Morning Report – Here’s Janet! 11/14/13

Vital Statistics:

Last Change Percent
S&P Futures 1782.4 3.7 0.21%
Eurostoxx Index 3041.1 20.0 0.66%
Oil (WTI) 93.35 -0.5 -0.56%
LIBOR 0.238 -0.002 -0.89%
US Dollar Index (DXY) 81.08 0.156 0.19%
10 Year Govt Bond Yield 2.71% 0.01%
Current Coupon Ginnie Mae TBA 105.4 0.4
Current Coupon Fannie Mae TBA 104.5 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.38
Markets are higher this morning on no real news. Bonds and MBS are flattish.
Wal-Mart cut its profit forecast due to the weaker economy at the lower end of the income spectrum and increased competition from dollar stores.
Finally, some economic data, although nothing market-moving. Initial Jobless Claims came in at 339k, a touch higher than the 330k forecast. Productivity was 1.9% vs Street expectaions of 2.2% and unit labor costs fell .6%. Later on today, we will get the Bloomberg Consumer Comfort index. Philly Fed President Charles Plosser will be speaking momentarily – he is a hawk so bonds could sell off on his comments.
Janet Yellen is scheduled to appear in front of the Senate Banking Committee today. Here are her prepared remarks. First thing off the bat, no mention of QE or tapering. For the most part nothing in the statement suggests any sort of change in direction from the Bernanke Fed. She intends to continue with the policy of keeping the markets informed of the Fed’s thinking, and believes that the dual mandate requires her to boost inflation if it is too low. She is committed to making sure the too big to fail banks are regulated, while at the same time she wants to lower the regulatory burden on small community banks. These sort of hearings are more or less dog and pony shows for the benefit of politicians, not public consumption. They don’t ask questions, they make statements. I don’t expect anything market-moving to come out of this, but just be aware. While there are a few people who want to use her nomination as leverage to advance other items, she should be confirmed easily.
Abby Joseph Cohen loves stocks right here..
Bidding wars on the West Coast are beginning to wane as inventory builds. Expect to see this reflected in the home price indices going forward. This could be a welcome development for the mortgage industry as professionals exit and real buyers (the ones who will need a mortgage) enter.

Morning Report – Mortgage Credit beginning to ease up 11/13/13

Vital Statistics:

Last Change Percent
S&P Futures 1755.5 -9.6 -0.54%
Eurostoxx Index 3006.0 -28.7 -0.95%
Oil (WTI) 93.31 0.3 0.29%
LIBOR 0.241 0.001 0.56%
US Dollar Index (DXY) 81.15 -0.041 -0.05%
10 Year Govt Bond Yield 2.73% -0.04%
Current Coupon Ginnie Mae TBA 105.2 0.2
Current Coupon Fannie Mae TBA 104.2 0.3
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.51
Markets are lower after Atlanta Fed President Dennis Lockhart said a paring of U.S. bond purchases could very well take place next month. Bonds and MBS are up; however.
Mortgage Applications fell 1.8% last week, with purchases down .5% and refis down 2.3%. We had a huge move in rates last week, but it took place on Friday. This week’s numbers will probably be horrendous.
Mortgage Credit Availability increased slightly in October, according to the Mortgage Bankers Association. On one hand, some lenders increased lowered their FICO floor, but others restricted cash-out refis. The net effect was a slight increase in credit availability. FWIW, given the end of the refi boom, it looks like bankers realize they have to go our further on the credit curve. Redwood Trust announced on its conference call that it is diversifying away from strictly high quality jumbos and will look at the non-QM space.
Tri-Pointe Homes reported better than expected sales and earnings, and took up full year guidance. They are buying Weyerhaeuser’s home building unit as well. We are starting to see more M&A in the homebuilding space.
Transunion reported that the national average for 60 day delinquencies is 4.09%. The worst states are the judicial states, while the best are the northern mountain / midwest states. They have a cool interactive map where you can see DQ rates by state.

