Morning Report: Fannie and Fred are preparing for their IPO

Vital Statistics:


Last Change
S&P futures 3138 3.25
Oil (WTI) 58.87 -0.14
10 year government bond yield 1.82%
30 year fixed rate mortgage 3.98%


Stocks are up as we head into the FOMC meeting. Bonds and MBS are flat.


The FOMC will meet today and tomorrow, with the interest rate announcement expected Wednesday at 2:00 pm. The Fed Funds futures are predicting no change in rates. That doesn’t necessarily mean the markets will ignore what is going on, as subtle changes in language can have out-sized effects on the markets. One such word is “symmetric.” The word symmetric refers to the Fed’s 2% inflation target, and how much they will tolerate inflation above that target. The Fed desperately wants to avoid the low inflation / low growth trap that evolved in Europe and Japan, and is signalling to the markets that they will allow inflation to run above 2% for an extended period of time.


The Fed will also be watching the overnight repurchase market, to ensure we don’t have another situation like late September where overnight rates spiked over 10%. This was due to a shortage of cash in the market. While this sort of thing doesn’t affect mortgage lending directly, it does raise the cost of borrowing for MBS investors, which can cause them to sell these securities to raise cash. That flows through to rate sheets. While the shortage caught the Fed flat-footed in September, they have been discussing the issue, so hopefully we don’t see another replay at the end of this month.


Fannie and Freddie are tightening the restrictions for their Home Ready and Home Possible programs. Previously, borrowers with incomes at the Area Median Income (AMI) were qualified for these 3% down programs; now they will be limited to borrowers at 80% of the AMI. This is all part of the strategy to reduce Fan and Fred’s overall risk prior to setting them free. Note that they are currently interviewing banks to handle the IPO, which will be somewhere between $150 billion and $200 billion. This would dwarf the record for the largest IPOs in history – Saudi Aramco and Alibaba – by over 6x.


Despite a glut of McMansions in some areas, Toll Brothers beat estimates and forecasted a strong 2020.  The company noted demand increased throughout the year, and the recent weeks have been stronger than the prior quarter, which is encouraging given that typically you see a slowdown this time of year. Douglas C. Yearley, Jr., Toll Brothers’ chairman and chief executive officer, stated: “Fiscal 2019 ended on a strong note. Building on steady improvement in buyer demand throughout the year, our fourth quarter contracts were up 18% in units and 12% in dollars, and our contracts per-community were up 10% compared to one year ago. Through the first six weeks of fiscal 2020’s first quarter, we have seen even stronger demand than the order growth of fiscal 2019’s fourth quarter. This market improvement should positively impact gross margins over the course of fiscal 2020.”


Small business optimism grew in November, according to the NFIB. Recession worries faded into the background, and impeachment remains little more than a curious albeit boring sideshow, similar to the Clinton impeachment saga which had zero effect on the markets. Improving labor conditions were a big driver, with 26% of firms planning on raising compensation in the coming months – the highest in 30 years. (BTW, this is music to the Fed’s ears). It looks like the drag from the 2017-2018 rate hikes are behind us, and the headwind has turned into a tailwind courtesy of the recent rate cuts.


Productivity declined in the third quarter as output increased 2.3% and hours worked increased 2.5%. Unit labor costs increased by 2.5%.

24 Responses

  1. Interesting – IG report contradicts previous CNN reporting that Manafort was wiretapped.


    • Interesting. Certainly, it may not have been the case, and the Mantafort story was more disinformation (via Russian or Democrats or real life trolls, who knows). What it does indicate is how much “news” today is based on vapor, and can take on life of it’s own without substantiation–and a loop is created where a news outlet cites an “unnamed source” and then the article is cited in a government analysis or buy a politician and then the politician is quotes by news organizations in stories that are the cited and used as confirmation of the original assertion. The news has become tautological.

      And they can walk it all back but the next big bombshell from CNN or Fox or WaPo or the NYT will be similarly suspect. Journalism has always been biased–either organizationally or individual–but they actually used to confirm facts and do research.


  2. is anyone buying horowitz’s claim that this was all non-partisan?


    • is anyone buying horowitz’s claim that this was all non-partisan?

      Well, non-partisan in the sense that Trump-haters across the political spectrum within the FBI were trying to get Trump.

      Liked by 1 person

    • I can buy that it was non-partisan, if perhaps he just didn’t want to be the guy who went there. I don’t know that’s the case at all, but I feel like that’s possible: I’m not going to be the guy the collar these people. Not worth it! The aftermath for his life would likely be quite unpleasant.

      I can also think he thought he was being legitimately unbiased. People have a hard time seeing their own biases, and can truly believe they are not being influenced by bias when to the outside they obviously are. Though it’s hard to tell if you don’t have the same people investigating the same kind of things on the opposite side–at which point you can say: they held this guy responsible, but not this other guy!


    • is anyone buying horowitz’s claim that this was all non-partisan?

      If there was sufficient smell to start investigating then the overreach that occurred later mainly sounds like what the FBI does when they think someone is guilty. That happens to ordinary citizens more often than you would like it to. As bad as that is, the FBI is much better than local cops everywhere. Get a bone, chew on it, miss all the squirrels.

