Morning Report – credit is becoming easier in the jumbo space 4/9/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1850.2 5.2 0.28%
Eurostoxx Index 3191.8 14.1 0.44%
Oil (WTI) 102.6 0.0 0.00%
LIBOR 0.228 0.000 0.11%
US Dollar Index (DXY) 79.79 0.038 0.05%
10 Year Govt Bond Yield 2.71% 0.03%
Current Coupon Ginnie Mae TBA 105.4 -0.2
Current Coupon Fannie Mae TBA 104.1 -0.5
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.48
Stocks are up on no real news. Bonds and MBS are down. Alcoa kicked off earnings season last night with better than expected EPS.
Mortgage applications fell 1.6% last week. Purchases rose 2.7% but refis fell 4.9%. Refis are now roughly half of all mortgages after being over 60% not too long ago. The 30 year fixed rate mortgage was unch’d during the week.
Later on today, we will get the minutes from the March FOMC meeting. There could be some volatility in the bond market around this release, so be careful. The street will be looking for the color on the “as soon as six months” statement – is it just one lone hawk who thinks we could start tightening in just over a year, or do other voting members share that sentiment?
Mortgage credit availability expanded in March, according to the MBA. Availability is expanding in the jumbo space. While credit availability is better than a year ago, we are still far away from any sense of normalcy, let along the go-go days of 2005-2007. The fact that the availability in credit is really only expanding in the jumbo space must be giving the CRA junkies in Washington conniptions.
Good backgrounder on the non-bank servicers. The pace of growth of the non-bank servicing sector is “scaring regulators, who see it as a threat to their four-year effort to improve how banks handle loans in default.” Hence NYS AG Eric Schneiderman has blocked a MSR deal between Wells and Ocwen. Not sure why the New York State Attorney General thinks banking regulation is his bailiwick, but I guess he is following the model Spitzer used – bash the financial sector all the way to the Governor’s Mansion.
Speaking of banks, it looks like they are going to need to raise $68 billion in capital to meet stricter standards, although most banks will likely meet the new standards by retaining earnings or restructuring some assets. We will hear from Wells and JP Morgan later this week.

Morning Report – The left is balking on housing finance reform 4/8/14

Vital Statistics:

 

  Last Change Percent
S&P Futures  1838.7 0.6 0.03%
Eurostoxx Index 3162.4 -23.6 -0.74%
Oil (WTI) 101.3 0.9 0.89%
LIBOR 0.227 -0.002 -0.89%
US Dollar Index (DXY) 79.86 -0.377 -0.47%
10 Year Govt Bond Yield 2.71% 0.01%  
Current Coupon Ginnie Mae TBA 105.4 0.0  
Current Coupon Fannie Mae TBA 104.4 0.0  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.32    

 

Stocks are flat after a rough couple of days for stocks. Bonds and MBS are flat
 
Small Business turned slightly more optimistic in March, according to the NFIB. Expected increases in sales and inventories drove the increase. That said, plans to increase hiring fell. That said, small business did add more workers in March (an average of .18) than they did in February (an average of .11). Half of the respondents hired or tried to hire in the past three months, and 41% reported few or no qualified applications for open positions. Skilled trades are in short supply, and pretty much all of the homebuilders have noted the same thing on their conference calls. We are starting to see salary increases for the most in-demand workers. For the rest of us, any increased compensation is being eaten up by increased benefits expense. 
 
The National Association of Homebuilders reported that the recovery continues to spread. Nationwide, we are operating at 88% of normal economic and housing activity. Unsurprisingly, the most activity is in the energy patch, with Baton Rouge, Oklahoma City, and Houston topping the list. Encouragingly, stronger employment numbers seem to be driving the increase. 
 
The latest HUD Housing Scorecard is out, if anyone cares about the Administration or HARP / HAMP.
 
The left is revolting over the effort to overhaul the GSEs. They want more low-income lending mandates. Of course, if the bill becomes larded with social engineering mandates, Republicans will vote against it. The problem is that the left simply does not believe that affordable lending mandates had anything to do with the housing bubble. Of course if one looks at the severities in CRA areas, it is obvious that it did. How many abandoned houses worth ten grand have $100,000 mortgages on them in places like Detroit, Harrisburg, San Bernardino, etc. That is CRA ground zero. This may be one area where the two viewpoints of what happened from 2000 – 2008 are irreconcilably different. Wall Street Sharpies caused the bubble! Social Engineering caused the bubble! Both viewpoints go to the core of what the different parties believe and no one is going to convince the other of anything. Meanwhile, the taxpayer backstops 90% of all new origination…. Ask who is happiest with the status quo and you’ll be able to see who drives the hardest bargain.