Morning Report: 5.4% mortgage by the end of 2014? 11/12/13

Vital Statistics:

Last Change Percent
S&P Futures 1763.2 -4.4 -0.25%
Eurostoxx Index 3039.5 -13.3 -0.44%
Oil (WTI) 95.06 -0.1 -0.08%
LIBOR 0.239 0.000 0.00%
US Dollar Index (DXY) 81.12 0.028 0.03%
10 Year Govt Bond Yield 2.77% 0.02%
Current Coupon Ginnie Mae TBA 105.2 -0.8
Current Coupon Fannie Mae TBA 103.9 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.39
Markets are lower as bond traders come back from a long weekend. Bonds and MBS continue their post jobs report sell-off.
The Chicago Fed National Activity Index ticked up a bit in September, while the 4 month moving average remained negative.
The NFIB Small Business Optimism Report fell from 93.9 to 91.6. He points out that small business is still struggling. That is an important point to remember – the S&P 500 is not a representative sample of U.S. business. Most of the big S&P names have exposure to fast-growing overseas markets and benefit from all the liquidity being pumped into the system by the world’s central banks. Small business is more affected by weak demand domestically. The government shutdown weighed on sentiment as well.
With not a lot of economic data, Fed-speak becomes more important. Dallas Fed President Richard Fisher told CNBC that the markets should bear in mind that QE cannot last forever. The balance sheet is $4 trillion and there are limits to what the Federal Reserve can do. Minneapolis Fed President Kocherlakota will talk about monetary strategy at 1:00 pm EST and Atlanta Fed President Dennis Lockhart will discuss the economy at 1:50 EST.
Homebuilder D.R. Horton reported earnings in line with estimates. Average selling prices climbed 15% as a combination of tight supply and low inventory allows the builders to hike prices at will. The stock is up in the pre-market.
NAR’s Chief Economist Lawrence Yun is making predictions about 2014. Exiting Home Sales will be flat at about 5.1 million units, prices will rise by 6% and the the 30 year fixed rate mortgage will end the year at 5.4%. New Home construction will increase to meet demand (at some point the builders will stop seeing price increases and will have to pump up volume to achieve growth). Lending standards will continue to ease and an improving job market will increase activity. If cash sales drop as a percentage of total sales, the purchase business should improve, but probably not enough to offset the end of the refi boom.

Veterans’ Day Open Thread

Happy Veterans’ Day to my fellow vets, and happy Monday to all! I think Brent is playing hooky, so thought I’d fill in for him and try to start a new thread. What are you doing this 11/11? I’m driving down to Annapolis this afternoon to see how they do V-Day there; not quite ready to try to battle the influx into D.C. this year.

Semper fi, fair winds and following seas, and Airborne!

Bites & Pieces: Barks and Bostons Edition

We bought Pinta from the Daisy Hill Puppy Farm last December. Just kidding–it was Howling Hill Kennel, a local breeder of small small breed dogs (Bostons and Pugs). I appreciated the advice regarding rescue dogs from NoVA and, I think Goose. Sadly, the local links ranged as far as N. Carolina and so there were very few Bostons available in this area.

Pinta means painted or spotted in Spanish. The name fit for a Boston Terrier. She’s actually named for a rice and beans dish from Central America called Gallo Pinto (spotted rooster). As ours is a female, the appropriate name was Pinta. All we need to do is pick up a boy, who will of course be called Gallo. Well, that or Bilbo. I figure hobbit names work well for small dogs.