      I am willing to accept the finding that the initial investigation was a response to a bad smell. I am also glad that this one was put under a searchlight, not merely because it showed that exculpatory information about Trump was disregarded, but because exculpatory information in investigations is often disregarded. Sometimes I thought it was disregarded so that prosecutors would not see it and thus it would not be discovered by Brady motions to turn it over to the defense. Thinking Trump ultimately guilty of a crime worth pursuing should not be thought of in the bubble of his presidency. He has had brushes with FBI before. I would buy “personal” way before I bought “partisan”.

      Addendum: Most FBI agents identify as law and order Republicans. That makes this look even more personal in its doggedness.


      • Mark:

        I am willing to accept the finding that the initial investigation was a response to a bad smell.

        Bill Barr isn’t.

        Thinking Trump ultimately guilty of a crime worth pursuing should not be thought of in the bubble of his presidency.

        The investigation was not predicated on a belief that Trump was guilty of a crime. It was (ostensibly anyway) a counter-intelligence investigation.

        I would buy “personal” way before I bought “partisan”.

        Perhaps a better word than “partisan” would be political. I think all of the bad actors in and connected to the FBI that initiated and then prolonged this absurd investigation were motivated by personal, political opposition to Trump.


  3. @scottc: How are things in the UK?

    I gotta love this ad.

    And what do you think of Johnson, generally?


    • That’s a great ad. You know what Johnson stands for, what he will do, and what he’s asking you as a voter to do.


    • KW:

      How are things in the UK?

      Coming down to the wire. Most still predicting a Boris majority, but Lib Dems are fading fast, which helps out Labour and tightens the race.

      On Boris, I kinda like him. I became familiar with him years ago when I was here the first time, and he used to make appearances on a TV show called Have I Got News For You. It was a “game” show (in the very British sense of a game show) that revolved around different teams making wise cracks about various topical news events of the week. He was quite smart and didn’t seem to take himself too seriously. It was then that I came to appreciate him, but I was gone by the time he became mayor of London. It’s difficult to judge him as a normal politician now, since everything is all about Brexit rather than the normal to-and-fro of politics and implementing policy. So I suppose if he can deliver some measure of a Brexit, it’ll be tough not to admit that he’s been a success. If he fails to get a majority, I don’t imagine he can last very long.

      Liked by 1 person

  4. 2020 Democratic hopeful Pete Buttigieg’s traveling press secretary confirmed that the Buttigieg campaign pays women more than men.

    Nina Smith, Buttigieg’s traveling press secretary, discussed the policy at Politico’s “Women Rule” summit, then tweeted that, “Women are paid 1.11 for every dollar men are paid.”

    “The pay, yes, is very intentional.”

    How is this not just a straight up admission of a violation of employment discrimination law?


    • How is this not just a straight up admission of a violation of employment discrimination law?

      An EEOC complaint should be forthcoming…


      • Can they bring an action without an employee complaining? If you want to be viable in Democratic politics, would you complain?


        • Can they bring an action without an employee complaining?

          Theoretically. But these are temporary employees, so EEOC wouldn’t waste time on a spontaneous investigation, warning, complaint, etc.

          And the employees won’t, unless they are spies from another campaign, so I was offering the response tongue-in-cheek.

          The only way I see it happening is if some employment lawyer successfully encourages a male employee to sue for the greater glory of the lawyer.


        • Mark,

          I’m curious about your take on the D’s decision to use the same guy as both a witness and an interrogator in the same hearing the other day. Have you ever seen a legal proceeding before in which such a thing was done or allowed?


        • I don’t know the circumstances here.

          There are proceedings in which it could happen but rarely, proceedings when it does happen. It is not advisable in most instances, other than testifying to attorney’s fees in litigation.

          Where I have seen it happen in the past is where a witness in a case recants previous testimony and one of the lawyers who has cross-examined takes the stand to read into the record the witness’ previous testimony, or even sworn statement. I used my paralegal to do that so that I could read the questions I asked at deposition and she could properly emphasize the answers previously given. I always thought that was more effective than my reading the deposition, at least to a jury.

          I once saw a tax lawyer who was assisting in a regulatory case testify briefly as an expert in the same case but thought that was unusual and perhaps ineffective.

          Was he testifying to summarize the testimony of other witnesses? Not impossible in administrative matters, but reserved for argument in court proceedings. Was he testifying as an expert? If he was merely a fact witness, well that would be really unusual. But not, I think, prohibited. Lawyers can, after all, even represent themselves in litigation. The saying that a lawyer who represents himself has a fool for a client comes to mind, of course.


        • Mark:

          Was he testifying to summarize the testimony of other witnesses?

          No, he was testifying as to the merits of impeaching Trump, and then got to then cross-examine the witness who, just minutes earlier, had been sitting next to him testifying against those merits. Theater of the absurd.

          This is the only time that I have ever seen it, and I think it is an apt comparison to the ridiculous circus that has been playing out in DC recently:

          Bananas…a perfect description.


        • Actually the whole courtroom scene from Bananas is genius, Woody Allen at his best, and is a fantastic metaphor for our current moment. The court reporter (starting at 2:39) is a perfect stand-in for the modern media.


    • Law? Hah! Shows what you know.

      Discrimination in the name of social justice is a moral imperative! The law of man has no place in issues of moral righteousness!

      Whose gonna go after a dude for paying women more than men? That’s just affirmative action! Fighting past wrongs! Yada yada.


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