Morning Report: Home prices still rising at a double-digit pace

Vital Statistics:

 LastChange
S&P futures3947-11.4
Oil (WTI)60.08-1.42
10 year government bond yield 1.75%
30 year fixed rate mortgage 3.31%

Stocks are flattish as we head into the last week of the quarter. Bonds and MBS are down.

A major hedge fund blew up last week, and so some of the weakness you may be seeing in certain names is a result of it. Most of the risk appears to be overseas.

Some of the weakness in Treasuries is due to the Supplemental Liquidity Ratio issue that expires at the end of the month. Banks may be selling Treasuries and MBS into the end of the quarter to get their weightings in line.

Annaly Capital (a big mortgage REIT) just reached a deal to sell its commercial real estate business for about $2.3 billion. It will re-deploy that cash back into the agency and residential loan space. I have to imagine mREITs like Annaly will be drawn to the potential returns in AUS-compliant / non-guaranteed mortgages, and they will be a source of demand for that paper.

Home prices are still rising at double-digit rates. The Case-Shiller Home Price Index rose 11% YOY, while the FHFA Home Price index rose 12%. With inventory levels at all-time lows, and lots of institutional money flooding into the space looking for rentals home prices will have an upward trajectory.

Forbearances fell again last week, according to the MBA. The total number in forbearance fell below 5% to 4.96%. “More than 17 percent of borrowers in forbearance extensions have now exceeded the 12-month mark.” Fratantoni noted. “Many homeowners need this support, even as there are increasing signs that the pace of economic activity is picking up as the vaccine rollout continues. Those who have an ongoing hardship due to the pandemic and want to extend their forbearance beyond the 12-month point need to contact their servicer. Servicers cannot automatically extend forbearance terms without the borrower’s consent.”

The Center for Disease Control extended the eviction ban to June 30. “The COVID-19 pandemic has presented a historic threat to the nation’s public health,” said CDC Director Dr. Rochelle Walensky. “Keeping people in their homes and out of crowded or congregate settings — like homeless shelters — by preventing evictions is a key step in helping to stop the spread of COVID-19.”

The SEC and FICC are proposing higher margin amounts for TBA trading firms. In the wake of the bond market volatility a year ago, when the Fed pushed rates down to 0%, a wave of margin calls hit the industry. This worried the regulators, so they are looking to prevent this from happening again by requiring additional margin up front. The punch line is that when you ask your TBA broker for more capacity, don’t be surprised if they ask for you to drop your margin threshold in exchange.

30 Responses

  1. I once wrote a long review of all the things I thought Thomas Franks’ “What’s The Matter With Kansas” got wrong.

    https://www.amazon.com/gp/customer-reviews/R82Y58KTK7CEC?ref=pf_ov_at_pdctrvw_srp

    Man, it is long.

    That being said, he’s on the right side of the “should we censor everyone we disagree with?” argument:

    https://taibbi.substack.com/p/has-american-liberalism-abandoned?token=eyJ1c2VyX2lkIjo4NTc0NzI2LCJwb3N0X2lkIjozNDU1MTg5NiwiXyI6ImlqVWlBIiwiaWF0IjoxNjE3MTQ1MzI4LCJleHAiOjE2MTcxNDg5MjgsImlzcyI6InB1Yi0xMDQyIiwic3ViIjoicG9zdC1yZWFjdGlvbiJ9.SziVRsaSyAXubo_QhvhHx_9TQtdOkFvZ42q90gk6hhE

    “Criticism, analysis, mockery, and protest: these were our weapons,” he wrote. “Censorship and blacklisting were, with important exceptions, the weapons of the puritanical right.”

    I would still say his view of the right-wing now and 15 years ago is cliched, but that’s neither here nor there.

    I had very few people deny that what I was describing was censorship. These calls by the New York Times for a reality czar, all of these Democrats in committees basically pushing the Silicon Valley firms to crack down on the right, to crack down on what they call hate speech, that sort of thing — that’s obviously censorship. That is people proposing a censorship regime. That is clearly what is happening.

    I’ve had very few people say, this is not censorship. Instead, I had people saying, well, it’s time we got down to doing this. That by itself is really quite alarming.