Pinta came home from the kennel with a bag of kibble (which we later determined is Costco’s small breed dog food). We had been feeding her that for the first 7 months we had her along with treats. Then we went to Costa Rica for several weeks. A friend of ours cared for her until I returned. As part of caring for Pinta, she fed her a canned dog food to keep her happy. I returned on my own for four weeks. There were a number of containers left, so I took to giving Pinta a bit in the morning when I left and a bit more in the evening when I came back home. Then I ran out…

What to do? I didn’t want to buy a bunch of expensive dog food and it struck me that it’s something one could make. I hit the web and looked through a few recipes. This was going to be a supplement to her main diet, so I wasn’t worried about making a complete food. Just something that would be a bit of a treat when I left in the morning, but one that is nutritionally appropriate.

It takes a couple of hours to make, but there’s not much active work and one batch makes enough to last for a couple of months. The essentials are meat, rice, and veggies. I went with chicken for the meat. Chicken quarters are inexpensive and the bones are useful for making stock. I suppose I could break down whole chickens and save the breast meat for human food.

I got mixed messages regarding rice. Brown rice is good, because it has additional nutrients. No no no. Brown is bad, because it’s harder to digest. I split the difference in the end. I used a sweet brown rice (the bag your own bin at Whole Foods), but I cook it an extra step. I’m a fan of risotto, so I thought that might work. I cook the rice in our rice cooker and then cook it further with chicken stock so that it gets a risotto like texture. For veggies, I use carrots and peas. Onions are verboten as they can be toxic to dogs. I don’t use a commercial stock as onions are certain to be used and I’d rather not deal with doggie indigestion.Although this isn’t our dog’s primary food, I add a vitamin supplement and some Omega 3 oil. Once everything is mixed together, I freeze it in one cup portions. I can transfer one down to the fridge in the evening and it’ll be defrosted by morning. On days when she’s alone, I give Pinta about 1/3 cup when I leave in the morning and a similar amount in the evening.

The basic approach works pretty well with other proteins. I was cooking salmon recently and had some trimmings after I made filets. That made a nice small batch of Pinta food. Likewise, I had a chuck roast that I used for a Trieste goulash. Grind the smaller pieces and use them for a beef based version of this dish.

Ingredients

Five pound bag of chicken leg and thigh quarters

Two cups chopped or shredded carrots

One pound bag of frozen peas, defrosted

Two cups of sweet brown rice

Nutritional supplements

Method

1. Cook rice. I put rice and three cups of water in a rice cooker and let the machine do the work.

2.  Remove skin from chicken quarters and separate meat from bone. Make stock from the bones, ~6 cups of water, several stalks of celery and a couple of carrots. Do not use onions as these are slightly toxic to dogs. Bring up to a boil and simmer, uncovered, for about an hour. You should get about four cups of stock. Strain and return to pot.

3. Use a meat grinder or food processor to make ground chicken. If using a food processor, cut the chicken into large pieces (1” – 2”) and put in freezer for 15 minutes. This is a method I use for ground beef (taken from Cooks Illustrated).

4. Add a bit of oil to a large, heavy bottomed pot and heat slightly. Add the ground chicken and cook, stirring occasionally, for a few minutes. No need to cook it completely, just take an edge off the rawness. Add the carrots and peas, stir and add a couple cups of hot broth. It’s not a bad idea to defrost the peas in the microwave and chop in the food processor.

5. When the rice is done, add to the pot with the remaining two cups of broth. Simmer until the broth is absorbed. You’re going for a risotto like consistency. I read conflicting information about digesting brown rice, so decided to break it down further. Whole Foods has sweet brown rice, which is short grain and hence suitable for this kind of dish.

6. Add the softened rice to the chicken and vegetables and stir. Cook uncovered until the broth is mostly absorbed. Stir in nutritional supplement. These vary quite a bit, so use your judgement as to the right amount. I use a combination of a NutriVet and Omega 3 oils.

This makes about four quarts of dog food. I freeze in one cup quantities. Move to the refrigerator the day before and it defrosts nicely. I reheat to room temperature in the microwave before serving.

