Morning Report: Inflation is nonexistent

Vital Statistics:


  Last Change
S&P futures 3925 19.3
Oil (WTI) 58.60 0.34
10 year government bond yield   1.14%
30 year fixed rate mortgage   2.85%

Stocks are up this morning on overseas strength. Bonds and MBS are up.


Inflation came in at 0.3% MOM and 1.4% YOY. Ex-food and energy, inflation was flat MOM and rose 1.4% YOY. These numbers were below Street expectations, and are well below the Fed’s inflation target. IMO, inflation certainly doesn’t feel nonexistent. Certainly not at the supermarket.


Mortgage applications decreased 4.1% last week as purchases declined 3% and refis fell 5%. “Mortgage rates have increased in four of the first six weeks of 2021, with jumbo rates being the only loan type that saw a decline last week,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Despite some weekly volatility, Treasury rates have been driven higher by expectations of faster economic growth as the COVID-19 vaccine rollout continues. With the 30-year fixed rate increasing to 2.96 percent – a high not seen since last November – refinances declined, and their share of total applications dipped to the lowest level in three months. Government refinance applications did buck the trend and increase, and overall activity was still 46 percent higher than a year ago. Demand for refinances is still very strong this winter.”


PennyMac reported full year earnings of $20.92 for 2020. With the stock trading at $62 bucks a share, this works out to be a P/E ratio of three. For the year, the company originated almost $200 billion. PennyMac is expected to earn $16.67 next year, which puts the multiple under 4. One of the knocks on mortgage bankers is that they never seem to obtain a multiple, and we are currently seeing that now.


Speaking of multiples, New Rez mentioned the disappointing mortgage banking multiple issue on its earnings call. The company filed a confidential S-1 with the SEC last year which contemplated doing something with the lending arm. New Rez was asked about the spin on the conference call, and it seemed that they might be having second thoughts:

So we are — without getting too specific, we continue to evaluate what a total separation would mean to the company, meaning NRZ or — and NewRez. So if we think that it will create more value for shareholders by separating the company and bringing it into the public markets. It’s something that’s absolutely on the table. As you’ve seen from some of the recent either attempts or IPOs that have come out with some of our friends and peers on the mortgage company side, some of them have gone OK, others have not gone as well.

Loan Depot is supposed to list this week as well, and they have pulled the IPO before. The market seems to think mortgage bankers are worth single-digit multiples, and it doesn’t matter whether the business model is wholesale, consumer direct, or aggregator. I suspect this won’t be good for potential M&A. I can’t see many founders who worked for years to build a mortgage company being willing to sell out for 3 times earnings.


There were 6.6 million job openings in December according to the JOLTS jobs report. The number of hires fell by 400k to 5.5 million. The losses were mainly in hospitality, entertainment, and transportation. Retail did increase, but that was probably temporary hiring for the holiday season. The quits rate came in at 2.3%, which was unchanged.

8 Responses

  1. My unrealized loss in my Invesco REIT over 10 years is about 14% although it has been paying at about a 1.4% rate over the same time. I bought in during the bust thinking it would fly as real estate came back and for a little while it did. Then it did not. Yet it always pays out something.

    I understand local real estate pretty thoroughly. I don’t understand the world of REITs, obviously. I will probably die owning this stuff.


  2. Taibbi and Greenwald are exactly right. MSM “journalists” are the biggest advocates of censorship now.

    See also:


    • Max Boot at the Post had the same column. need to impeach Fox news.
      and of any of them, that guy should know better.


    • The right needs to build its own infrastructure. And it will.


    • Fox’s news division is pretty liberal, so their problem is apparently with the opinion portion.

      My speculation is that Tucker is effective and they know it. So it’s part of a move to (a) deplatform Tucker Carlson and (b) encourage cable companies never to pick up OANN or NewsMax and perhaps get rid of them while they are still relatively minor.

      And of course to encourage Fox and other networks to swing way more liberal. And definitely never go populist.


  3. What happened to ACAB?

    “Pelosi proposes granting Congressional Gold Medal to Capitol Police, other law enforcement in wake of Jan. 6 attack

    By Felicia Sonmez”


    • All Cops Are Bastards . . . when there’s a Republican president. Might still be a few in cities with Republican mayors, maybe, but in this modern social media age it seems who the president is is the important factor.

      Could also be a twofer for the Dems. Show people freaking out about their “defund the police” rhetoric that they really like cops, while also bolstering the narrative that a thousand people in MAGA hats almost overthrew the government and established a dictatorship.


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