All Things in Moderation

Vital Statistics:

Stocks are flattish this morning after the House narrowly passed the budget bill. Bonds and MBS are down.

Bonds got smacked yesterday after a disappointing 20 year bond auction, which caused more selling in the stock market. MBS spreads widened as well. Bond investors are also monitoring the progress of the latest budget bill and how much it is expected to add to the national debt. The bond vigilantes are back.

Institutional Risk Analyst author Chris Whalen gave a good analysis of FHFA Chairman Bill Pulte’s address to the MBA. Pulte discussed how Democrats (especially Elizabeth Warren) were complaining about the removal of members of the Board of Directors for Fan and Fred. ““The boards of the GSEs don’t have a fiduciary duty to the Enterprises,” he noted. “They have a fiduciary duty to the conservatorship.” He then went on to say that the boards were “fake” and slowed the management of the Enterprises because they have no real function so long as the GSEs are under government control.”

The Biden Administration had added “layers of bureaucracy” in their management of the GSEs. Pulte said that FHFA intends to undo this. “If its not in the law, not in the actual statute, then it needs to go. We will do what Congress has told us to do, but if its not in the law, then we are not going to do it. What has happened in the last many years is that the FHA Director came up with these ideas and they would try to legislate from the bench, so to speak.”

Pulte also indicated that any move to release the GSEs from conservatorship would come from Trump. He also indicated that manufactured homes should have a bigger role in creating affordable housing, given their $100k – $150k cost to build. That said, manufactured homes are hard to finance because the land underneath them is usually leased and these homes depreciate about 3% – 5% a year.

Meanwhile, Trump has said he is giving “very serious consideration” to privatizing Fan and Fred. In a post on Truth Social, he said “Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right,” Trump said, without providing further details. The equity of the GSEs is probably around $350 billion or so, which the government would love to access. Raising that amount of equity would dwarf by magnitudes the largest IPOs ever, so that might be a bridge too far.

FHFA Director Bill Pulte is jawboning FICO about rising costs to pull credit.

Economic activity slowed in April, according to the Chicago Fed National Activity Activity Index, which is a meta-index of some 80+ economic indicators. Production and income indices (think the Fed manufacturing indices and ISM numbers) fell, probably due to tariffs. Employment was flat, while sales and consumption indicators fell modestly. The baseline in the index is historical trend growth, so a negative number does not mean a decline, just that the index numbers is below historical 3% (or so) growth.

In other economic news, Initial Jobless Claims fell to 227k from 229k. So far we are seeing little-to-no impact of the tariff shock in the labor market numbers.

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