Morning Report – Light Data week ahead 4/7/14

Vital Statistics:

 

  Last Change Percent
S&P Futures  1854.4 -5.7 -0.31%
Eurostoxx Index 3199.4 -31.0 -0.96%
Oil (WTI) 100.4 -0.7 -0.73%
LIBOR 0.229 0.000 -0.11%
US Dollar Index (DXY) 80.32 -0.101 -0.13%
10 Year Govt Bond Yield 2.72% 0.00%  
Current Coupon Ginnie Mae TBA 105.2 0.0  
Current Coupon Fannie Mae TBA 104.2 0.0  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.35    

Markets are lower this morning worldwide and US futures are following. Bonds and MBS are up small.

 
This week is a light one data-wise, with only the FOMC minutes (which will be released on Wed) as a potential catalyst. The market will be parsing the minutes looking for more color around the “as soon as six months” comment. 
 
This week starts off earnings season, and we will hear from JP Morgan and Wells late in the week. We will probably see poor mortgage banking numbers out of both (although Wells is very aggressive these days bidding paper). 
 
According to Black Knight Financial Services, monthly origination volume is the lowest on record. The government’s share of originations has fallen due to a sharp drop in HARP loans. There is very little origination activity happening in the lowest credit score buckets.
 

The Difference Between Men and Women

I copied this from another forum and although I’m not quite sure where it came from, I thought it was funny enough to share, especially since it’s Friday.  Friday was always my joke day at the PL.

Let’s say a guy named Fred is attracted to a woman named Martha. He asks her out to a movie; she accepts; they have a pretty good time. A few nights later he asks her out to dinner, and again they enjoy themselves. They continue to see each other regularly, and after a while neither one of them is seeing anybody else.

And then, one evening when they’re driving home, a thought occurs to Martha, and, without really thinking, she says it aloud: “Do you realize that, as of tonight, we’ve been seeing each other for exactly six months?”

And then, there is silence in the car.

To Martha, it seems like a very loud silence. She thinks to herself: I wonder if it bothers him that I said that. Maybe he’s been feeling confined by our relationship; maybe he thinks I’m trying to push him into some kind of obligation that he doesn’t want, or isn’t sure of.

And Fred is thinking: Gosh. Six months.

And Martha is thinking: But, hey, I’m not so sure I want this kind of relationship either. Sometimes I wish I had a little more space, so I’d have time to think about whether I really want us to keep going the way we are, moving steadily towards, I mean, where are we going? Are we just going to keep seeing each other at this level of intimacy? Are we heading toward marriage? Toward children? Toward a lifetime together? Am I ready for that level of commitment? Do I really even know this person?

And Fred is thinking: …so that means it was…let’s see…February when we started going out, which was right after I had the car at the dealer’s, which means…lemme check the odometer…Whoa! I am way overdue for an oil change here.

And Martha is thinking: He’s upset. I can see it on his face. Maybe I’m reading this completely wrong. Maybe he wants more from our relationship, more intimacy, more commitment; maybe he has sensed – even before I sensed it – that I was feeling some reservations. Yes, I bet that’s it. That’s why he’s so reluctant to say anything about his own feelings. He’s afraid of being rejected.

And Fred is thinking: And I’m gonna have them look at the transmission again. I don’t care what those morons say, it’s still not shifting right. And they better not try to blame it on the cold weather this time. What cold weather? It’s 87 degrees out, and this thing is shifting like a garbage truck, and I paid those incompetent thieves $600.

And Martha is thinking: He’s angry. And I don’t blame him. I’d be angry, too. I feel so guilty, putting him through this, but I can’t help the way I feel. I’m just not sure.

And Fred is thinking: They’ll probably say it’s only a 90-day warranty…scumballs.

And Martha is thinking: Maybe I’m just too idealistic, waiting for a knight to come riding up on his white horse, when I’m sitting right next to a perfectly good person, a person I enjoy being with, a person I truly do care about, a person who seems to truly care about me. A person who is in pain because of my self-centered, schoolgirl romantic fantasy.

And Fred is thinking: Warranty? They want a warranty? I’ll give them a warranty. I’ll take their warranty and stick it right up their…

“Fred,” Martha says aloud.

“What?” says Fred, startled.

“Please don’t torture yourself like this,” she says, her eyes beginning to brim with tears. “Maybe I should never have…oh dear, I feel so…”(She breaks down, sobbing.)

“What?” says Fred.

