Morning Report: Housing starts disappoint 8/16/18

Vital Statistics:

Last Change
S&P futures 2832 11
Eurostoxx index 380.51 0.81
Oil (WTI) 65.03 0.02
10 Year Government Bond Yield 2.87%
30 Year fixed rate mortgage 4.58%

Stocks are higher this morning on a potential that in trade tensions. Bonds and MBS are flat.

Initial Jobless Claims fell to 212k from 215k last week.

Housing starts came in below forecasts for June – rising an anemic 0.9% to 1.17 million. They are down 1.4% on a YOY basis. Most areas showed modest increases, except for the West, which fell substantially. Permits were a little better, rising 1.5% MOM and 4.2% YOY. These numbers echo the drop in homebuilder sentiment, which is being driven by rising construction costs and labor shortages. “The solid economic expansion and firm job market should spur demand for new single-family homes in the months ahead,” NAHB Chief Economist Robert Dietz said in a statement. “Meanwhile, builders continue to monitor how tariffs and the growing threat of a trade war are affecting key building material prices, including lumber. These cost increases, coupled with rising interest rates, are putting upward pressure on home prices and contributing to growing affordability challenges.”

In the wake of the residential real estate bubble, the government has focused on regulatory solutions to fraud in the single family market. However, multifam was largely left alone, and it looks like the government is in the process of investigating an upstate NY developer which has about $1.5 billion in loans backed by the GSEs which may have been made under fraudulent circumstances. Apparently things like tenant income go unverified on these sorts of loans, and it is a systemic problem.

Here are 3 misconceptions about credit scores: First, carrying a balance on revolving credit does not increase your score. Second incomes do not factor in a credit score (they aren’t even tracked) and finally, your spouse’s credit score and your own are completely independent.

The Trump Administration is looking to tweak the Volcker rule in order to give banks a brighter line on what constitutes proprietary trading. The banks are not interested, surprisingly. Currently, the rule says banks need to hold a security for longer than 60 days in order to prove they aren’t proprietary trading. The proposal would track the “available for sale” securities account and test it that way. From the bank’s standpoint, brighter lines are better, but having spent a lot on internal controls to ensure compliance with the new rules, they don’t seem anxious to re-do it.

At the end of the day, market-making is largely dead, having been done in by declining bid-ask spreads, electronic trading, regulations, and declining brokerage fees. It simply is a money-losing business any more. The next crash is going to be an eye-opener when large swaths of the markets simply go no-bid.

29 Responses

  1. Hi everyone, looks like you’re still going strong here so I renewed the domain again for another year!

    Hope everyone is doing well! Keeping busy here as usual!

    Liked by 1 person

    • Hey, lms. Hope you are well.

      Like

      • Thanks Scott, yes I’m doing fine. I lost my sister in March from throat cancer and she lived here with us since last Labor Day so that was challenging.

        Otherwise, we’re doing great. Still working, lifting weights, swimming and running and enjoying trips to SF and CO to visit the kids and grandkids. Our youngest had a little boy on Thanksgiving Eve last year so we’ve been enjoying that.

        I still blog, but on a fitness site where I started a small private group of like minded health enthusiasts. It keeps me busy.

        Hope everyone’s families here are doing great!

        I miss all you guys but just can’t bring myself to get caught up on all the political news………….I’m leaving it to the younger generations now. I do still vote though…..LOL

        Liked by 1 person

    • We need more lmsincas in the world!

      Like

      • LOL, Kevin! And thanks everyone. We survived with a lot of help from my hospice friends!

        Spending a lot of time traveling and relaxing when work isn’t too busy!

        Liked by 1 person

        • Retire already!

          Liked by 1 person

        • Lol, Scott. I’m game but Walter is still enjoying working so he just lets me buy plane tickets whenever I need to go see the kids. If I’m going to live to 114 like I was told, I need to keep working for a little while more! My cardiologist, who I don’t really need, told me recently that I have the heart and lungs of a 35 year old so I may be around for awhile………haha!!!!

          Liked by 1 person

  2. The implications of the reasoning in this piece go beyond social media.

    “The big lie at the heart of the technology revolution
    Damon Linker”


    The reason why the marketplace of ideas often fails to function as it’s supposed to is that it’s based on a false (or at least overly simplified) notion of human nature and society, presuming that people are roughly equal in their cognitive and emotional capacities, and that the surrounding culture will automatically inculcate norms and habits that facilitate the acquisition of knowledge and the capacity to judge wisely.