Pinta at 3 Weeks

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Pinta at 6 Months

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Pinta at 1 Year

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Saturday Football Open Thread, Week 11

Busy morning here, so I’m going to miss the first kickoffs, but here’s what’s up:

Early games: On Thursday Oklahoma lost to Baylor 12 – 41 (ouch, okie!) and Stanford managed to crush the Ducks 26 – 20 (the closeness of the score reflects a fabulous fourth quarter by Oregon, rather than a close game), while LA-Lafayette beat Troy 41 – 36.

Today’s games:

Penn State is at UMinn in Big Ten action (line: UM, spread 1.5)(Noon EST/ESPN2) UPDATE: UMinn wins 24 – 10.

Syracuse is playing at UMaryland, so we’re going to get to see the worst uniforms on the east coast again (seriously, who designed UMd’s uniforms?) (line: UMd, spread 3.5). UPDATE: Syracuse wins 20 – 3.

Nebraska is in the Big House (line: UM, spread 6.5)(3:30 pm EST/ABC) so Paul and I can duke it out. Go, Blue! I can feel magnanimous after last week. UPDATE: Nebraska beats the odds and the Wolverines 17 – 13.

Boston College is playing at New Mexico State (line: BC, spread 24 [!!]). Go, Eagles! UPDATE: BC wins 48 – 34.

BYU is traveling to Wisconsin (line: UW, spread 7)(3:30 pm EST/ESPN) Trounce ’em, Badgers! UPDATE: Wisconsin wins handily 27 – 17.

ASU is playing Utah (line: ASU, spread 7), where hopefully the Utes will freeze their tuchesses off. UPDATE: Utah blows a 12-point lead in the fourth quarter and loses 20 – 19.

Texas is playing a late game at West Virginia (line: UT, spread 8)(7:00 pm EST/FOX). Hook ’em, ‘Horns! UPDATE: Texas wins in overtime, 47 – 40.

Notre Dame is at Pitt (line: ND, spread 3.5)(8:00 pm EST/ABC). Go, Mrs NoVA’s alma mater! UPDATE: Pitt avenges last year’s triple OT loss by beating The Irish 28 – 21.

UCLA travels to visit Arizona (line: UCLA, spread 2.5)(8:00 pm EST/ESPN). Go, Wildcats! This could be a really good game. UPDATE: Arizona looked like they were going to come back, but UCLA wins 31 – 26.

Georgia Tech, USF and MSU have the weekend off.


What else?


Morning Report – Jobs day 11/08/13

Vital Statistics:

Last Change Percent
S&P Futures 1741.8 -3.4 -0.19%
Eurostoxx Index 3009.5 -33.4 -1.10%
Oil (WTI) 94.24 0.0 0.04%
LIBOR 0.239 0.001 0.21%
US Dollar Index (DXY) 81.22 0.373 0.46%
10 Year Govt Bond Yield 2.72% 0.12%
Current Coupon Ginnie Mae TBA 105.3 -0.7
Current Coupon Fannie Mae TBA 104.5 -0.7
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.27
Stocks are down in spite of a jobs report that showed a better-than-expected increase in payrolls. Bonds are getting slammed on the number, with the 10-year down 12 basis points.
The economy added 204,000 jobs in the month of October, well in excess of the 120k street expectation. September was revised upward. The government shutdown was expected to depress job growth and it looks like that didn’t happen. The unemployment rate ticked up to 7.3% and the labor force participation rate nosedived to 62.8%, the lowest since January of 1978. Average hourly earnings ticked up a tenth of a percent and average weekly hours fell. Overall, the report was a mixed bag, but it does bring back the possibility of a December tapering. Separately, personal Income rose .5% and personal spending rose .2%.
The chart below shows the labor force participation rate since the days of Ward and June Cleaver. The big increase was due to women entering the workforce, which shows how dramatic the decline has been. Roughly half the gains have been taken away.

Twitter’s IPO went swimmingly. It priced at $26 and traded as high as $50. It now sports a 25 billion market cap which works out to 48 times trailing 12 month sales.
Freddie Mac is doing another risk sharing deal as the GSEs try to lower their footprint in the mortgage market.

