Stocks are flattish this morning as earnings continue to come in. Bonds and MBS are flat.
Initial Jobless Claims fell to 739k last week. It looks like the layoffs are starting to ease up, but we are still pretty elevated compared to historical norms.
The FHFA extended its foreclosure moratorium until the end of March. In addition, loans backed by Fan or Fred are eligible for a foreclosure extension for up to three months, and can defer payments for up to 15 months. “To keep families in their home during the pandemic, FHFA is allowing borrowers to be in COVID-19 forbearance for up to 15 months and extending the Enterprises’ foreclosure and eviction extension,” said FHFA Director Mark Calabria.
Fed Chairman Jerome Powell signaled that easy monetary policies will be in place for a while. The Fed is probably not going to “even think about withdrawing policy support” for the foreseeable future. He also said that monetary policy alone will be insufficient to get the economy going again and it will require fiscal stimulus and efforts from the private sector. “It will require a society-wide commitment, with contributions from across government and the private sector” What “contributions from the private sector” means is anyone’s guess. Here are the prepared remarks from his speech.
Mortgage delinquencies fell by 92 basis points in the fourth quarter to 6.73%, according to the MBA. This is an increase of 296 basis points compared to the fourth quarter of 2019. “For the second consecutive quarter, homeowners’ ability to make their mortgage payments improved,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “The 92-basis-point drop in the delinquency rate in the fourth quarter was the biggest quarterly decline in the history of MBA’s survey dating back to 1979. Total mortgage delinquencies across the three loan types – conventional, FHA and VA – and across the major stages of delinquency – 30-day, 60-day and 90-day – declined from last year’s third quarter.”
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.
Stocks are flattish this morning on no real news. Bonds and MBS are up.
Small business optimism fell below its historical average in January, according to the National Federation of Independent Businesses. “As Congress debates another stimulus package, small employers welcome any additional relief that will provide a powerful fiscal boost as their expectations for the future are uncertain,” said NFIB Chief Economist Bill Dunkelberg. “The COVID-19 pandemic continues to dictate how small businesses operate and owners are worried about future business conditions and sales.”
November 30 day delinquency rates rose to 5.9%, according to CoreLogic. This is an increase of 2 percentage points from a year ago. “The consistent decline in serious delinquency since August is a sign of growing financial stability for families. In addition to ensuring that homeowners stay in their homes, the decline in delinquency means fewer distressed sales, which is both a positive for individual households and the overall housing market.” Seriously delinquent rates rose from 1.3% to 3.9%.
The number of loans in forbearance fell last week to 2.7 million borrowers, according to the MBA. The forbearance percentage fell to 5.35% from 5.38% last week. “The share of loans in forbearance decreased at the end of January across all investor categories,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Almost 14 percent of homeowners in forbearance were reported as current on their payments at the end of last month, but the share has declined nearly every month from 28 percent in May. While new forbearance requests increased slightly at the end of January, the rate of exits picked up somewhat but remained much lower than in recent months. We are anticipating a sharp increase in exits in March and April as borrowers hit the 12-month expiration of their forbearance plans.” By stage, 16.52% of total loans in forbearance are in the initial forbearance plan stage, while 80.98% are in a forbearance extension. The remaining 2.50% are forbearance re-entries.
Mortgage credit improved slightly in January, according to the MBA. “The growth in credit availability in January coincides with a housing market that is poised for a strong start to the year,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Improvements were driven by the conventional segment of the mortgage market, as lenders added ARM loans with lower credit score and higher LTV requirements. Despite ARM loans accounting for a very small share of loans applications in recent months, lenders are likely looking ahead to a strong home buying season by expanding their product offerings.”
Stocks are higher this morning on no real news. Bonds and MBS are down.
The upcoming week is relatively data-light, with inflation data as the only potential market-moving numbers.
Janet Yellen said that if Congress passes the stimulus bill, the economy will return to full employment by 2022. “There’s absolutely no reason why we should suffer through a long slow recovery,” Yellen said during an interview on CNN’s “State of the Union.” “I would expect that if this package is passed that we would get back to full employment next year.” These comments have bond yields rising. The Fed’s December projection has unemployment falling to 4.2%, so I guess you could call that full employment.