    Ultimately, if this is going to get any serious push back, it has to come from left-of-center. So I’m not holding my breath.

    And Franks still is wrong about what things look like on the right. He says “the right has all the money”, etc. Which is self-evidently not true.

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    • That was a great interview….

      Like

    • “Censorship and blacklisting were, with important exceptions, the weapons of the puritanical right.”

      When? When did the “puritanical right” control Hollywood, Publishing, Academia, etc? When has the “puritanical right” ever had the ability to censor anyone? Never.

      I mean Tipper Gore didn’t have any real power, all she could do was hold some show hearings.

      And Joe McCarthy was a piker compared to Woodrow Wilson.

      McCarthyism is the cultural left’s version of the Triangle Shirtwaist Factory.

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      • Brent:

        When? When did the “puritanical right” control Hollywood, Publishing, Academia, etc? When has the “puritanical right” ever had the ability to censor anyone? Never.

        I had the exact same reaction when I read that interview this morning. Even Frank’s anecdotal example that supposedly confirms the claim actually debunks it. The woman who wanted to ban books from the library when he was a kid, and which apparently informs his view of the “puritanical right”, had exactly zero success doing so and was widely viewed as a nut in what even he regards as deeply conservative Kansas.

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      • Symbolism over substance. Local book bannings, Meese’s porn commission, the HUAC and Hollywood (whoops, those were Democrats, but nobody remembers that so …). John Ashcroft covering up statues.

        That’s the set of non-comparable things they shoehorn into the depiction of the censorious right. Burning Dixie Chicks CDs, banning them from airplay on country stations. Protests about Elvis and the Beatles.

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    • KW:

      And Franks still is wrong about what things look like on the right. He says “the right has all the money”, etc. Which is self-evidently not true.

      I read this interview this morning and was going to post it here, but you beat me to it!

      You are absolutely right about Frank. He is right about what is currently going on, but it doesn’t seem to have disturbed his cliched view of Republicans or his romanticized view of the Dems (a view that seems to be shared to at least some extent by Taibbi). He complains that:

      Do you remember my theory about the Democrats and liberals generally, if they become a class party, they’re a big coalition — but they’re dominated now by professional, elite, white-collar professionals, people with advanced degrees.

      We don’t need to go into the details here, but one of the features of professionals, obviously, is that they know. They have advanced degrees. They answered your professional code. They’re part of a community of experts, and Democrats and liberals generally think like this now.

      Now?!?! This has been the Democratic party for literally over a century! Government rule by “experts” has been the progressive modus operandi since Woodrow Wilson, who was quite explicit that this was his goal. It is what drove FDR’s creation of the bureaucratic state, it was evident (as even Frank acknowledges) in JFK’s approach, and of course Obama goes without saying. The authoritarian impulse and rule by the “knowing” class has been fundamental to Democratic politics for over a century.

      Like

      • It’s all under-layered with the conceit that man can be perfected.

        Like

      • I think he says “now” because of the power of the Blue Dog Democrats and the preponderance of conservative Democrats that moderated the Dems at different periods. So while you had California dems literally on the Soviet payroll in the 60s and 70s you’d also have southern Dems that were practically Republicans and workers coalition, Dem policy designed to appeal to union membership rather than union leaders, etc.

        You can’t expect lifelong Dems and liberals to just erase their rose-tinted view of their past affiliations. Frankly I’m surprised there aren’t more lefties in the “sure they Great Society was great and The War on Poverty is a template for good social policy, but this book burning and struggle session stuff is a bridge too far”.

        Like I said, if this stuff is going to be constrained the left is going to have to participate. So while I think Franks is fundamentally wrong about the history of progressives and their policies—we need more people like him on cancel culture and speech suppression.

        Like

        • This is going to have to burn itself out, IMO. People just have to get tired of it en masse.

          Like

  2. Scott, are you seeing any effects from this hedge fund or whatever that blew up? Was the run in VIAC them buying?

    Like

    • Brent:

      Was the run in VIAC them buying?

