Morning Report: GDP growth estimates falling

Vital Statistics:

  Last Change
S&P futures 4,481 28.2
Oil (WTI) 70.59 0.95
10 year government bond yield   1.33%
30 year fixed rate mortgage   3.07%

Stocks are higher this morning as commodities continue to rally. Bonds and MBS are flat.


The upcoming week will contain some important economic data with the consumer price index, industrial production, retail sales, and consumer sentiment. We won’t have any Fed-speak this week as we are in the quiet period ahead of next week’s FOMC meeting.


Foreclosure activity picked up after the Federal Government’s foreclosure moratorium expired at the end of August. “As expected, foreclosure activity increased as the government’s foreclosure moratorium expired, but this doesn’t mean we should expect to see a flood of distressed properties coming to market,” said Rick Sharga, Executive Vice President at RealtyTrac, an ATTOM company. “We’ll continue to see foreclosure activity increase over the next three months as loans that were in default prior to the moratorium re-enter the foreclosure pipeline, and states begin to catch up on months of foreclosure filings that simply haven’t been processed during the pandemic. But it’s likely that foreclosures will remain below normal levels at least through the end of the year.”

Professional investors hoping for a 2008-style foreclosure deluge of distressed merchandise will be disappointed. Unlike 2008, hope prices are appreciating at close to a 20% clip. Very few (if any) of these properties will be underwater, and therefore will be “money good” for the lender. Given the housing shortage, there will be plenty of buyers and any foreclosure discount will be minimal.


Mortgage bankers expect profit margins to decline according to Fannie Mae’s third quarter Lender Sentiment Survey.

“Mortgage lenders appear to have adopted a more neutral posture, reporting to us via the MLSS mixed expectations for purchase and refinance mortgage demand over the next three months,” said Fannie Mae Vice President and Deputy Chief Economist Mark Palim. “In the third quarter, more lenders than not reported expectations that purchase mortgage demand will continue to grow, though the total share expecting such growth fell substantially compared to the previous quarter. Meanwhile, a plurality of mortgage lenders expects refinance activity to continue to wane from the highs of the past year and a half – even so, their outlook on likely refi volumes was improved compared to the prior quarter. Of the lenders who expect purchase mortgage demand to decrease in the coming months, high home prices and a limited supply of homes for sale were the primary reasons given – these were also among the top reasons provided by the 63% of consumers who believe it’s a ‘bad time to buy a home’, according to our latest Home Purchase Sentiment Index® result.”

“On net, mortgage lenders’ profitability outlook improved slightly from last quarter, although more lenders than not continue to expect profit margins to decline in the months ahead,” Palim continued. “The primary-secondary spread, an indicator of potential profitability, remains wider than the previous decade’s average – a positive sign for lenders – though in August it was at its narrowest since February and 53 basis points below the peak seen in August 2020. While lenders continue to overwhelmingly cite increased competition as their primary concern regarding future profitability, the share citing personnel costs for their diminished profit margin outlook increased significantly, suggesting that mortgage lenders’ ability to efficiently manage their workforces will be critical to their bottom lines as competitive pressures remain intense.”


The meta-story for 2021 was that a rapidly accelerating economy into the end of the year was going to force interest rates higher. Instead, it seems like the big second-half rebound is not materializing. According to the Atlanta Fed’s GDP Now index, growth is expected to come in at 3.7% for the quarter ending September 30. As recently as three weeks ago, the index was predicting 6% growth.

13 Responses

  1. Typo:

    “Unlike 2008, hope prices are appreciating at close to a 20% clip.”


  2. Interesting theory:

    “The Next Decade Could Be Even Worse

    A historian believes he has discovered iron laws that predict the rise and fall of societies. He has bad news.

    By Graeme Wood
    December 2020 Issue

    The year 2020 has been kind to Turchin, for many of the same reasons it has been hell for the rest of us. Cities on fire, elected leaders endorsing violence, homicides surging—­­to a normal American, these are apocalyptic signs. To Turchin, they indicate that his models, which incorporate thousands of years of data about human history, are working. (“Not all of human history,” he corrected me once. “Just the last 10,000 years.”) He has been warning for a decade that a few key social and political trends portend an “age of discord,” civil unrest and carnage worse than most Americans have experienced. In 2010, he predicted that the unrest would get serious around 2020, and that it wouldn’t let up until those social and political trends reversed. Havoc at the level of the late 1960s and early ’70s is the best-case scenario; all-out civil war is the worst.

    The fundamental problems, he says, are a dark triad of social maladies: a bloated elite class, with too few elite jobs to go around; declining living standards among the general population; and a government that can’t cover its financial positions.”


    • Reminds me of the Fourth Turning


    • Seems pretty straight-forward. Will read it. It’s my opinion that in the modern era, starting from the discovery of the ability to make fire/domesticate livestock/farm land, then the brass/iron ages, then the industrial age, and now the Information Age. Each major technology innovation that spreads broadly causes societal upheaval. And the Information Age is a huge transformational change that’s going to wreak all sorts of havoc (independent of other factors that cause havoc) for, I expect, a time frame that extends beyond my lifespan—possibly long beyond.

      Bloated elite class and declining living standards are just symptoms and also variable to some extent in a way the technological Revolution going on is not. In fact in many ways living standards are as good or better than they’ve ever been—but modern communications and social media can both make us hyperaware of those who have better circumstances and also allow others to much more easily foment resentment. Many of the new elites have been produced by the information Revolution.

      I blame technological progress.


      • In the past 125 years, we have rocketed up Mazlow’s hierarchy of needs.

        Unintended consequence of having to only focus on self-actualization.


    • “He was a counter-elite who used Trump to break through, to put the white working males back in charge,” Turchin said.

      The constant reliance on a narrative that insists on casting ideological and class conflicts in terms of race, every time, begin to grow tedious to me.


  3. Interesting twist of events:


    • I’m not sure McGowan is credible on this, although it wouldn’t surprise me if true.


      • I think the reported phone call is true:

        “‘So this woman, I don’t know, some blonde lady name with the last name of the Newsom, cold-calls me, and was like, David Boies wants to know what it would take to make you happy,’ McGowan said she was asked by California First Lady Jennifer Siebel Newsom during a 2017 phone call, which she says she abruptly ended by hanging up.”

        But I’m not sure if it’s that big of a deal.


    • Surprise level: zero.

      At least 12,000 Americans have already died from COVID-19 this month, as the country inches through its latest surge in cases.

      I question that number, too, because of the significance of co-morbidities in so many of the cases. For the one family who fought the hopsital’s designation of their mother as having died from COVID when she had been suffering from terminal cancer and, according to them, died from that, there would have to be hundreds where the family is just grieving.

      Just like when they talk about the children who died from COVID or have super-severe COVID but only occasionally show the pictures of those kids–and every picture I’ve actually seen of a “healthy child” who died from COVID shows a kid who is morbidly (and I mean morbidly) obese.

      The reportage which talks about COVID as if it’s the only relevant factor seems unhelpful. And I don’t know but would expect many of the negative vaccine reactions we’ve seen–including death–are also more about co-morbidities than the vaccine. But apparently we can’t talk about that.


  4. As Gemma Reynolds says, “rationing is not so much a means but and end.”

    I mentioned earlier Biden’s rationing monoclonal antibodies.


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