FWIW, I guess this is conceivable, but something like one third of small businesses have failed during this pandemic. I don’t know that we have seen anything like that since the Great Depression, and I suspect it will take longer than a year or two to repair that damage. Most of these small business failures were retail, bars and restaurants. Their failures are then transmitted upwards to their commercial real estate landlords. But, remember Yellen is no longer a civilian, she is part of the Biden Administration, so she is talking her political book. It is part of the job description, and you should take her pronouncements with a grain of salt.
The pandemic has hit the hotel sector hard, so hard that many buildings can be bought at deep discounts and then re-purposed into affordable housing. “Apartments around here, you might pay $120,000 a door, and we can purchase these hotels probably $30,000 to $40,000 a door, and maybe put $10,000 a door into the renovations.”
Democrats are mulling a $15,000 tax credit for first time homebuyers in an attempt to mitigate the affordability crisis caused by soaring home values. The fly in the ointment is the left wants to raise the tax rate on long-term capital gains. Since Democrats are going to use the reconciliation process to push through the stimulus bill (thus passing it without Republican votes) it might not matter, but it also does not allow for any D defections.
Ultimately the issue in the housing market is one of supply, not demand. Adding a tax credit will probably just push prices higher. More homebuilding is the need, not housing subsidies. But that is a harder issue since zoning is a local issue, and there are major internecine wars there with the Democrats. Building in the suburbs will be easier, but single family builders are still struggling with high input prices (lumber especially) and a shortage of skilled construction labor.
Merger mania in the mortgage space. Guaranteed Rate just bought Owning Corp, a direct-to-consumer lender in California. Note that Guaranteed Rate just bought Stearns lending as well, so the big players are bulking up for what might be the mother of all price wars down the line.
Stocks are higher this morning on no real news. Bonds and MBS are down.
The January jobs report showed that the economy added 49,000 jobs. The unemployment rate came in at 6.3%, while average hourly earnings increased 5.4% YOY. The increase in wages is certainly good news, however there still might be COVID noise in those numbers. The labor force participation rate slipped 0.1% to 61.4%.
Corelogic agreed to a buyout deal after a long sales process. The company is being bough by Stone Point Capital. Stone Point also owns Home Point.
United Wholesale reported origination of $54.7 billion in the fourth quarter, which was an increase of 71% compared to the fourth quarter of 2019. Gain on sale margin increased to 305 basis points.
Stocks are higher this morning on no real news. Bonds and MBS are down small.
Initial Jobless Claims fell to 779,000 last week. While the numbers are going in the right direction, we are still super-elevated, and above the days of the Great Recession.
Announced job cuts rose to 79,552 in January, according to outplacement firm Challenger, Gray and Christmas. “While cuts were higher than average last month, we are seeing a leveling off of announcements, which may bode well for recovery in the coming months. Companies may be reassessing their staffing levels and waiting on the impact of the relief bill before making any additional workforce decisions,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.
Productivity fell 4.8% in the fourth quarter as output increased 5.3% and hours worked increased 10.7%. Unit labor costs increased 6.8% driven by a 1.7% increase in compensation and the 4.8% decline in productivity. Unit Labor Costs have been rising steadily for the past year, although I wonder if COVID is introducing some statistical noise here. Note that manufacturing productivity is up, so this is a service sector phenomenon.
Janet Yellen has summoned regulators to discuss stock market volatility and the Gamestop phenomenon. This is similar to the pools that were operating 100 years ago, except the floor traders aren’t in on it any more (since they don’t exist). If you read Reminiscences of a Stock Operator you will read about a similar phenomenon. By the way, IMO Reminiscences is THE treatise on momentum trading (though he didn’t call it that).
I am not sure what regulators can do about this situation. Ultimately, you don’t have big, controllable institutions behind it, and the market-maker adult supervision of the markets disappeared a long time ago. NYSE floor specialists don’t control the flow any more, and NASDAQ market-makers have been eliminated as trading commissions are so low that it doesn’t make sense to take risk any more. The Gamestop situation may simply be nothing more than the unintended consequence of lowering transaction costs to the floor.
