization rose to 78%.

New York State is suing HUD to force them to continue to use the Obama-era standard of enforcing AFFH. HUD delayed the rule after numerous local governments were unable to implement policies in time.  Andrew Cuomo’s statement: “As a former HUD Secretary, it is unconscionable to me that the agency entrusted to protect against housing discrimination is abdicating its responsibility, and New York will not stand by and allow the federal government to undo decades of progress in housing rights,” Cuomo said in a statement. “The right to rent or buy housing free from discrimination is fundamental under the law, and we must do everything in our power to protect those rights and fight segregation in our communities.”  Of course overt housing discrimination hasn’t existed for half a century, but that isn’t what this is about.  The issue is zoning ordinances and multi-fam construction. Expect to see more of this sort of thing in blue states as the housing shortage gets worse.

7 Responses

  1. The effort to Stalinize sci-fi and fantasy and every other nerd thing continues apace, but not without pushback:


  2. Another “you don’t have to call everyone you disagree with a racist” article from the left that is getting thoroughly panned by the left…

    Liked by 1 person

    • That was a very good article.


      • From the NYT piece referenced in The Atlantic article:

        The latest example of this dynamic unfolded with these claims from Bari Weiss of The New York Times: “Failing to draw distinctions between people like Sam Harris and people like Richard Spencer strips the designation ‘alt-right’ of its power and meaning,” she wrote on Twitter.

        The problem for the left is that drawing those distinctions also strips the designation of its power and meaning. That is because the left is not, in fact, all that concerned with demonizing and opposing the likes of Richard Spencer, because they know he and his ideology are relatively insignificant. The only reason the left cares about the “alt-right” is for the very purpose of associating those it is actually concerned about – mainstream conservatism – with it, and hence demonizing and dismissing it without the bother of actually having to make a coherent, intellectual argument. And so the left find itself in a bit of a catch-22. The more it pursues its strategy, the less effective it becomes, but the only alternative is to pursue the strategy less, which by definition makes it less effective.


        • I often suspect it’s less of a strategy than an indulgence–it is emotionally cathartic to say “yes, I think you are just as bad as Hitler because you don’t agree with me about a wealth tax!” or whatever.

          As a strategy its relatively weak, and perhaps works electorally at getting some minor percentage of unmotivated voters out to the polls, but likely not any more that are motivated to come out against them.

          Most of the advance of progressive ideas is either via fiat (government imposition, by legislation or judicial fiat) or cultural osmosis. I’d argue that the Will & Grace (original run) and Modern Family have had more of a positive impact in terms of advancing cultural liberalism than all the efforts to suggest mainstream Christians wants to execute homosexuals by firing squads so vote for Democrats!

          I think the answer is that the non-productiveness of their self-indulgent emotional catharses just doesn’t move the needle that much in either direction by itself. It may push us to more identity politics and tribal thinking as a whole, which could ultimately have a serious negative effect, but by then the chain of causation is so convoluted none of them are going to believe that a habit of venting their spleens got us there.

          And I’m not sure how much the association of Neo-nazis with mainstream conservatives has to do with controlling how other people see mainstream conservatives. It seems to me to be more about how they want to see them, personally, and how they believe them to be, and how much they can flatter themselves that they are totally not like a Nazi at all.

          If it was a strategy to influence straddlers and perhaps win swing voters, I think they’d practice something a little more subtle.

          But maybe not.


  3. I’m listening to David McCullough’s The Great Bridge, about the building of the Brooklyn Bridge. It’s good. And a fine refresher as to how government corruption has been with us always, often much worse than today, and yet still we progress.


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