    But what if both assumptions are false? What if some people are capable of the careful, methodical weighing of evidence but others are not? What if some find it possible to live with the doubt and exigency that accompanies a life of thoughtfulness, while others gravitate out of fear and the craving for certainty to the easy answers and facile simplifications offered by charlatans and demagogues who traffic in absurdly implausible conspiracy theories?

    What if human beings are not intellectually equal?”

    http://theweek.com/articles/788975/big-lie-heart-technology-revolution

    That critique applies equally, if not more so, to the premise behind democracy itself.

    Might as well call it the “big lie at the heart of the Declaration of Independence”.

    and a great rebuttal

    “It Was the Gatekeepers Who Failed
    The internet doesn’t actually offer an unconstrained marketplace of ideas.

    Conor Friedersdorf

    Gatekeepers created President Trump. It is not clear whether he would’ve won the presidency or not in a marketplace of ideas less heavily influenced by the choices of elites at NBC, CNN, and Fox News, not to mention Breitbart and political talk-radio hosts who abuse gatekeeping on their shows to keep their audiences in information bubbles.”

    https://www.theatlantic.com/technology/archive/2018/08/gatekeepers-and-the-marketplace-of-ideas/567550/

    Liked by 1 person

  3. Interesting take on the Manafort prosecution:

    Paul Manafort is a shady character. He may even be a criminal character.

    But he undoubtedly is someone who is being prosecuted because of who he knew. That would be one Donald Trump.

    Had Manafort not made the decision to join the Trump campaign, tasked with managing the delegate floor fight at the Republican National Convention, Manafort would be leading his prior life of flim flam and influence peddling….

    …The prosecution of Manafort is everything that is wrong with the Mueller investigation and team. They found a man, and then they set out to find the crime, in order to get to another man they found and as to whom they are seeking a crime.

    That’s not how it’s supposed to happen in a civil society.

    Like

    • Imma be honest, I didn’t know lying (or as I call it, adding color) on a bank loan application is a Federal crime.

      Gulp.

      Like

    • ” flim flam and influence peddling”

      welp. my business cards suck.
      i need to use that instead.

      Liked by 1 person

    • I don’t go that far on Manafort. I think that if he hadn’t been associated with Trump, but someone had reported him for the tax evasion then they would have gone after him, but also probably be willing to settle for a fine and back taxes.

      But this was one of the key arguments against independent and special prosecutors to begin with, namely without other priories to balance against prosecutorial discretion goes out the window.

      I do think he got a fair trial based on reading the daily coverage in the Washington Post. The judge was good about not letting the prosecution put him on trial for being rich or having questionable taste in jackets.

      The other thing to note is that this happens all the time with drug cases.

      Like

    • “I may have overemphasized the plight of the hostages when I was in my final year,” he says. “But I was so obsessed with them personally, and with their families, that I wanted to do anything to get them home safely, which I did.”

      Yes, by thoughtfully losing to Ronald Reagan.

      It’s interesting to me that a lot of Trump’s DC problems tend to mirror Carter’s, that they both came in as outsiders and continued to try and govern that way . . . I understand Carter is going to see himself as the polar opposite of Trump morally, still. Lot’s of analogs, IMO.

      Like

  4. Apparently frequent flier miles are evil

    Liked by 1 person

    • Imagine, rewarding loyal customers.

      The nerve.

      Liked by 1 person

      • It is just so strange to contemplate a people who filter everything through a prism of race and inequality.

        Like

        • In fairness, non whites arent eligible for frequent flier miles.

          Liked by 1 person

        • Apparently that tweet is gone now?

          Like

        • Yes, her subsequent tweets mention that she got swamped.

          This was the perfect observation from the comments about the reaction:

          “The phrase, ‘tool of inequality’ was not your friend.”

          But tweets like hers perform a useful function in reminding me why my interests are more aligned with Jamie Dimon’s than the left. They aren’t stopping with the 1%.

          Liked by 1 person

        • @jnc4p: They aren’t stopping with the 1%.

          I feel like a sizable minority of them are so-constituted that they won’t be stopping with the 10% or the 25% either. I don’t think they will stop at all, because enough will never be enough and the goal posts will stretch forever onward, so that ultimately everything is a “tool of inequality” and must be taxed, forbidden, or made compulsory.

          As T.H. White characterization of totalitarianism has it: “Everything which is not forbidden is compulsory.”

          And that’s kind of where they seem to be headed, via the tool of “everything is a tool of inequality”.

          Like

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