Zillow has a report out on suburban versus urban housing markets. The punch line:
Suburban homes sold faster than urban homes by the end of 2020, but home value growth, sales volume and Zillow web traffic in urban areas has kept pace with or exceeded levels in suburban areas.
Urban home value growth outperformed the suburbs in much of the Midwest, where homes are typically less expensive near city centers. In some of the most-expensive markets, including New York and San Francisco, urban housing demand softened relative to the surrounding suburbs.
Urban rent growth fell behind growth in the suburbs in 2020, but Zillow expects urban rents to quickly recover as the pandemic subsides.
Stocks are higher this morning as earnings continue to come in. Bonds and MBS are down.
The ADP Employment Report said that 174,000 jobs were created in January, which was above expectations. While the typical categories of professional services and healthcare added jobs, leisure and hospitality added 35,000 positions as well, which are desperately needed. “The labor market continues its slow recovery amid COVID-19 headwinds,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although job losses were previously concentrated among small and midsized businesses, we are now seeing signs of the prolonged impact of the pandemic on large companies as well.”
Mortgage applications increased by 8.1% last week, according to the MBA. Refis increased by 10% while purchases were more or less flat. “After increasing for three consecutive weeks, the 30-year fixed mortgage rate dropped 3 basis points to 2.92 percent,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The one-week reversal in the recent upswing in rates drove an increase in both conventional and government refinance activity, as borrowers continue to lock in these historically low rates.”
The homeownership rate increased 0.7% year-over-year to 65.8%, however it slipped compared to the third quarter of 2020. Rental vacancy rates were more or less unchanged at 6.4%. The huge jump in the homeownership rate during the second and third quarters is strange, and I am not sure what caused that.
Stocks are higher this morning as earnings continue to come in. Bonds and MBS are down.
The number of loans in forbearance was unchanged at 5.38%, according to the MBA. “While new forbearance requests dropped slightly, the rate of exits from forbearance was at the slowest pace since MBA began tracking exit data last summer,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Overall, the forbearance numbers have been little changed over the past few months. Homeowners still in forbearance are likely facing ongoing challenges with lost jobs, lost income and other impacts from the pandemic.”
The CFPB is going after servicers who they claim gave borrowers “inaccurate and incomplete information” about forbearance. The agency alleges that some servicers continued to collect late fees and sent notices about the loan being past due.
Home prices increased 9.2% in December, according to CoreLogic. “Two record lows are fueling home price gains: for-sale inventory and mortgage rates. Prospective sellers with flexible timetables have opted to delay listing their home until the pandemic fades or they are vaccinated. We can expect more inventory to come available in the second half of the year, leading to slowing in price growth toward year-end.” Inventory is 24% lower on average compared to 2019.
The Congressional Budget Office sees a rapid economic recovery in 2021, with GDP growth around 3.7%. Unemployment is expected to fall to 5.3% this year and return to 4% between sometime in the 2024-2025 timeframe. This is a change from their expectation over the summer that the pandemic would lop about $7.9 trillion off of GDP over the next decade. The CBO attributes this change of heart to the vaccine, but I don’t think that is what is going on. There is a persistent partisan bias to Fed projections as well as CBO projections. The Fed consistently overshot GDP projections during the Obama admin and then consistently undershot GDP projections during Trump. The CBO’s change of heart is just more of the same. It is just partisan wishful thinking. The elephant in the room is still the government-engineered sovereign debt bubble, and nobody has a clue how that ends.
The manufacturing economy continued to recover in January, according to the ISM Survey. The persistent message in the survey is shortages. Every commodity is in short supply, while skilled labor is hard to find. We saw similar sentiments expressed by logistics REIT Prologis in its fourth quarter earnings call. It says that inventory to sales ratios are at record lows, and the COVID-19 pandemic highlighted the risks of operating with too little inventory. The big question regarding these shortages concerns inflation. I think most people are seeing inflation at the supermarket, and we will see what is happening with wage growth this Friday. Is this increase in inflationary pressures nothing more than a temporary COVID-19 related phenomenon or something more permanent?
