Morning Report: The Fed meets

Vital Statistics:

 

Last Change
S&P futures 322 -10.6
Oil (WTI) 41.45 -0.12
10 year government bond yield 0.6%
30 year fixed rate mortgage 2.98%

 

Stocks are lower this morning as the FOMC meeting begins. Bonds and MBS are flat.

 

The FOMC meeting begins today, and we will get the announcement tomorrow. The Fed is considering the idea of basically controlling the entire yield curve, which means it essentially sets interest rates by diktat. The Fed is reaching into its historical toolbox and returning to the Truman Administration, where the Fed pushed down rates to limit the government’s borrowing costs. Japan has experimented with the same policy. Note that the rest of the world more or less relies on the 10 year US bond yield to determine the correct price of risk, and taking that number out of the hands of the market is playing with fire. IMO, we have a sovereign debt bubble of epic proportions, with negative yields all over the globe. Like all bubbles, this one will probably blow up too, once inflation returns. I have no idea what it will look like, but I can almost assure you that politicians, the media, and academia will blame the free market and not a bunch of academics sitting in a room trying to manipulate the price of money the way the Soviets manipulated the price of corn, tractors or gasoline.

 

Durable Goods orders rose 7.3% last month, which was higher than expectations. Core Capital Goods orders (kind of a proxy for business capital expenditures) rose 3.3%.

 

The MBA reported that the share of loans in forbearance fell for the 6th straight week. Reported loans in forbearance decreased by 6 basis points to 7.74%, or about 3.9 million homeowners. Ginnie loans ticked up, while Fannie / Freddie loans fell.

 

The Senate GOP has released their $1 trillion coronavirus relief proposal, which will include another $1,200 payment to individuals, more payroll protection money, but a reduction in the additional unemployment benefits from $600 a week to $200 a week. Democrats are complaining about the drop in unemployment benefits. The increased benefits will probably get get reinstated to get enough support to get it through the House. Both parties realize that as we approach the election, it will get harder to pass anything.

 

New COVID cases are slowing in Arizona, Texas and Florida.

 

Homebuilder D.R. Horton reported a 10% increase in revenues for the quarter ended June 30. Net orders were up 38% in units. Orders were up 50% year-over-year in May and June. Note D.R. Horton has a lot of Texas exposure, which is seeing an increase in COVID cases.

The Company believes the increase in demand since May has been fueled by increased buyer urgency due to lower interest rates on mortgage loans, the limited supply of homes at affordable price points across most of the Company’s markets, and to some extent the lower levels of home sales from mid-March through early April which caused some pent-up demand.

D.R. Horton stock is up 4% pre-open

 

We saw similar order growth for MDC Holdings as well. Orders increased 5% in the June quarter and were up 53% in the month of June.

Our results this quarter reflect the favorable industry dynamics in place today, including a low interest rate environment, a lack of available supply and a highly motivated buyer. They also reflect our continued shift in focus to the more affordable segments of the market and the benefits of our build-to-order strategy, which caters to the wants and needs of a large segment of the buying population. We believe that providing homebuyers with flexibility and choice at an affordable price is a winning strategy for our company. Given the favorable market conditions we are experiencing, we now believe that we may achieve as many as 8,000 home deliveries for the 2020 full year, which would be a 15% increase from the prior year.

MDC stock is trading up 6% pre-open.

22 Responses

  1. This is BS by Twitter:

    Liked by 1 person

  2. Worth noting:

    Like

  3. Random question:

    In the 2016/17 flu season, the death toll in the US from influenza was nearly 60,000, one of the highest in recent history. At no point during that season was social distancing, mask mandates, mass lockdowns and shutting down the economy ever even contemplated.

    The current covid pandemic has produced roughly 150,000 deaths in the US, so lets say that by the start of the next flu season, US covid deaths have risen to 200k. Covid, of course, has prompted all of the above actions, which continue in many places.

    So my question….What is the threshold of deaths over which all of the above polices must be implemented in order to avoid more deaths, and below which all deaths are acceptable without such policies? How is that threshold determined?

    Like

    • I’m pretty sure that the CDC studies on mask use for viruses is mixed at best.

      Like

      • As we’ve discussed here previously, there are real reasons to think it would be useful to prevent spread. So–wear a mask and disinfectant your hands every time you touch your face in some capacity (if you have reason to suspect you are contagious) makes good sense. To prevent getting it–disinfect your hands before you touch your face (or eat food).

        Although for lots of things it’s actually more efficient to get the infection and build up immunity. Especially if you’re presently healthy. Herd immunity, burn it out. Alls good.

        Like

      • McWing:

        I’m pretty sure that the CDC studies on mask use for viruses is mixed at best.

        Whatever the merits of mask use, I will say this…anyone who advocates for mandatory mask usage now is pretty much obligated by logic to keep using them either until the day they die, or until there are no more contagious, air born diseases that could result in the death of someone somewhere. Whichever comes first.

        Like

    • So my question….What is the threshold of deaths over which all of the above polices must be implemented in order to avoid more deaths, and below which all deaths are acceptable without such policies? How is that threshold determined?

