Morning Report: Consumer debt to hit $4 trillion this year 5/22/18

ital Statistics:

Last Change
S&P futures 2737 4.75
Eurostoxx index 396.69 0.82
Oil (WTI) 72.55 0.31
10 Year Government Bond Yield 3.07%
30 Year fixed rate mortgage 4.66%

Stocks are higher this morning as the trade rhetoric with China cools. Bonds and MBS are up.

China said overnight it would cut its tariff duties on automobiles from 25% to 15%.

Things are looking grim for the origination business, according to people at the MBA Secondary Conference in NYC. A combination of declining volumes and skinnier margins are pushing the smaller originators out of the market. Hard to see what changes things, although an increase in homebuilding would help.

McMansion builder Toll Brothers missed quarterly earnings estimates on higher costs, driven by building materials, land and labor. Gross margins contracted 150 basis points, while revenues increased 17%. The stock is down 7% this morning.

Economic activity accelerated slightly in April, according to the Chicago Fed National Activity Index. Production-related indices accounted for the majority of the index gain, followed by employment indices. The CFNAI is a meta-index of 85 different economic indicators.

Oil continues its strong run on the back of OPEC cuts and supply disruptions out of Venezuela and Iran. Oil is the highest it has been in almost 4 years. The ability to turn on incremental supply quickly and cheaply will help keep a lid on prices, although higher gas prices for the summer driving season are going to dampen sentiment.

JP Morgan might get bigger in FHA loans, according to statements made at the MBS Secondary Conference. Regulatory risk caused the bank to publicly state it was pulling back from that market. Regulatory reform is helping, but the bank says that further fixes will be needed. Chase does do FHA lending, but it is tiny.

The level of consumer debt in the economy has a lot of people talking. Consumer debt is probably going to hit $4 trillion by the end of 2018. Certainly the chart of consumer debt looks worrisome:

Increased student loan debt is a big driver of the increase. That said, does that mean consumers are in over their heads? Can they service that debt? Well, if you look at this chart, it doesn’t appear to be a problem:

consumer credit

In other words, consumer debt is high, but the amount people are actually paying to service that debt is very low. Higher interest rates will move that debt service ratio up, but it is hard to make an argument that consumers are over-extended, at least by looking at that chart.

debt service ratio

Freddie Mac is launching its Borrower of the Future Campaign to take a look at how the industry will have to address the younger homebuyer. “The increase in self-employed and the rise of the sharing economy and digitally-driven lifestyles are having a tremendous impact and leading to shifts in behavioral, economic and societal factors,” said Chris Boyle, Chief Client Officer at Freddie Mac. “Collectively, the industry must now take into account these dynamics as we think about how to effectively help the next generation find the home of their dreams. We’re excited to serve in this important role to help the industry better understand the Borrower of the Future, and then drive the conversation on how to apply these insights to make the mortgage process more efficient and affordable.”

Neel Kashkari discusses how the Fed has beaten the Phillips Curve. The Phillips Curve dates back to the 1950s, and plots a relationship between unemployment and inflation. Kashkari cites the 2009 interventions, which should have caused deflation, but didn’t. We have unemployment below 4% and still no signs of real inflation.

20 Responses

  1. Interesting tidbit:

    “By the end of February, the Times had produced a deep dive into Clinton’s disastrous role in Libya and its aftermath. But instead of publishing it upon its completion, the paper waited. Why? “The Times, afraid the story could affect the race, decided not to publish it until after the polls closed in South Carolina,” writes Chozick. She’s almost certainly right that its publication would have done little to sway voters in the contest. Yet the question remains: isn’t the point of journalism to inform the public before they vote?”


    • The funniest thing in that article is they considered Bernie supporters and Trump supporters to be white supremacists…


      • I think the argument was that they were worse because they didn’t shave.


      • Everyone who disagrees with them is a white supremacist. That’s why there has to be such a concept as a “black white supremacist”.

        Just like anybody Jewish who disagrees with a liberal WASP is a Nazi. Because logic.


