Morning Report: The rocket launches

Posted on August 7, 2020 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 3331 -13.6
Oil (WTI) 41.63 -0.52
10 year government bond yield 0.53%
30 year fixed rate mortgage 2.85%

 

Stocks are lower this morning after the jobs report. Bonds and MBS are flat.

 

Jobs report data dump:

  • Nonfarm payrolls up 1.7 million
  • Unemployment rate 10.2%
  • Average hourly earnings up 0.2% MOM / 4.8% YOY

Overall, it shows the job market is on the mend, although it is probably taking longer than people would like. At this point, smaller businesses (especially restaurants and retail) are folding.

 

Rocket Mortgage priced its IPO yesterday after it was downsized by 43%. The stock performed reasonably well, popping 20% on the day. With the stock trading here, Quicken is valued at $43 billion, with a P/E of 47 and a price to book of almost 12. I guess the question here is how much you are willing to pay for the steak and how much for the sizzle. Last year Quicken originated $145 billion in loans, while PennyMac Financial originated. $118 billion. Quicken earned 62 basis points on that origination to PennyMac’s 33 bps. Yet Quicken’s market cap is almost 11 times PennyMac’s. There are some companies that trade at huge premiums to their competitors: Tesla versus Ford, Amazon.com versus Barnes and Noble back in the day. A huge multiple doesn’t necessarily imply a lousy investment. But you are paying up for the sizzle here. When the Fed starts hiking rates, Quicken will suffer a drop in volume just like everyone else will.

 

Intercontinental Exchange (the parent company of the New York Stock Exchange) just bought Ellie Mae from private equity firm Thomas Brave for $11 billion. ICE also owns MERS and Simplifile, so this continues the company’s expansion into the mortgage space.

Twenty years after we founded Intercontinental Exchange to provide a transparent trading platform for the energy industry, and following two decades of providing continued innovation to help customers navigate global markets, we are pleased to announce the acquisition of Ellie Mae, which will help us similarly transform the mortgage marketplace,” said Jeffrey C. Sprecher, Founder, Chairman and CEO of Intercontinental Exchange. “Our planned acquisition represents a one-of-a-kind opportunity to add an extraordinary enterprise with great leadership to our family. It will also enhance ICE’s growth strategy in mortgage technology, with complementary products and a wide array of customers and stakeholders who will benefit from our core and proven expertise in operating networks and marketplaces.

 

PennyMac Financial reported second quarter earnings yesterday, with production increasing to $37.6 billion. Earnings per share increased from $0.92 in the second quarter of 2019 to $4.39 a share. The company also hiked its dividend by 25%.

 

While forbearances in general are falling, Ginnie Mae forbearances are still rising.

Filed under: Economy, Morning Report | 10 Comments »