Morning Report: 10 year trades below 3% on dovish FOMC minutes 5/24/18

Vital Statistic:

Last Change
S&P futures 2726 -4
Eurostoxx index 392.54 -0.07
Oil (WTI) 71 -0.84
10 Year Government Bond Yield 2.98%
30 Year fixed rate mortgage 4.61%

Stocks are lower after Trump threatened more tariffs on autos. Bonds and MBS are up on the dovish FOMC minutes.

Initial Jobless Claims ticked up to 234,000 last week.

Existing home sales fell 2.5% in April, according to NAR. Sales fell to an annualized pace of 5.46 million, down from 5.6 million in March, which was also the Street estimate. Lawrence Yun, NAR chief economist, says this spring’s staggeringly low inventory levels caused existing sales to slump in April. “The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home,” he said. “Realtors® say the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates. However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.”

Other tidbits from the report: the median home price increased 5.3% to $257,900, inventory of 1.8 million homes represents a 4 month supply, days on market fell to 26 days, and the first time homebuyer was 33% of all transactions.

US house prices rose 1.7% in the first quarter, according to the FHFA House Price Index. On a YOY basis, they were up almost 7%. The West Coast continued to lead the pack with high single-digit growth rates, and the Middle Atlantic showed an acceleration of growth. Over the past 5 years, the Middle Atlantic (NY, NJ, PA) has been the slowest appreciating region, growing just over half the rate of the West Coast.

The FOMC minutes were a bit more dovish than expected – the Fed Funds futures are now handicapping a 37% chance of 4 hikes this year, down from the mid 40% yesterday. The FOMC is worried about a trade war with China depressing economic activity. On inflation, they emphasized the symmetry of the inflation goal. “Most participants viewed the recent firming in inflation as providing some reassurance that inflation was on a trajectory to achieve the Committee’s symmetric 2 percent objective on a sustained basis.” Overall, nothing was all that new, just a re-affirmation of symmetry, meaning that the 2% target is not a ceiling.

Dallas Fed Head Robert Kaplan thinks the Fed has about 4 more hikes to go before it is at a “neutral” stance. He also discussed his views of inflation above 2%: “I want to run around 2, and if we got a little bit above it and I thought it would be short-term and not long-term, I could tolerate it”

As anyone who attended the Secondary Conference could tell you, mortgage banking is going through a rough stretch right now. Digitalization of mortgage banking has compressed margins and volumes are down. Even people that want to move are finding a dearth of inventory. What could be the catalyst to turn things around? Buy-side firms ringing the register on the REO-to-rental trade. That would bring back enough purchase activity to allow some of the smaller firms to retrench and get their costs under control. Wishing for falling rates is probably a long shot, although if the 10 year finds a level here, we could see rates come in a little, but probably not enough to bring back refis.

Refi activity is going to be concentrated in two areas: cash out to refinance credit card debt, etc, and FHA refis into conforming once the homeowner has enough equity to get under the 80% LTV threshold and avoid having to pay PMI.

While the mortgage business is going through a rough patch, quarterly profits for banks are spiking (tax reform has some effects here). The banking sector largely sat out the M&A boom that has been common throughout other industries. The US market is still about the least concentrated banking market on the planet. Is it time for some M&A? 

24 Responses

  1. God damn those SCOTUS justices for basing their rulings on the law! We want Calvinball!

    As a corporate lawyer, Roberts helped craft the legal defense of mandatory arbitration clauses by citing the Federal Arbitration Act, a 1925 law designed to speed up disputes between businesses. As chief justice, he has repeatedly cast his vote to let corporations shield themselves from lawsuits by deploying arbitration clauses.


    • “Gorsuch’s total disregard for the power imbalance between labor and management harkens back to the Supreme Court’s own dark history. In the early 20th century, the court routinely struck down minimum wage and maximum hours laws under the theory that they violated the “liberty of contract.”

      i’ll be in my bunk


    • Brent:

      God damn those SCOTUS justices for basing their rulings on the law! We want Calvinball!

      It is quite hilarious, and lays bare the left’s general approach to the Court. In an article slamming a particular Supreme Court decision, not once does the author cite the content of the relevant law or explain how the opinion mis-interpreted or mis-applied it. Quite literally the only critique is that it produces results that the author objects to.


      Liked by 1 person

    • “Bad News For The #Resistance: Sources Close To Mueller Are Suggesting The Pee Tape Is Real, But It Is Hot As Hell”

      that’s gold. gold!

      Liked by 1 person

      • I read it. It was good.

