Morning Report: Wells cuts its dividend

Vital Statistics:


Last Change
S&P futures 3148 3.1
Oil (WTI) 39.24 -0.31
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.12%


Stocks are flat as we kick off earnings season. Bonds and MBS are up.


Kind of a mixed bag for bank earnings this morning. We heard from JP Morgan, Citi, and Wells. JP Morgan and Citi beat earnings expectations, but Wells is down on a dividend cut. Wells had warned that a cut was coming, but this one was dramatic: from 51 cents a share to a dime. Wells reported a drop in mortgage banking income from the first quarter due to lower MSR values. Production margin just about doubled from 1.08% to 2.04%.


The Consumer Price Index rose 0.6% MOM and 0.6% YOY. Ex-food and energy, the index rose 0.2% MOM and 1.2% YOY. Higher inflation is actually good news for the economy at this point as the Fed is worried about deflation.


Small Business Optimism increased in June, according to the NFIB. Despite the current slowdown, small business still expects to increase hiring and capital expenditures over the next 6 months.

“Small businesses are navigating the various federal and state policies in order to reopen their business and they are doing their best to adjust their business decisions accordingly,” said NFIB Chief Economist Bill Dunkelberg. “We’re starting to see positive signs of increased consumer spending, but there is still much work to be done to get back to pre-crisis levels.”



30 day delinquencies increased to 6.1% of all mortgages during the month of April, according to CoreLogic. This is up 2.5% from April 2019.

“The COVID-19 pandemic has shocked our economic system and led to unprecedented job loss, reducing the ability of affected families to make their monthly mortgage payments. The latest forecast from the CoreLogic Home Price Index shows prices declining in 41 states through April 2021, potentially erasing home equity and increasing foreclosure risk.”

CoreLogic is also predicting that home prices will drop 6.6% nationally over the next year. FWIW, I don’t see that – the supply / demand imbalance doesn’t support it, and neither does the lower interest rates. Perhaps we will see a drop in luxury urban condos due to tougher jumbo guidelines and an exodus from urban areas, but suburban low / mid tier SFR should be just fine.


Those who make the comparison to 2009 – 2010 are missing the fact that we had a glut of properties back then. The situation is the exact opposite here. Home construction has lagged household formation for a decade.


New Home Purchase Applications rose 20% in June, according to the MBA.

“The new home purchase market continues to recover,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Applications surged 20 percent in June, and although this is not adjusted for seasonal impacts, it is another piece of data indicating that homebuying activity that was delayed by the pandemic in March and April is just being realized later in the season. The fact that applications are up over 50 percent from last June further reinforces that point.”


Optimal Blue is being sold to a private equity consortium.


Quicken and United Wholesale are kind of the Spaceley Sprockets and Cogswell Cogs of the D. There has been bad blood between the companies for years. Now, there is a defamation lawsuit over a facebook war and lewd text messages. The brokers versus bankers saga continues….



24 Responses

  1. Brent, my late dad, who had a Masters in Financial Amalysis, was a long term successful investor in puts and calls. His strategy was always to sell short against the box, that is, against stock he actually owned. He averaged about 30% annual gains, through the 80s and 90s. I have not tried to keep up with the option markets but I wonder if that is still a useful strategy. Do you have an insight?


    • The Black – Scholes options pricing model came out in the mid-70s, so even during the 80s options were probably mispriced on the trading floor. The 30% return seems awfully high, but i guess it is possible if you were a good day trader, buying the stock when it is low, and then selling the call / buying the put when it was high. If you net 2.2% always playing the front month, it gets you there. Theoretically, the option prices should take into account the time value of money and the dividend yield, but perhaps there were mispricings.

      Nowadays, everything is done by algorithms, and the opportunities were arbitraged away a long time ago.

      Liked by 1 person

  2. Bari Weiss resigns from the NYT


  3. Good piece on Douthat on “cancel culture” vs criticism:


    • Any speculation what’s going on at the NYT? Are opinion pieces like this being published *against* the will of the youngsters who recently went apoplectic about the Tom Cotton piece?

      Some of the comments are interesting, basically poo-poo-ing the whole idea of cancel culture. But I think they are missing the larger picture of not just cancel culture but the censoring of entertainment, the deplatforming of people for citing basic facts, the actual retraction of study not because of inaccuracy but because Heather MacDonald cited it (literally: we don’t like whose citing our study so we’re retracting it, although they say the retraction is coincidental, but still, that that’s believable . . . eh).

      But I admit a little surprise that the NYT is still publishing content like this that isn’t entirely towing the ideological line that seemed to be laid out by it’s own (younger) staff and such things as the 1619 project.


  4. PL goes all in on the Orwellian Two Minutes Hate with the latest post.


    • This one?

      If you aren’t filled with rage at Trump, you aren’t paying attention

      There’s one on Jeff Sessions that’s newer.

      But yeah, talking about new cases in raw numbers (rather than as percentage of population) and not mentioning any disparities in how “positive” is decided, difference in testing protocols, etc. But BE ENRAGED!

      There are many reasons we have experienced this catastrophe (and it quickly became two catastrophes, an economic crisis added to the public health crisis), but one stands above all others: President Trump.

      From 1984:

      The programmes of the Two Minutes Hate varied from day to day, but there was none in which Goldstein was not the principal figure. He was the primal traitor, the earliest defiler of the Party’s purity. All subsequent crimes against the Party, all treacheries, acts of sabotage, heresies, deviations, sprang directly out of his teaching. Somewhere or other he was still alive and hatching his conspiracies: perhaps somewhere beyond the sea, under the protection of his foreign paymasters, perhaps even—so it was occasionally rumoured—in some hiding- place in Oceania itself.


Be kind, show respect, and all will be right with the world.

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