Morning Report – Eric Holder thinks Wall Street wasn’t the sole cause of the financial crisis 5/13/14

Posted on May 13, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1894.9 2.1 0.11%
Eurostoxx Index 3212.1 5.1 0.16%
Oil (WTI) 101.3 0.7 0.72%
LIBOR 0.224 -0.001 -0.56%
US Dollar Index (DXY) 80.02 0.117 0.15%
10 Year Govt Bond Yield 2.63% -0.03%
Current Coupon Ginnie Mae TBA 106 0.0
Current Coupon Fannie Mae TBA 104.8 0.1
BankRate 30 Year Fixed Rate Mortgage 4.25

 

Stocks are flattish after a dismal retail sales report for April. Bonds and MBS are rallying on the number.
Retail sales came in at +.1% vs a Street expectation of .4%. Ex-autos and gas, retail sales dropped. March was revised higher, however so the news isn’t all bad. Looks like we had a weather-related rebound in March and sales went right back to their old ways.
Import Prices fell in April, not that the Fed is worried about high inflation or anything. Emerging market economies are slowing down, and they tend to try and export their way out of problems.
Small business optimism increased in April, according to the National Federation of Independent Businesses. This is the first time the index reached 95 since October 2007. Firms added an average .07 workers in April, weaker than March, but it still continues the 7-month string of increasing hires. 57% of firms increased capital expenditures. Credit availability is not an issue.

Is Eric Holder about to finally wind up his punishment of the banks? Interesting quote from Holder: “I am impatient,” Mr. Holder said in an interview. “We’re talking about conduct that contributed to the greatest financial disaster since the Great Depression. Not the sole cause, but contributed to it, so this is a priority, and that’s why I’m dedicating so much time to it.”

“Not the sole cause, but contributed to it.” Has anyone heard any other explanations of what caused the housing bubble and the crisis from the left? The Fed? Nope. The dual mandate? Nope. Housing subsidies? Nope. Affordable Housing Targets? Nope. I would love to hear someone from this administration elucidate some of the other reasons for the crisis, because all I hear is “The Wall Street Sharpies did it.” Of course the the other causes (the dual mandate, do-gooder social engineering gussied up as housing policy) are policies near and dear to the hearts of the left. In fact lack of affordable housing targets are the reason why GSE reform is going nowhere – because the left wants mandates, not just incentives. Proving once again that nobody learned a damn thing from the crisis and that it was explained and prosecuted entirely on ideological lines. Phil Angeledis’ Financial Crisis Inquiry Commission report was a sham that should have been signed Epstein’s mother.

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Morning Report – Another slow week on tap 5/12/14

Posted on May 12, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1880.2 6.8 0.36%
Eurostoxx Index 3200.2 16.1 0.51%
Oil (WTI) 100.4 0.4 0.44%
LIBOR 0.225 0.001 0.45%
US Dollar Index (DXY) 79.8 -0.103 -0.13%
10 Year Govt Bond Yield 2.64% 0.02%
Current Coupon Ginnie Mae TBA 106 -0.1
Current Coupon Fannie Mae TBA 104.8 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.22

 

Markets are higher this morning on strength in commodity prices. Bonds and MBS are down small.
No economic data this morning – we should get delinquencies and foreclosures from the MBA sometime this week. Tomorrow will probably have the most important data for the bond market with retail sales. The Street is expecting a .4% increase in the headline number. We get some inflation data with the CPI and the PPI this week, but inflation isn’t going to move the markets. Finally on Friday we get housing starts and building permits. I feel like Linus in the pumpkin patch waiting for my 1.5 million housing starts print, which has been normalcy over the past 50 years.
Of course the fly in the ointment for housing starts are the Millennial generation, which is depressing household formation and labor mobility. Workers are risk averse and unwilling to move given that companies no longer are willing to pay relocation costs, or even to fly applicants out for an interview. You end up in a situation where you have labor shortages and labor gluts. Of course this dynamic will change once the economy starts moving again, but this is yet another headwind.
Bill Gross cut his holdings of MBS in his Total Return Fund from 23% to 19%. He upped exposure to U.S. corporates and emerging markets debt. Duration was reduced to 4.73 years. This looks like a modest bet on economic strengthening. Separately, Atlanta Fed Head Dennis Lockhart says the economy should hit 3% growth in Q2.

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Morning Report – looks like housing reform isn’t happening this year.