      I’ve been trying to understand what exactly happened. I’ve got no direct knowledge of this, but from what I have read, it seems that most of Archegos’s exposure came from derivatives (equity swaps/CFDs), not from direct stock purchases. So I suspect that what happened is that whoever was taking the other side of the swaps must have been hedging themselves by covering with stock purchases. That would have driven up the price of whatever the reference stock was (Viacom, etc.), as the more levered Archegos became, the more hedging their swap counterparties would have had to do. Once Arghegos stopped doing the swaps, and there was no more hedging happening, the underlying ref prices began to drop, resulting in margin calls to Archegos on the swaps. And if for some reason Archegos could not meet the margin calls, they would have been called in default and that would have triggered a massive dump of the hedges, resulting in even further and more precipitous drops of the underlying reference stocks.

      This is all pure speculation, but that is the only way I can makes sense of what I am reading and seeing.

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      • That is my take too. I don’t see the appeal of a crappy media company though.

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        • The one thing we were laughing about in the office when the story first came out…

          Nomura warns of large losses as a result.

          Credit Suisse says losses will be “significant”

          Goldman expects losses to be…immaterial.

          Of course…GS is always ahead of everyone else. They were selling before anyone else knew there was a problem.

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        • I am guessing Goldman offered less leverage too. I am surprised it never happened in the UK market, where everyone trades in CFDs

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        • Remember the good old days when Greenspan would deliver a rate cut whenever something like this happened?

          Good times.

          Like

  3. This is funny:

    Liked by 1 person

  4. UK commission essentially concludes there’s no racism in the UK and most problems are due to a lack of agency amongst those groups with racial grievances.

    Click to access 20210331_-_CRED_Report_-_FINAL_-_Web_Accessible.pdf

    Haven’t had a chance to read deeply but my sense is this report which is authored almost entirely by minorities/women will by attacked savagely by white progressives as white supremacy.

    Like

    • I just read the introduction, and it is impossible for me to imagine such a report being produced by a commission established by the Biden administration. It says things that, in the current environment in which the D party operates, are grounds for cancellation.

      Like

      • I can’t imagine that coming out of the US government even if Trump were president. Selective leaks and misquotes would have already saturated the media and headlines would be “Trump Admin Bullies Commission to Write Report Supporting White Supremacists and Endorsing Systemic Racism”.

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  5. More on that report:

    https://www.cnn.com/2021/03/31/uk/uk-racial-disparity-report-intl-gbr/index.html


    The report attributed poor outcomes for some minority groups, including educational failure and crime, “to family breakdown as one of the main reasons for poor outcomes.”

    “Family is also the foundation stone of success for many ethnic minorities,” the Commission’s chairman, Tony Sewell, wrote in the report.

    “Another revelation from our dive into the data was just how stuck some groups from the White majority are. As a result, we came to the view that recommendations should, wherever possible, be designed to remove obstacles for everyone, rather than specific groups,” he added.

    But of course:

    “It is a monumental denial of structural racial inequality in the UK, and in fact, they’re denying it even exists, which is frankly appalling,” said Simon Woolley, the founding director of Operation Black Vote, and who chaired the government’s race disparity unit between 2018 and 2020.

    Like

    • Worth noting that this racist whitewash of a report was almost entirely authored by black and brown people, in the current nomenclature.

      Like

      • KW:

        …authored by black and brown people, in the current nomenclature.

        Technically I think you are supposed to say “black and brown bodies”.

        Like

        • Damn it. I cannot keep up. I though black and brown bodies was only how we referred to BIPOCs when they were being exploited or harassed by police.

          Like

        • KW:

          I though black and brown bodies was only how we referred to BIPOCs when they were being exploited or harassed by police.

          You could be right about that.

          Like

    • “It is a monumental denial of structural racial inequality in the UK, and in fact, they’re denying it even exists, which is frankly appalling,” said Simon Woolley, the founding director of Operation Black Vote, and who chaired the government’s race disparity unit between 2018 and 2020.

      A strong indication that the report is on the right track!

      Like

      • The battle between woke progressives who only want power and their personal fiefdoms and between centrists/liberals/non-woke progressives who are actually interested in policy for reasons beyond their person power and self aggrandizement … that will be interesting. This does not read like a report authored by rock-ribbed conservatives.

        And like I noted earlier—almost everyone doing it was a POC. So while progressives will try to argue they are being white supremacists it makes their emotional appeals less emotionally appealing.

        Like

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