Morning Report – Nationstar misses 11/07/13

Vital Statistics:

Last Change Percent
S&P Futures 1771.3 5.7 0.32%
Eurostoxx Index 3097.5 41.1 1.34%
Oil (WTI) 94.12 -0.7 -0.72%
LIBOR 0.239 0.000 0.10%
US Dollar Index (DXY) 81.39 0.903 1.12%
10 Year Govt Bond Yield 2.64% -0.01%
Current Coupon Ginnie Mae TBA 106.1 -0.1
Current Coupon Fannie Mae TBA 105.1 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.28
Markets are higher after the European Central Bank cut rates and we got a surprisingly strong 3Q GDP report. Initial Jobless Claims fell and came in slightly below expectations. Bonds and MBS are down small.
#Twittergoespublicat26.  Symbol is TWTR for those who want to watch at home. This is a punchy valuation at 12.4 time sales. The offering price was increased from $17 to $26, lets see if they got too greedy on the IPO the way Facebook did.
The advance estimate of 3Q GDP came in at 2.8%, well above the Street expectations of 2.0%. Remember, this is the advance estimate and it will be revised twice. Lately, we have seen the advance estimates come in too high, only to be revised downward – for example the first estimate for Q113 GDP was 2.5% and by the third revision it ended up being 1.1%. Given the differential between the Street and the government, I suspect the number will be revised downward.
There had been chatter in the marketplace that Nationstar (NSM)’s pricing had gotten worse and they were backing out of the market. Well, today, we saw that there was indeed something wrong; as the company missed its earnings estimate in a big way. Pro-forma EPS were $1.08 vs the Street at $1.27. They took down guidance for full year 2013 and 2014. They also announced they are selling their wholesale channel to Stonegate (SGM). Some retail The stock is down 8 bucks (about 16%) pre-open.
The mortgage REITs have been announcing earnings and for the most part, they were flat on the quarter with regard to book value per share. They have de-levereraged a lot over the past quarter, and I would almost go as far as to say that their MBS (and TBA) selling is probably close to finished. Many are lowering duration by switching to hybrid ARMs and increasing credit risk while lowering interest rate risk. REIT selling has been one of the reasons why secondary margins have been getting hit across the board.
Fannie Mae reported good earnings per share and will pay Treasury $8.6 billion in the third quarter. The stock is up 6% or so pre-market
Merger mania in the homebuilder space. Earlier this week, Tri Pointe Homes (TPH) announced it is buying Weyerhaeuser’s homebuilding unit for $2.7 billion.  Now Toll Brothers (TOL) is in a deal to to buy Shapell for $1.6 billion to increase its California exposure. As we have seen, financing availability has been a case of the haves and the have nots. If you are big enough, you can get amazing financing terms.

Morning Report – Housing overvalued again? 11/06/13

Vital Statistics:

Last Change Percent
S&P Futures 1764.5 8.0 0.46%
Eurostoxx Index 3056.8 20.9 0.69%
Oil (WTI) 93.94 0.6 0.61%
LIBOR 0.239 0.001 0.40%
US Dollar Index (DXY) 80.54 -0.169 -0.21%
10 Year Govt Bond Yield 2.65% -0.02%
Current Coupon Ginnie Mae TBA 106 0.1
Current Coupon Fannie Mae TBA 105 0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.23
Markets are higher this morning on strength in overseas markets. Market darling Tesla Motors (TSLA) fell in premarket trading after missing its quarter. Abercrumble (ANF) was down 9% after missing as well. Bonds and MBS are up small. At 10:00 we will get the Index of Leading Economic Indicators, which shouldn’t be a market mover
Tomorrow starts the big data, with GDP and then the jobs report on Friday. The bond market has clearly been spooked by the strong ISM numbers and the language out of the FOMC statement.
In politics last night, Chris Christie cruised to a win in New Jersey, while McAuliffe won in Virginia. Dinkins got another term in New York City.
Mortgage applications fell by 7% last week as mortgage rates rose 5 basis points. The purchase index fell by 5.2% while the refi index fell by 7.9%.
Homeprices are 17% overvalued according to Fitch’s models, with much of coastal California > 20% overvalued. Their model is based on unemployment, income, rental prices, population levels, housing units, and mortgage rates. Note that the median house price to median income ratio is back above its historical range again. This is based on NAR’s median house price, which is probably over-emphasizing the red-hot California markets due to its repeat sale methodology. All real estate is local, and I doubt we are overvalued all that much outside of a few markets like Washington DC, Manhattan, and the hot West Coast markets. In the judicial states (primarily in the Northeast) we have yet to see any sort of meaningful rebound in prices.