Posted on May 9, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1870.5 -1.8 -0.10%
Eurostoxx Index 3186.8 -17.5 -0.55%
Oil (WTI) 100.7 0.5 0.46%
LIBOR 0.224 0.001 0.34%
US Dollar Index (DXY) 79.74 0.375 0.47%
10 Year Govt Bond Yield 2.62% 0.00%
Current Coupon Ginnie Mae TBA 106.4 0.1
Current Coupon Fannie Mae TBA 105 0.0
BankRate 30 Year Fixed Rate Mortgage 4.21

 

Markets are flattish on no real news. Bonds and MBS are down small.
Job openings decreased to 4 million from 4.1 million in March
J.P. Morgan is getting into the jumbo business. Jumbo rates are still about 12 basis points lower than rates on a conventional loan. It is also a way to leverage the private client business, which makes sense. At BNY – clients can get 100% financing by pledging investment assets as collateral. They also offer 90 day locks. Again, this is largely for high net worth clients who are paying the bank asset management fees.
Liberals on the Senate Banking Committee have rejected the housing finance reform bill. The bill will probably still clear the committee, but the left is complaining that there is not enough mandates for affordable housing lending. That said, given the rejection on the part of the left housing reform is probably dead for this year. If Republicans end up taking the Senate, the left will wish it played ball.

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Morning Report – people think mortgages are getting harder to get 5/8/14

Posted on May 8, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1870.4 -3.8 -0.20%
Eurostoxx Index 3176.4 16.7 0.53%
Oil (WTI) 100.2 -0.6 -0.61%
LIBOR 0.223 -0.001 -0.27%
US Dollar Index (DXY) 79.24 0.037 0.05%
10 Year Govt Bond Yield 2.60% 0.01%  
Current Coupon Ginnie Mae TBA 106.3 0.0  
Current Coupon Fannie Mae TBA 105.5 0.1  
BankRate 30 Year Fixed Rate Mortgage 4.2    

 

Markets are down small on no real news. Bonds and MBS are down as well.
 
Initial Jobless claims came in at 319k, a decent number.
 
Janet Yellen spoke yesterday, but nothing market-moving came out of it. The punch line is that ending asset purchases remains appropriate, but it is still too early to think about increasing interest rates. She declined to give any sort of timeframe as to when it might be appropriate to raise rates. The Fed is anticipating a rebound in Q2 after a dismal Q1. She mentioned that she saw “reaching for yield” in the high yield bond market (as if the Fed has nothing to do with that). The Fed is also considering whether additional measures might be necessary to deal with the too-big-to-fail banks. 
 
So far earnings season has not been kind to the tech stocks. Erstwhile darlings like FireEye (FEYE) and Twitter (TWTR) have been demolished over the pat few months. FireEye is down 71% since early March, and Twitter is down 43%. It has been a rough market for some of these darlings that disappoint. Vol traders have to be loving life. Momentum traders, not so much.
 
Chart: Twitter stock price
 

 

 

Fannie Mae’s April Housing Survey is out, and there are a few interesting tidbits. The first one is that that people think it is harder to get a mortgage now than it was a few months ago. As anyone in the business can tell you, bankers are easing terms, not tightening them. In March, the 47% of respondents said it would be difficult to get a loan, vs 52% who thought it would be easy. Now, it is 52% think it would be hard, vs 45% who think it would be easy. That is a surprising result.
 

 

The second interesting tidbit is an increase in the number of people who think now is a good time to sell. The percentage of people who think it is a good time to buy are largely unchanged, but the potential sellers are increasing. This will hopefully portend an increase in purchase activity as we fix the low inventory problem.

 

 

Speaking of inventory, professional investors are marketing bonds issued against rental properties. Blackstone plans a $1 billion issue, after American Homes 4 Rent did a half a billion issue last month. I figured the pros would at some point become sellers, but I guess the opportunity cost of capital right now is exceptionally low. With home prices up 23% in some places they can’t be looking at high single digit rental yields anymore. 

 

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Morning Report – Household formation and housing starts 5/7/14

Posted on May 7, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1867.8 3.5 0.19%
Eurostoxx Index 3157.6 7.9 0.25%
Oil (WTI) 100.3 0.8 0.83%
LIBOR 0.224 -0.001 -0.40%
US Dollar Index (DXY) 79.16 0.063 0.08%
10 Year Govt Bond Yield 2.61% 0.02%
Current Coupon Ginnie Mae TBA 106.1 -0.2
Current Coupon Fannie Mae TBA 105.2 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.22

 

Markets are higher this morning on no real news. Bonds and MBS are down.
Mortgage Applications rose 5.3% last week. Purchases were up 8.9%, while refis were up 5%. Refis are now under half of all applications.
Productivity fell in the first quarter as cold weather hampered economic activity. Unit labor costs rose much higher than expected, by 4.2%. On a year-over-year basis, unit labor costs increased .9%. The drop in productivity could be a harbinger of more hiring – companies have squeezed about all they can out of current staff, and if demand picks up they will have to hire more people.
The NAHB Leading Market Index shows that economic activity continues to expand slowly but surely. Builder sentiment continues to improve, especially in the energy states. Everyone is waiting for the job market to make a jump to the next level, which will release all of this pent-up demand. There is a tremendous amount of pent-up demand for housing, given the difference between household formation and housing starts. Household formation typically is depressed during recessions, and then rebounds as the economy recovers. If you look at the chart below of housing starts vs household formation, you can see how household formation is rebounding, yet housing starts are still at recessionary levels, 6 years on. Housing starts of 900k have been associated with the bottoms of recessions. They have been a fact of life since 2008. When you take into account normal obsolescence, you can see we have a shortage of housing already.

