Morning Report: Homebuilder sentiment sinks

Vital Statistics:


Last Change
S&P futures 2674 -22
Eurostoxx index 353.27 -1.53
Oil (WTI) 57.07 -0.13
10 year government bond yield 3.06%
30 year fixed rate mortgage 4.89%


Stocks are lower as yesterday’s sell-off continues through the global markets. Bonds and MBS are up.


Yesterday, the bond market rallied (rates fell) while we saw almost no movement in TBAs. What is going on? In technical terms, the basis increased. The basis is the difference in yields between the mortgage backed security and the risk free rate (measured by Treasuries). What drives the basis? Probably the biggest driver is interest rate volatility, which has been increasing. Mortgage Backed Securities are a bit different than normal bonds – they have negative convexity, which means they pay a little more than Treasuries with the same credit risk (i.e. none) but they have higher interest rate risk instead. MBS hate, hate, hate volatility in the bond markets, which is why you will sometimes see the 10 year yield down 3 or 4 basis points, excitedly run a scenario expecting to see an improvement, and get bupkis.


The issues in the market are beginning to affect the Fed Funds futures, which are now predicting a 68% chance of a hike in December. That estimate was closer to 80% a month ago.


Goldman believes growth will slow to the low 2% range for the first half of next year, and then drop to the high 1% range for second half. Their belief is that the Fed will succeed in slowing the economy, without sending it into a recession. The fiscal stimulus from tax cuts will be fading as well. FWIW, the experts and strategists consistently overestimated what growth would be in during the Obama administration and are consistently wrong to the downside since Trump became elected. If Goldman is right, expect the yield curve to flatten.


Homebuilder sentiment weakened in October, according to the NAHB / Wells Fargo housing sentiment index. Labor shortages and declining traffic are the culprits. The index fell from 68 to 60, which was the biggest drop in years. While an index level over 50 indicates favorable conditions, the sentiment that has driven the homebuilder XHB down 25% this year has finally begun to hit the builders themselves.


XHB chart


The sell-off in the stock market has been particularly harsh on the erstwhile darlings – the FAANG stocks. These stocks have entered a bear market (defined as 20% or more lower from the highs). Remember Bitcoin? About one year ago, it made its meteoric rise from roughly 7,000 to 20,000 in the span of 3 weeks. Where is it now? Under $4,500 and unable to get out of its own way.


bitcoin chart


Goldman believes growth will slow to the low 2% range for the first half of next year, and then drop to the high 1% range for second half. Their belief is that the Fed will succeed in slowing the economy, without sending it into a recession. The fiscal stimulus from tax cuts will be fading as well. FWIW, the experts and strategists consistently overestimated what growth would be in during the Obama administration and are consistently wrong to the downside since Trump became elected. If Goldman is right, expect the yield curve to flatten.



33 Responses

    • The world has gone loco.


      • It has:

        “Bill de Blasio Is a Progressive Sham

        By Ari Paul

        Bill de Blasio is welcoming Amazon to New York City with open arms — proving that his progressive reputation was always a sham.”

        The new left position is that jobs are bad.

        Liked by 1 person

        • can’t have a revolution of the proletariat when they are getting paid…

          Liked by 1 person

        • Or that local government should no longer do what it has always done, and is evil for doing so. What NYC is doing, as with New York State, is some version of what municipalities do to expand the tax base and elevate their importance and insure their futures.

          I feel the writer probably is a privileged child of well-to-do parents.
          Apparently the job of governors and mayors should be to pass laws forcing companies to locate in their area, and then confiscate all their profits for social programs. Or something.


        • I never heard of this “magazine”. I looked it up on wikipedia and apparently it describes itself as ” a socialist quarterly magazine based in New York offering socialist and anti-capitalist perspective.”

          Sounds Old Left to me. Has 40000 circulation. Wow.

          How the heck did you even know it exists?


        • Jacobin is a dynamite read, you should check it out regularly. I rank Reason as better written and argued in the purely ideological magazine world, but Jacobin as the socialist Reason is a fair interpretation.

          Liked by 1 person

        • I was re-reading A Tale of Two Cities, and the description of post revolution France sounds exactly like today’s cultural marxist left.


  1. Doesn’t this mean more arms sales for us?


  2. Good read:

    “The Brutal Truth Behind Trump’s Love Affair With Saudi Arabia

    Crown Prince Mohammed bin Salman has done what America has asked, and the president has assured him their relationship is safe.

    Nov 20, 2018
    Graeme Wood”


    • That is why his supporters love him; he loves them back unconditionally—whether they are racists or murderers or cretins.

      While of course Trump is vulnerable and can lose, I get the feeling that for some on the left if it came down to having to stop insulting flyover country and winning, or continuing to call everyone they disagree with names and losing, they’d pick the latter choice.

      Put another way: the liberals can win in 2020, but they apparently want to make it as hard for themselves as they possibly can.


    • The Saudis have accused him of belonging to the Muslim Brotherhood; he pointedly refused to deny the accusation, while maintaining, reasonably, that freedom of conscience would allow him to be a Brother if he wished

      Now, that’s some fine double-speak. Khashoggi supported the Muslim brotherhood. The whole membership question seems like blowing smoke, to me.