Stocks are higher this morning on no real news. Bonds and MBS are flat.
The upcoming week will have some important economic data at the back end, with the jobs report, the ISM numbers, and productivity. We will also have a lot of Fed-speak.
Mortgage Servicers are going to be a target for the CFPB. In an email to staff, the new acting director laid out the priorities for the CFPB and intends to reverse the changes that Mick Mulvaney made. The email laid out the various issues that it found last year
Mortgage servicers gave consumers incomplete and inaccurate information about CARES Act forbearances, failed to process forbearance requests, and collected and assessed late fees despite having approved forbearances.
Servicers withdrew money even though consumers were in deferment.
One student loan servicer denied thousands of forbearance extensions because the loan holder never responded.
Companies across markets misreported accounts to credit bureaus and violated CARES Act amendments that added protections to the Fair Credit Reporting Act.
Some banks set off stimulus payments and unemployment insurance benefits in order to cover bank fees and other debts.
Examiners found that the widely used policy of banks only taking PPP applications from pre-existing customers may have a disproportionate negative impact on minority-owned businesses.
There will be a big focus on fair lending as well. The agency is going to rescind the letters put out by Mick Mulvaney and reverse all the changes me made. The CFPB is going to return to the bad old days of regulation by enforcement action. Be prepared.
I expect the net result of this will be a decrease in mortgage credit at the low end of the FICO curve. VA IRRRLs are going to decrease, and I think banks will continue to avoid FHA like the plague. Bottom line, the regulators will look at the amount of money the industry made last year and they want a cut. Keep your heads down.
The G-Stonk (Gamestop, for those not familiar) saga seems to be winding up, although I think they aren’t squeezing hedge funds any more. While Robinhood is no longer accepting buy orders, this only mirrors what the institutions have done. Prime Brokers are demanding 100% margin on the long side and 300% margin on the short side. Margin calls are rough sledding on the long side, but on the short side they are 1000% worse. When you are short, your position size increases the more wrong you are, and the amount of margin your prime broker requires increases exponentially. And since the prime broker has to cover the losses if the hedge fund defaults, they aren’t going to let the position get out of hand. I suspect the hedgies are long gone, and this is nothing more than a game of greater fool with a bunch of Redditors. Why Gamestop has not taken advantage of this to do a secondary share offering and retire debt is beyond me.
Supposedly, the next target is silver. I think these folks are about to find out that the futures exchanges have a completely different set of rules than stock exchanges, with position limits, trading limits, and variance margin. Not only that, the silver market has seen this movie before.
What to make of all of this? IMO, this is nothing more than “fin de bull market” behavior. When bull markets get long in the tooth, they get harder and harder to trade, as the crappiest stocks tend to rally the most, while pockets of value are ignored.
For those that are old enough to remember, in the late 1990s, you would find ads for stock split beepers in the back of Barron’s. These were pagers which would send an alert that a stock split had been announced, and to get in the name. Stock splits are not value-enhancing events; they increase the shares outstanding, and the stock price generally falls in proportion. Instead of owning 100 shares of a $20 stock, you now own 200 shares of a $10 stock. Does it make the company worth more? Of course not. But, in the late 90s, a stock split, or a company changing its name from Zapata to Zap.com could get a stock moving.
I remember monitoring the IRC chatrooms to see if the daytraders were moving a name I was involved in. Most of the time it was garbage names that did a moon-shot and then fell back to earth. This is no different. This feels like late nineties silliness, when CNBC replaced ESPN in the barber shops, and retail investors poured money into garbage names like CMGI and Ask Jeeves.
This is end result of “too much money chasing too few investments” courtesy of the Fed. The drop-dead date is when the Fed takes the punch bowl away, which is probably a year away at least. That said, it could easily end sooner. One of the best investors of all time is George Soros, and he made the most money in these situations, not fading the crowd, but riding along with it. If you are a buy-and hold investor, don’t try and time it; just keep doing what you are doing.
Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojkt
All Things in Moderation 