        “It transcends pornography, really,” he continued. “If this thing ever leaks, people aren’t gonna be able to stop watching it. It’s that hot. No matter where you align politically, you will come away from watching this believing Trump is the greatest president in U.S. history.”


  2. Pretty interesting article countering the claim, made at Reason as well as elsewhere, that the members of the so-called Internet Dark Web (Sam Harris, Jordan Peterson, Dave Rubin, et al) can’t sensibly complain about efforts to silence their ideas given their massive internet popularity.

    Only a moron would make an argument like “Caitlyn Jenner is doing very well, therefore there’s not really a stigma around transgender”. For one thing, your success is a function of how many people like you, not your net (likers – haters) total. For another, Hollywood is its own world and probably doesn’t correlate with any particular person’s social sphere. And for another, Jenner is popular partly because of how surprising and controversial her transition was – her story is at least partly a function of “look how brave this person is to defy social stigma this way”.

    Transgender people complain of social shaming, silencing, and stigma. Some transgender people can become very famous celebrities who everyone agrees are rich and popular. And nobody finds this at all surprising or thinks that these two claims contradict each other.

    (No, Twitter, I’m not making the claim “Sam Harris is exactly as marginalized as transgender people”. I’m saying that even groups who we all agree are more marginalized than the IDW can have very successful and famous spokespeople.)

    Or what about the early US labor movement? They were faced with everything from Pinkerton goon squads, to industry blacklists, to constantly getting arrested on trumped-up charges; nobody seriously denies that government and private industry put a lot of effort into silencing them.

    Yet they were very popular with their core demographic, and their most charismatic spokespeople remained famous and widely-liked. Emma Goldman would go around the country lecturing to packed halls, collecting far more energy and interest than Sam Harris gets nowadays when he does the same. If the papers of the time had said “Emma Goldman sure is popular for someone who says her movement is being silenced”, well, screw you and your dumb gotchas, that’s just a 100% accurate description of the state of affairs.


    • There is a distinction between an effort to silence and actually accomplishing silencing. Specifically, “silencing” is a big ask in the Internet age, and also the million-channel age. It’s a lot easier to be heard and communicate your views and get to your audience than it ever was in history.

      What I see much more than pure silencing around Sam Harris and Jordan Peterson is “mischaracterization”. Their views are constantly misrepresented and distorted in the press and by critics. While they aren’t being silenced directly, the “feed’ is being polluted with lots of misrepresentation about them that obscures what is accurate representative of their views and what is pure bs and character assassination. In some ways I think that’s worse that silencing.


    • Also anyone who uses the term “dark web” like that either are idiots or intentional propagandists.


  3. I find it fascinating how much he has touched a nerve on the left…

    Liked by 1 person

    • The question begging going on in that article is impressive. Although the so-called wage gap isn’t necessarily evidence of the existence of a patriarchy, it is reasonable to assume that it is evidence of a patriarchy, because we already know that a patriarchy exists.

      The mind boggles.

      Liked by 1 person

    • I read further…and it got stupider.

      There is nothing natural about the price that markets place on different kinds of labor. Our entire economic system relies on women performing incalculable hours of reproductive work without receiving any formal compensation at all. The fact that the market delivers enormous rewards to people who design collateralized debt obligations — and piddling ones to those who care for the elderly — is a reflection of government policy, not metaphysical truth.

      Apparently this clown is laboring under the illusion that the government enforces contracts for bankers, but not for elderly care workers.

      Liked by 1 person

      • It’s far simpler than that.

        Other people collectively as the market make different choices than he would that results in compensation differences that he doesn’t approve of. Therefore they are wrong.

        Liked by 1 person

      • “Our entire economic system relies on women performing incalculable hours of reproductive work without receiving any formal compensation at all”

        and yet, when I say that the left hates the concept of families, they get all indignant.

        Liked by 1 person

        • Seems then that they’d have a lot of leverage. Must be stupid then if they’re not using it.

          Liked by 1 person

        • Men do incalculable free labor regarding house maintenance and yard maintenance and home projects and repair. I’ve been up since 8:00 and doing nothing but home moantenancr for the past 6 hours. Which is typical. First two or three hours Sunday is cleaning and then maybe another project. Maybe the government should pay me for that.


        • And we’re. It’s driving the youngest to NC for Duke TIP and then just me to go pick her up three weeks later. I’ve changed thousands of diapers and done every child rearing activity that isn’t giving birth. And I make three times as much as my wife and work about three times as much, while household labor is evenly split.


      • People who can form complete sentences can’t possibly be that ignorant.


    • And they lie about him almost pathologically.


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