      Calvinball rules apply. Depends on what the media thinks about who is president.

      Like

    • I think Bill Maher and Fareed Zakaria had it right that there’s a psychological tendency to think of new threats as more significant than existing ones, even if the actual comparative death rates don’t justify the response.

      https://www.hbo.com/real-time-with-bill-maher/2020/11-episode-526

      If automobile deaths were somehow presented as new, cars would be banned tomorrow.

      Having said that, there appears to be significant long term health issues even for people who do recover that aren’t present with the flu.

      Like

      • Although driving is now much safer than it used to be, and continues to get safer. And automobile deaths typically involve misusing the equipment and breaking laws. Which makes it a good example–progress slow and steady in the face of a challenge, don’t throw everything you have and sacrifice the entire economy to fight it. Do smaller things (lockdown nursing homes, for example, exclusively–then find a small step two). Car driving gets safer most every year, and certainly has progressed in recent decades with crumple zones and side-impact airbags.

        Having said that, there appears to be significant long term health issues even for people who do recover that aren’t present with the flu.

        Although I question this–or think “long term” needs to be defined–as we are not yet at a point to diagnose long term heath effects, because there is no long term. Entirely possible but I still say we’re getting ahead of ourselves. And chances are those can be remediated and some might be avoided with better treatments–or some might have been caused by worse treatments. Also I don’t think there has been (as there?) and counting of the sort of damage being seen as constituting long term health effects. How many people actually exhibit what looks like long term damage?

        In any case, I expect treatments and early diagnosis will likely avoid these in the future. Prevent the cytokine storm, prevent the damage.

        Like

      • jnc:

        I think Bill Maher and Fareed Zakaria had it right that there’s a psychological tendency to think of new threats as more significant than existing ones, even if the actual comparative death rates don’t justify the response.

        I am sure that is true. Our “leaders” should understand that and not cave in to those impulses, but unfortunately they seem to be as bad if not worse than everyone else.

        Like

    • Both these numbers are largely theoretical. They could be closer or further apart. There are suggestions that some of the methodology for county flu deaths is off, and there are lots of indications that anyone who dies with COVID for any reason is getting counted as a COVID death.

      But there is a larger questions about how meaningful either of these numbers are. How many people die strictly from the flu or COVID 19? People can die more from their treatments than a given disease–yet the disease they were getting the treatment for is the cause of death, not the treatment (although in the case of COVID, there’s a chance a number of early deaths were caused as much by the ventilators as the COVID). People with advanced heart disease or liver disease or COPD or asthma or advanced diabetes might die from COVID, but are “pushed over the line”–but aren’t just dying from COVID.

      Certainly, the demographics would tend to indicate if you are young and fit and heathy your risk from COVID is minimal–thus why did you ever need to be in lockdown, young, healthy, 27 year old jogger? But fine–no one was sure at the outset. The numbers, distorted as they may be, seem pretty clear now—under 40 your risk is very low, under 30 it’s very, very low. So why did everything have to stop because COVID was being particularly hard on folks 65+ ?

      So my question….What is the threshold of deaths over which all of the above polices must be implemented in order to avoid more deaths, and below which all deaths are acceptable without such policies? How is that threshold determined?

      Such policies are determined by how hysterical politicians, healthcare workers, public servants and–of course–the media can make people. Oh, and social media.

      This could have been tackled entirely differently, and 100k more people could have died from COVID (maybe) and few people would have noticed. People surprised by unexpected COVID deaths would treat them like sudden heart attacks or aggressive cancers or car accidents: tragic, but with no expectation that the entire word should shut down.

      300k people could have died from COVID and that would represent .08% of the population. You could still live your normal life and not know a single person who died from COVID. Chances are, if you did know somebody, they would be old.

      Half our COVID deaths could have been prevented from an aggressive lockdown of nursing homes and assisted living facilities. Most of the rest could have been prevented with campaigns about keeping distant from your elderly relatives, exercising social distancing where possible, and remember with wash your hands and use hand sanitizer. And a number of deaths (especially your early 30-50 year old deaths) could have been prevented by just not using ventilators (live and learn!).

      If we had identified treatments like steroid inhalers/breathing treatments early and, yes, hydroxychloroquine (again, deployed after infection but before before cytokine storm fills the lungs with gunk) we could probable have saved even more.

      All without a general lockdown of anything other than nursing homes and assisted living. Then as now, the risk to school children of dying from COVID is less than that of being shot in school (also low risk). So this goes back to a traditional liberal/progressive argument that spending all the money in the world is worth it if it saves just one life.

      Which of course, just isn’t true. But we shall see, I guess.

      Like

  4. This is funny:

    “Senate GOP Copied and Pasted Andrew Cuomo’s COVID-19 Corporate Immunity Law

    By David Sirota
    Andrew Perez
    Walker Bragman

    07.28.2020

    While raking in cash from health care industry donors, Beltway Republicans copied language from an Andrew Cuomo law meant to shield negligent nursing home execs into their new COVID-19 relief package, word for word.”

    https://www.jacobinmag.com/2020/07/cuomo-health-care-lobby-republican-bill-coronavirus-lawsuits

    Like

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