  3. Never Trumper declares Boston > Led Zeppelin


  4. Interesting read:

    Liked by 1 person

  5. This is outrageous and another example of the disasterous norm-breaking of Drumpf!

    Liked by 1 person

  6. Someone gets it:

    “In a media business geared toward reassuring demographics, audiences during the Trump presidency have been deluged with stories about his vulnerabilities, leaving the impression that his disastrous presidency has fatally wounded him as a politician. We’ve been treated to a succession of wish-fulfillment exercises disguised as news features — a stream of “last days of the Trump administration” pieces reappearing across two years of scandals. These have created the expectation that not only will Trump not be re-elected, he may be dragged out of the White House at any moment. But such cheery stories run counter to reality. By any rational standard, Trump in the past two years has made huge political gains.”

    Liked by 1 person

    • We underestimated him once. Let’s not do it again

      I think that statement alone is an exercise in wishful thinking. Trump may well lose, but the idea that the Democrats as a party/political force and individual Democrats and progressive ideologues are going to accurately read the political situation and respond accordingly is . . . wishful thinking.

      Retaining above 85 percent of your own party’s voters is a characteristic shared by the past four incumbents to win re-election: Obama, Bush, Clinton and Reagan.

      For example, I can’t imagine this being seen as anything other than Trump-apologism and Taibbi as a steal-Republican shill by, say, almost anybody at CNN or at WaPo. Or Vox. Or Slate. Or . . .

      He pulled out of the Paris Agreement, striking a blow on behalf of the tens of millions of Americans who vehemently oppose both science and France.

      And Taibbi, as is so often the case, is part of the problem he’s identifying: the fact that he believes, apparently, that the Paris Agreement was meaningful in any useful way, or anything other than a way for other countries to siphon money and markets from the US, or would do anything even if you totally buy every argument about anthropogenic global warming . . . that ranks him in the same category of fact-challenged, reality-distorting location as Trump, to me.

      I get it, he always has to say (and Christ, he always does): look guys, I’m one of you. The Paris Climate Accord was totally going to save the world with magical progressive thinking! I agree! But look . . .

      But chaos is what Trump voters asked for.

      And again, no. Middle class tax cuts, a slowing down of the progressive project (though maybe not in those words), someone who wasn’t Hillary or like her, someone who seemed to understand the challenges unchecked immigration can have on certain communities . . . and the rest was rah, rah, rah, I’m on your team tribalism. But they weren’t voting for endless chaos and nationwide disaster because their frickin’ nihilists. I appreciate his recognition that Trump will be no easier to beat this time than last time, but not understanding the mistakes made last time (I’m With Her, “deplorables”, “Wisonsin, why the fuck would I hold a campaign stop in Wisconsin?”) is not the way to “not underestimate Trump a second time”.

      The subtext of his run wasn’t about making America great again. It was, Let’s fuck shit up.

      Incorrect. It was “Let’s Make America Great Again and Let’s Fuck The Liberal/Progressive/Hippies and Their Bullshit Remaking of America up”. Again, Trump voters were not frickin’ nihilists.

      Trump voters understood it as a chair through a plate-glass window, the start of a riot.

      Again, no, and who has been starting actual riots here? Trump-voting Fox news fans from their La-Z-Boys? From the nursing home? No. Just no.

      Trump is a doomsday cult, giving voters permission to unleash their inner monster.

      To the degree this is true (and broadly, is categorically untrue) it applies evenly to nutburgers on the left and the right, or moreso to nutburgers on the left. When was the last time a guy in a MAGA hat went wailing on somebody with a bike lock? Pittburgh synagogue shooter turned out to hate Trump with a white hot hate (under the belief he is controlled by the Jewish Conspiracy or something).

      He was walloped in the popular vote and won key Rust Belt states by paper-thin margins.

      He’s leading with the wrong thing. Being “walloped” in the popular vote is irrelevant in any case, and doubly irrelevant given the popular vote loss disappears if you subtract California from the equation. Winning rust belt states by paper-thin margins is a much bigger potential deal.

      and God help us if we forget that a second time

      I like Taibbi, but I still don’t feel like he’s learned the lesson. Which doesn’t mean Trump can’t still lose in 2020 (would not surprise me) but he didn’t win because “the press was fooled” or Democrats didn’t understand that Republican voters are all nihilists who want to see everything burn. That’s more self-flattering hyperbole from people butthurt that they lost.


  7. This is good:

    “Trump’s Amoral Saudi Statement Is a Pure Expression of Decades-Old “U.S. Values” and Foreign Policy Orthodoxies

    Glenn Greenwald
    November 21 2018, 10:01 a.m.”


  8. If this is true it would make me nut.

    Liked by 1 person

  9. Why is this better for the Justice System then just putting a bullet in the back of his head?

    What should be done if he’s acquitted? Should we let him go?


  10. Why would the Limey’s object? How could they possibly know what’s in a secret FISA warrant?


  11. There’s is no way to read Schumer’s comment other than he was making a joke.

    Any other interpretation means he’s an idiot.

    Liked by 1 person

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