“I’m such a fool,” Martha sobs. “I mean, I know there’s no knight. I really know that. It’s silly. There’s no knight, and there’s no horse.”

“There’s no horse?” says Fred.

“You think I’m a fool, don’t you?” Martha says.

“No!” says Fred, glad to finally know the correct answer.

“It’s just that…it’s that I…I need some time,” Martha says.

(There is a 15-second pause while Fred, thinking as fast as he can, tries to come up with a safe response. Finally he comes up with one that he thinks might work.)

“Yes,” he says. (Martha, deeply moved, touches his hand.)

“Oh, Fred, do you really feel that way?” she says.

“What way?” says Fred.

“That way about time,” says Martha.

“Oh,” says Fred. “Yes.” (Martha turns to face him and gazes deeply into his eyes, causing him to become very nervous about what she might say next, especially if it involves a horse. At last she speaks.)

“Thank you, Fred,” she says.

“Thank you,” says Fred.

Then he takes her home, and she lies on her bed, a conflicted, tortured soul, and weeps until dawn, whereas when Fred gets back to his place, he opens a bag of Doritos, turns on the TV, and immediately becomes deeply involved in a rerun of a college basketball game between two South Dakota junior colleges that he has never heard of. A tiny voice in the far recesses of his mind tells him that something major was going on back there in the car, but he is pretty sure there is no way he would ever understand what, and so he figures it’s better if he doesn’t think about it.

The next day Martha will call her closest friend, or perhaps two of them, and they will talk about this situation for six straight hours. In painstaking detail, they will analyze everything she said and everything he said, going over it time and time again, exploring every word, expression, and gesture for nuances of meaning, considering every possible ramification.

They will continue to discuss this subject, off and on, for weeks, maybe months, never reaching any definite conclusions, but never getting bored with it either.

Meanwhile, Fred, while playing racquetball one day with a mutual friend of his and Martha’s, will pause just before serving, frown, and say: “Norm, did Martha ever own a horse?”

And that’s the difference between men and women.

Morning Report – Jobs Day 4/4/14

Vital Statistics:

 

  Last Change Percent
S&P Futures  1890.4 7.4 0.39%
Eurostoxx Index 3220.6 13.9 0.43%
Oil (WTI) 101.3 1.0 0.98%
LIBOR 0.23 -0.001 -0.33%
US Dollar Index (DXY) 80.34 -0.131 -0.16%
10 Year Govt Bond Yield 2.76% -0.04%  
Current Coupon Ginnie Mae TBA 105.2 0.4  
Current Coupon Fannie Mae TBA 104.1 0.4  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.44    

 

Stocks are higher after an okay jobs report. Bonds and MBS are rallying
 
Nonfarm payrolls rose 192k in March, slightly behind the 200k estimate. February was revised upward to 197k from 175k. The ADP Jobs report was spot on, for once with their estimate of 191k. The unemployment rate was unchd at 6.7% and the labor force participation rate rose to 63.2%. Average hourly earnings were flat, while average weekly hours increased to 34.5. So overall, it is an okay jobs report, nothing great, but nothing terrible either. Par for the course these days. 
 
Separately, outplacement firm Challenger, Gray, and Christmas reported that announced job cuts fell 30% in March, making the first quarter the lowest in announced job cuts in 20 years. Announced job cuts are dropping, and the ISM reports show employment plans are increasing. 
 
Smallish homebuilder Beazer Homes gave an update yesterday. Orders are down 9%, while backlog is down 2%. Orders on the West Coast dropped 16%. It appears prices simply moved to far too fast out there. 
 
James Lockhart, former regulator for Fan and Fred says the stocks are worthless. At this point, they are litigation lottery tickets. 

 

Morning Report – What happens if China hits the wall? 4/3/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1883.4 0.5 0.03%
Eurostoxx Index 3198.1 10.6 0.33%
Oil (WTI) 99.33 -0.3 -0.29%
LIBOR 0.23 0.000 0.11%
US Dollar Index (DXY) 80.24 0.022 0.03%
10 Year Govt Bond Yield 2.80% -0.01%
Current Coupon Ginnie Mae TBA 104.8 0.0
Current Coupon Fannie Mae TBA 103.6 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.45

 