  2. Mook was a goddamn Russian!

    Liked by 1 person

  3. Whoever thought this up and wrote it is a genius.

    Liked by 1 person

  4. The narrative must be served:

    Can’t find their article about Hillary’s lax phone and email security.

    Must be really hard for them to have to write that, after all the positive reporting they did on the company’s giving workers bonuses and raises after the tax cut.


  5. Can you imagine the meltdown if this turns out to be an accurate predictor? I’m getting a chill running up my leg just thinking about it.

    In a new Reuters poll, more people said they would vote for a Republican candidate over a Democrat in the upcoming midterm election, a reversal of previous trends.

    Of the 1,139 people surveyed earlier this month, 40.4 percent said they would vote for a Republican in their district in November, up from 32.4 percent of those who were surveyed in December 2017. Only 34.5 percent of respondents said they planned to vote for a Democrat in their district in the upcoming election, down from 45.5 percent in December.


      • This one too:

        “The problem is simple: journalists guilty about inequality portray Peterson as an anti-trans, Cold War lunatic. Then, people who read that commentary and end up watching videos from his Biblical Series, or his Maps of Meaning lectures, do not find a right-wing radical. Instead, they find a passionate lecturer against authoritarianism who is deeply invested in a symbolic, archetypal understanding of human nature. Now, they realize that all these left-leaning outlets have lied to them. Instead of exposing a bigot, they’ve smeared a serious scholar.

        Then, the ordinary person’s distrust of the left only deepens.”


    • speaking as a citizen and not as a lobbyist …
      I have no use for the Rs. but will crawl over broken glass to fuck over a progressive/collectivist.


      • Goes back to the idea that the raison d’etra of the Republican Party is to block Democrats.

        I’ve said it before, the Democrats are honest with their voters, Republicans are not. Also, Democrats have a coherent philosophy, one I disagree with, but coherent never the less


    • If PL is any indication, it’s a full on panic now.

      This is a disaster for Democratic messaging and also for press credibility:

      “Some new data has put Democrats on edge over this question. McClatchy reports that Navigator, a group of liberals and Democrats working to help craft 2018 messages, has released a new poll finding that 59 percent of Americans don’t think Mueller’s probe has produced evidence of any wrongdoing by Trump’s team.”

      Matt Taibbi warned about this over a year ago:

      “The reason reporters should be scared to death of this story is that #Russiagate is an incredibly complicated affair involving two sets of fierce combatants who both have compelling political reasons to conflate the key question of whether or not there was collusion.

      Trump in his reflexively narcissistic way seems determined to downplay the Russian “problem” so long as he can’t be tied to it, while the Democrats seem at times to be bootstrapping a counterintelligence probe into a political investigation of Trump they may legitimately believe will bear fruit.

      It’s a giant land mine of a story that could go either way. Mueller could leak the pee tape tomorrow, or we could be sitting here two years from now talking about a money laundering indictment that has nothing to do with Russia, or, who knows, the president might even turn out to be innocent (in this matter), at which point we’d have to start asking some questions about what this was all about.”


      “If there’s any truth to the notion that the Trump campaign colluded with the Russian state to disrupt the electoral process, then yes, what we’re seeing now are the early outlines of a Watergate-style scandal that could topple a presidency.

      But it could also be true that both the Democratic Party and many leading media outlets are making a dangerous gamble, betting their professional and political capital on the promise of future disclosures that may not come.

      The press has to cover this subject. But it can’t do it with glibness and excitement, laughing along to SNL routines, before it knows for sure what it’s dealing with. Reporters should be scared to their marrow by this story. This is a high-wire act and it is a very long way down. We might want to leave the jokes and the nicknames be, until we get to the other side – wherever that is.”

      It’s the mirror image of the Clintons with people asking what Lewinsky had to do with Whitewater.


      • I remember when you originally posted that Taibbi column. He was right.


      • The thing is the media has zero doubt there is verifiable and incontrovertible evidence that Trump personally sought and received help from V. Putin himself. Trumps victory is the prime evidence. They also believe without a doubt in their mind in the existence of the pee tape.


        • I actually don’t think they care if there’s evidence. They know it’s true regardless of the facts.

          And that’s what Taibbi is warning is going to blow up in their face.


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