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Morning Report – Mel Watt to speak next week 5/6/14

Posted on May 6, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1872.8 -3.0 -0.16%
Eurostoxx Index 3145.6 -25.7 -0.81%
Oil (WTI) 99.57 0.1 0.09%
LIBOR 0.225 0.002 0.90%
US Dollar Index (DXY) 79.08 -0.402 -0.51%
10 Year Govt Bond Yield 2.59% -0.01%
Current Coupon Ginnie Mae TBA 106.1 0.0
Current Coupon Fannie Mae TBA 105.1 0.1
BankRate 30 Year Fixed Rate Mortgage 4.35

 

Markets are lower this morning on no real news. Bonds and MBS are up.
Interesting take on why interest rates are holding firm even in the face of stronger economic data. New rules intended to bolster pension funds may have just created $300 billion in extra demand over the next two years. Given that there are only $642 billion of 10 year + treasuries outstanding, this is a lot of incremental demand. This would partially explain why interest rates have largely shaken off the Fed’s tapering.
The latest Black Knight (formerly known as Lender Processing Services) mortgage monitor is out. Delinquencies and foreclosures continue to decline. As we have seen in other data, home price appreciation has been much higher in the non-judicial states than the judicial ones.
Mel Watt is due to speak on May 13, and he may signal a pause in reducing the government’s footprint in the mortgage market – a break from the policy of his predecessor, Ed DeMarco. Expect to see easier credit standards at Fannie, Freddie, and Ginnie. There is concern in government circles regarding affordability, especially for the first time homebuyer. Note that D.R. Horton emphasized the need for government intervention to help first time homebuyers.
The government came out with a study showing that global warming is currently costing the economy billions of dollars. This study was basically done at the WH’s behest, so take it with a grain of salt. obama will be trumpeting the study today in an effort to whip up the base for the 2014 midterms.

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Morning Report – Chinese growth continues to slow 5/5/14

Posted on May 5, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1867.0 -7.4 -0.39%
Eurostoxx Index 3136.3 -41.6 -1.31%
Oil (WTI) 100.1 0.4 0.38%
LIBOR 0.223 0.000 0.00%
US Dollar Index (DXY) 79.49 -0.022 -0.03%
10 Year Govt Bond Yield 2.58% -0.01%  
Current Coupon Ginnie Mae TBA 106.2 0.0  
Current Coupon Fannie Mae TBA 105.2 0.0  
BankRate 30 Year Fixed Rate Mortgage 4.4    

 

Stocks are down after Chinese PMI came in light and showed contraction in the manufacturing sector for the fourth month in a row. Bonds and MBS are rallying.
 
What is going on in the bond market? Bonds seem to be factoring in a global slowdown as China decelerates and the US slows. This has pushed yields to the lowest level since early February and puts it at the bottom of the tight 2.56% – 2.8% trading range we have experienced since then. I wouldn’t bet on this continuing, so if you had any borrowers who were waiting for lower rates, wake them up.
 
Chart: 10 year yield:
 

 

This week promises to be dull on the economic front, as the week following the jobs report usually is. Don’t expect any market-moving releases this week. Earnings season continues, and we will hear from mortgage REIT giant Annaly Capital. During their fourth quarter earnings conference call, Annaly said they intended to build up their balance sheet and increase their portfolio of agency MBS. Based on the chart above, that was a good call. 

 

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Weekend Open Thread

Posted on May 3, 2014 by Let the mutherfuker burn!

Put all new comments here or face Lms’s wrath!

Filed under: Open Thread | 18 Comments »

Morning Report – good payroll numbers but labor force participation rate disappoints 05/02/14

Posted on May 2, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1881.2 3.5 0.19%
Eurostoxx Index 3188.2 -10.5 -0.33%
Oil (WTI) 99.85 0.4 0.43%
LIBOR 0.223 0.000 0.00%
US Dollar Index (DXY) 79.8 0.269 0.34%
10 Year Govt Bond Yield 2.68% 0.07%
Current Coupon Ginnie Mae TBA 105.8 -0.3
Current Coupon Fannie Mae TBA 104.6 -0.3
BankRate 30 Year Fixed Rate Mortgage 4.24

 