Markets are flattish after initial jobless claims jumped to 326k. Bonds and MBS are up small.
Challenger and Gray reported that announced jobs cuts are down 30% from a year ago. Most businesses seem to be picking up, and the financial industry has already downsized for the brave new no refi world.
The consensus seems to be that the Fed starts hiking rates in late 2015. What could delay it? Well, another recession here, which doesn’t seem to be in the cards. Or, a China implosion, and it looks like the smart money (Soros, Chanos etc) are betting on one. China has been growing so fast for so long, that it pretty much seems inevitable. It seems like periods of rapid growth foment real estate bubbles and a mountain of debt, which seem to culminate in a violent crash (called the Minsky Moment). We had one in the 1930s after a period of rapid growth post WWI, Japan had theirs in 1989 after a great two-decade run in the 70s and 80s, and China has had an incredible run since Mao Zedong’s death.
If China has their Minsky moment, what will be the fallout? The biggest one, IMO, will be a collapse of commodity prices. Second, China will try and export their way out of the collapse. Finally, they may end up dumping their properties in the US and Canada. We could see some pricing pressures at the high end of the market (remember in crises, you sell what you can, not necessarily what you want to). None of this would be inflationary, in fact China will be exporting deflation. This will give the Fed conniptions as they hope the US economy strengthens enough to reach escape velocity from a global deflationary spiral. In other words, if China hits the wall, the Fed will be very reticent to raise rates.
There were 43,000 completed foreclosures in Feb 2014, down 15% year over year, according to CoreLogic. The foreclosure inventory is down to 752k homes down 35% from a year ago. The judicial states (primarily FL, NY, and NJ) still have the biggest foreclosure percentages.

Morning Report – ADP forecasting 191k jobs 4/2/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1878.7 0.9 0.05%
Eurostoxx Index 3185.6 -0.7 -0.02%
Oil (WTI) 99.38 -0.4 -0.36%
LIBOR 0.23 0.002 0.88%
US Dollar Index (DXY) 80.09 -0.002 0.00%
10 Year Govt Bond Yield 2.78% 0.03%
Current Coupon Ginnie Mae TBA 104.9 -0.1
Current Coupon Fannie Mae TBA 103.7 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.53

 

Markets are flattish this morning on no real news. Bonds and MBS are down.
Mortgage Applications fell 1.2% last week. Purchases were up slightly, but refis fell.
The ADP Employment Change is forecasting 191k nonfarm payrolls this Friday. This has not been a very accurate predictor as of late, so take it with a grain of salt. Estimates are all over the board, with some as low as 100k and some as high as 275k. A lot of it will be due to weather, and the big question will be whether we had some pent-up hiring demand that got caught up in March.
Ellie Mae’s Encompass system went down for 24 hours yesterday. Apparently it was some sort of malicious attack. Things seem to be back on track, though. Lots of originators were unable to close loans yesterday. Imagine if it had happened a day earlier – end of the month and end of the quarter.

Morning Report – ISM and vehicle sales 4/1/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1869.2 4.6 0.25%
Eurostoxx Index 3184.8 23.2 0.73%
Oil (WTI) 101.4 -0.2 -0.21%
LIBOR 0.228 -0.003 -1.08%
US Dollar Index (DXY) 80.03 -0.068 -0.08%
10 Year Govt Bond Yield 2.75% 0.03%
Current Coupon Ginnie Mae TBA 105.1 0.0
Current Coupon Fannie Mae TBA 103.8 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.38

 

Markets are higher after some decent economic data out of Europe. Bonds and MBS are down small.
The ISM Manufacturing Index rose to 53.7 from 53.2. While new orders rose slightly, the production index jumped from 48.2 to 55.9. The snippets from various business owners seem to agree that the first quarter is looking good, and that things are accelerating. If you annualize out the March reading of 53.7, it would correspond to a GDP growth rate of 3.5%. Of course manufacturing isn’t the entire economy, but it shows that there is at least one part that is working. Senator Barbara Boxer noted the nascent manufacturing boom and said that the U.S. needs to ensure an adequate supply of affordable energy in order to entice companies to re-locate production back to the U.S. “While everyone would like to see alternative energy companies prosper, we have to recognize that coal and natural gas will remain the mainstay of U.S. energy and we are shooting ourselves in the foot if we raise fossil fuel prices in order to encourage more green energy.”
February construction data is out, and it looks like it rose .1% month-over-month from January and is up 8.7% year-over-year. Private construction is up 13% year-over year, while public construction was flat. Residential construction was up 13.5%. Nobel Laureate Paul Krugman noted in his blog that private construction seems to be doing just fine and there is no need to push up public construction as it would only add to inflationary pressures.
Domestic vehicle sales are out today, with both Ford and Chrysler noting a bounce mid-March. GM was unable to release their March sales numbers due to a computer problem. Separately, GM CEO Mary Barra will be testifying before the House at 2:00 pm today regarding the recall issue. Representative Henry Waxman said that “The botched roll-out of the Affordable Care Act shows that mistakes will happen and perhaps the government should have a little humility before it second-guesses everything a company does.”
House prices rose 12.2% in February, according to CoreLogic. House Prices remain just under 17% lower than their peak in April 2006. Price Appreciation has been driven by limited inventory, and CoreLogic expects prices to moderate over the coming year as increases in home equity releases pent-up supply. That said, there is still the small matter of the first time homebuyer who remains MIA. Separately, Janet Yellen mused that the Fed may have kept rates too low too long which could have been a contributing factor to the real estate bubble. “It may be time to take a second look at the dual mandate” she said.
We are beginning earnings season next week and it looks like weather will be the excuse du jour over why companies missed their earnings targets. GM, McDonalds, and FedEx already warned, blaming the weather. Amazon.com CEO Jeff Bezos reaffirmed the company’s commitment to margin expansion over revenue growth at a recent Morgan Stanley retail conference. “You can’t make it up on volume” he reportedly said.