The homeownership rate edged up last quarter to 65.3% from 65% in Q2 and is now back to levels we haven’t seen since the mid-90s, when HUD began to aggressively push to increase homeownership in this country.

Interesting article on the fiscal drag (aka “austerity”) by the AEI. Without the Fed’s stimulus, nominal GDP would have fallen by 2%. Note that most of the drag is coming from the tax increases, not the spending cuts, as the tax hikes have a much higher multiplier than spending cuts. They cite a San Francisco Fed study which found that 90% of the fiscal drag came from increased taxes. This is not surprising as taxes were increased much more than spending was cut, but I found the difference in multiplier interesting. The spending cuts have a .60 multiplier while tax hikes have a 1.8 multiplier. This means that a $1 reduction in government spending reduces GDP by 60 cents, while a $1 increase in taxes reduces GDP by $1.80.

Morning Report – Bay Area Home Prices eclipse bubble highs 11/05/13

Vital Statistics:

Last Change Percent
S&P Futures 1758.0 -5.0 -0.28%
Eurostoxx Index 3032.3 -28.9 -0.94%
Oil (WTI) 94.33 -0.3 -0.31%
LIBOR 0.238 0.000 -0.17%
US Dollar Index (DXY) 80.59 0.032 0.04%
10 Year Govt Bond Yield 2.62% 0.02%
Current Coupon Ginnie Mae TBA 106.3 0.3
Current Coupon Fannie Mae TBA 105.2 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.22

Markets are lower this morning on no real news. Bonds and MBS are down. Later this morning, we will get the ISM non-manufacturing survey and the IBD / TIPP economic optimism report.

SAC Capital and the government reached a deal yesterday – Cohen’s SAC Capital and the government settled insider trading charges for $1.2 billion. Cohen personally was never criminally charged. While Steve Cohen avoids jail, the firm will no longer be able to manage money, and once the client funds are withdrawn, no one on the Street will deal with him anymore. So, he can take his billions and go to the beach, I guess. The ultimate arbitrage – Cohen won this game.
The FHFA banned fees on forced placed insurance yesterday. Ultimately this move will result in a little less revenue for servicers.
Did FHA hike premiums just a little too much? It appears so. Wells, Bank of America and TD Bank are now offering loans with as low as a 5% down payment, with a requirement to have PMI until the house has 20% equity (this was the big thing FHA changed – now PMI has to exist for the life of the loan, regardless of the equity). In other words, Wells, B of A, and TD are offering a product similar to old FHA loans. Rising house prices make these worth the gamble. The government has been saying it wants to crowd in private capital; perhaps this is an intended consequence.
The CFPB will hold a hearing in Boston on Wednesday, November 20th at 11:00 am. Richard Cordray will be speaking as well as representatives from consumer groups, industry and the public. These hearings are usually used to announce new initiatives, and we may get the TILA-RESPA integrated disclosures final rule.
What is driving the growth of home prices in the Bay Area? Chinese money. Bay Area house prices are at all time highs, yes, even higher than the bubble years. Roughly 7% higher.