Markets are higher this morning after a strong jobs report. Bonds and MBS down
Nonfarm payrolls increased 288k in April and the prior two month net revision was 36k. The unemployment rate fell to 6.3% as the labor force participation rate fell to 62.8%. Average hourly earnings and average weekly hours were flat. So, all in all a set of good numbers, though it is disappointing to see the labor force participation rate still stuck at multi-decade lows – Q178 to be exact.
Pfizer sweetened its bid for UK-based AstraZeneca. The reason why Pfizer wants AstraZeneca is not so much the pipeline, but the tax rate. The combined company would be a corporate resident of the UK and pay lower taxes there.
Yesterday’s weak construction spending data caused some revisions in Q1 GDP. Barclay’s took their estimate down to -.2%. IMO, a negative Q1 GDP estimate seems at odds with the other data out there.
The government is bent on putting payday lenders out of business. Not by regulating them, or passing a law abolishing them, but by leaning on the banks and forcing them to stop doing business with them. The government is also going after other unsavory, but completely legal, businesses like porn, internet gambling, and drug paraphernalia  in the same way. obama has a pen and a phone and isn’t afraid to use it.

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Morning Report – Lots of economic data 5/1/14

Posted on May 1, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1876.9 -1.0 -0.05%
Eurostoxx Index 3198.5 0.1 0.00%
Oil (WTI) 99.17 -0.6 -0.57%
LIBOR 0.223 -0.001 -0.22%
US Dollar Index (DXY) 79.5 0.027 0.03%
10 Year Govt Bond Yield 2.65% 0.01%
Current Coupon Ginnie Mae TBA 105.9 0.0
Current Coupon Fannie Mae TBA 104.7 0.0
BankRate 30 Year Fixed Rate Mortgage 4.26

 

Markets are flattish after some decent economic data. Bonds and MBS are flattish. Markets should be somewhat less liquid today as much of the world celebrates Labor Day.

April Auto sales continue to stream in – GM reported a better than expected increase, while Ford reported a drop. Nissan literally blew the doors off with an increase of 18.3%. Public construction was down .6% month-over-month and is down .8% year over year. Of course after this past winter, the Northeast is going to see a lot of construction on the roads, fixing all the potholes.

The ISM Manufacturing Index came in better than expected, at 54.9. Employment is accelerating, and customers’ inventories are very low, which portends future production (and economic growth). If you annualize out the ISM April reading, it would correspond to a real GDP growth rate of nearly 4%. Of course manufacturing isn’t the percent of the economy it used to be, but still…

Construction spending rose .2% in March, after February was revised downward to a .2% decline. On a year-over-year basis, it is up 8.4%. Residential construction rose .7% month-over-month and is up 15.2% year over year. Of course with low double digit increases in average selling prices, that doesn’t necessarily correspond to big unit volume, which is why employment lags.

Personal Incomes rose .5% in March and Personal Spending rose .9%. Part of the increase in spending is obamacare-related so it isn’t really an apples-to-apples comparison. Still, it was a good number, but probably represents some pent-up demand from the bad winter.

Challenger and Gray announced job cuts rose 5.7%, but are still pretty low, running at a 40k pace. Telecom and Automotive sectors led way. Note these are announced job cuts (a press release). Often these cuts never materialize, or are over a long period of time.

Initial Jobless Claims rose to 344k – small increase from last week, but still a pretty good number.

The FOMC met yesterday and maintained interest rates while cutting another $10 billion a month out of asset purchases. Stocks and bonds rallied on the statement. They committed to maintaining interest rates below long-term levels even after unemployment and inflation reach the Fed’s target rates. The Fed noted that economic activity has picked up recently, which means the early Q1 slowdown was probably indeed weather-related and not indicative of an overall economic slowdown.

Credit standards are easing again, as Wells cut its minimum credit score for conforming loans to 620 from 660. TD has lowered down payments to 3% without requiring mortgage insurance. When there is not much business to go around, people start reaching for yield. Interesting stat: almost 16% of the mortgages for home purchases went to homebuyers with DTIs > 43. This is up from 2012. I suspect much of these are low LTV, asset-rich jumbo borrowers, where the ability to repay is pretty strong in spite of the high DTIs.

In a story that seems to be getting a lot of press, The Chinese economy is set to become bigger than the US this year. This sort of analysis is difficult to begin with, because China manipulates its exchange rate so economists use Purchasing Power Parity (aka the Big Mac Index) to back out what China’s GDP is. The Chinese real estate bubble is bursting as we speak, so this may be short-lived as their GDP will fall in real terms and growth will be slow as they dig out in the aftermath. Rapidly growing countries seem to have these bubble episodes – we did in the 20s, Japan did in the 80s, and China has over the past couple decades. Booms create mal-investments which sow the seeds for the boom’s destruction.

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