Morning Report – A look at the week ahead 3/31/14

Vital Statistics:

 

  Last Change Percent
S&P Futures  1861.1 10.7 0.58%
Eurostoxx Index 3178.3 5.9 0.18%
Oil (WTI) 101.6 -0.1 -0.06%
LIBOR 0.231 -0.003 -1.18%
US Dollar Index (DXY) 80.05 -0.124 -0.15%
10 Year Govt Bond Yield 2.76% 0.03%  
Current Coupon Ginnie Mae TBA 105.1 -0.2  
Current Coupon Fannie Mae TBA 103.8 -0.2  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.34    

 

Feels like a little end-of-quarter window dressing as the SPUs are up 11 points on no real news. (No, a strong ISM Milwaukee report doesn’t count). Bonds are getting hit as well. 
 
The ISM Milwaukee report jumped from 48.6 in February to 56 in March. New Orders and production rose 19 points. Could this be a weather-related rebound? Perhaps. However, note that we are starting to see other data points (Kansas City Fed) showing that the Midwest may be waking up. 
 
Lots of important data this week, starting with the ISM and construction spending tomorrow. Then on Friday we get the jobs report. The Street is at 200k nonfarm payrolls, and an unemployment rate of 6.6%. Given the “six months” number thrown out by Janet Yellen, we could start to see the jobs reports begin to matter again for bonds, where a strong reports will be very bearish.
 
Following on that theme, investors pulled $10.3 billion out of bond ETFs in March, the biggest liquidation since December 2010. If the economy is in fact picking up some steam, then the bond market is about to become a very treacherous place. 

 

Sweet Sixteen and the Elite Eight

This weekend the NCAA women are in the Sweet Sixteen round. Today’s games:

University of Kentucky vs Baylor (12:00 noon EDT)(all games are on ESPN) UPDATE: Baylor 90 – 72

Oklahoma State vs Notre Dame (2:00 pm EDT) Go Irish! UPDATE: Notre Dame 89 – 72 Yay, Mrs NoVA!

BYU vs UConn (4:30 pm EDT) Go Huskies! (In the spirit of rooting for anybody who’s playing against BYU) UPDATE: UConn 70 – 51

DePaul vs Texas A&M (6:30 pm EDT) UPDATE: Texas A&M 84 – 65

Sunday’s games:

University of Maryland vs Tennessee (12:00 noon EDT) Go Terps! UPDATE: Maryland 73 – 62

LSU vs Louisville (2:20 pm EDT) UPDATE: Louisville 73 – 47

PSU vs Stanford (4:30 pm EDT) UPDATE: Stanford 82 – 57

UNC vs South Carolina (6:30 pm EDT) UPDATE: UNC 65 – 58


And of course, the men’s tournament is in the Elite Eight round. The games the last two days–and especially last night–have been some great basketball! Today’s games :

Dayton vs Florida (6:09 pm EDT, TBS)(Why in the world the “09”? Why not 6:10?) UPDATE: Florida 62 – 52

Wisconsin vs Arizona (8:49 pm EDT, TBS). For McWing’s sake, Go ‘Cats! But I have to admit, my heart is with the Badgers. UPDATE: Wisconsin 64 – 63 in overtime. The Badgers were trying to kill me tonight!

Tomorrow:

UConn vs MSU (2:20 pm EDT, CBS). Do you even have to ask? GO STATE!! UPDATE: UConn 60 – 54

University of Kentucky vs UM (5:05 pm EDT, CBS). Let’s Go Blue! UPDATE: UK 75 – 72

Dare I hope that 75% of the Final Four be BiG teams?

Sigh. There is no joy in Mudville tonight.