Markets are higher this morning after some good retail earnings and the Chicago Fed National Activity Index rose slightly to -.15. Bonds and MBS are rallying.
President Obama met with various regulators regarding Dodd-Frank yesterday, and stressed the need to prevent another crisis from happening, and also to make sure the housing finance system “that better serves middle class families” (whatever that means). Sounds like more of the same “Slug the lenders harder – maybe they’ll finally take some risk.” thought process going on.
Another good data point on the housing recovery – good earnings from the Despot. Comps up 11.4%, which is pretty impressive.
Cool real estate price “heat map” courtesy of the NY Fed. The West is the Best.
Unemployment is rising in more than half the states and fewer states are adding jobs. The labor market may be losing some steam
Markets are stronger after yesterday’s bloodbath, although bonds are still having a tough go of it. There is no economic data this morning
This week looks to be pretty dull with respect to market-moving economic data, with the exception of the FOMC report this Wednesday. Market participants will be parsing the minutes closely to answer the “September or December” question. (Will the Fed start reducing QE purchases at the September FOMC meeting or the December FOMC meeting?)
Interesting factoid: according to a Goldman Sachs survey, more than half of the homes sold in the United States last year, and so far this year, are all-cash transactions. When you consider the fact that existing home sales are running at around a 5 million / year rate and over half these sales are all cash, it shows that the mortgage business still has a lot of room to rebound. Pre-bubble, existing home sales were about 5 – 6 million units / year and peaked over 7 million at the height of the bubble. This says that the mortgage business is still in highly depressed territory.
The Inspector General of FHFA is saying that the super-profitable Fannie Mae and Freddie Mac are ignoring billions in potential losses on overdue loans and they adopt a new accounting system. Of course, the GSEs are effectively nationalized and we all know government accounting does not comport with GAAP accounting. They are supposed to start writing down loans when they go 180 days delinquent. They aren’t.
President Obama is scheduled to meet with Ben Bernanke and other financial regulators to discuss the progress in implementing Dodd-Frank. So far, pretty much the CFPB is up and running and that is about it. Major issues remain unresolved as Dodd-Frank was drafted without any input from the financial industry.
1953 – The Iranian military, with the assistance of the CIA, overthrows Premier Mosaddeq and reinstates the Shah of Iran. The Shah, an ally of the US throughout the Cold War, will remain in power until the 1979 Iranian revolution. The 1953 coup and the US relationship with the Shah will be a primary motivating factor in the 1979 hostage crisis, when Iranian “students” storm the US embassy in Tehran and hold 52 Americans hostage for 444 days.
1951 – Eddie Gaedel, at 3 foot 7 inches the smallest person ever to “play” in a MLB game, makes his first and only career plate appearance for the St Louis Browns, taking a walk on 4 straight pitches and promptly being taken out for a pinch runner. Gaedel’s appearance was orchestrated by showman and owner Bill Veeck, who was famous for his unique efforts at trying to increase fan attendance.
1942 – Amidst mounting pressure from Stalin to open a second front in the war, the Allies stage a raid on the French town of Dieppe, the first Allied attempt to attack German positions in mainland Europe. The raid, beset by all kinds of logistical and tactical problems, is a complete debacle, being turned back a mere 5 hours after it had begun, with over 60% of the troops being casualties or captured. Nevertheless, the lessons learned are held out by Churchill as being crucial to the later success of the invasion of Normandy on D-Day.
1812 – A naval battle between the USS Constitution and the Guerrière, a British frigate, breaks out off the coast of Nova Scotia. Surprisingly the Constitution gets the best of the 20-minute battle, inflicting serious damage while suffering very little itself. Witnesses to the battle later claim that the British cannon shots simply bounced off the sides of the Constitution, resulting in the eventually legendary ship being nicknamed “Old Ironsides”.
1992 – Boston Celtic great Larry Bird announces his retirement after a 13 year career. A 3-time NBA champion, 2-time NBA Finals MVP, and 3-time season MVP, Bird’s long-time rivalry with Magic Johnson of the Los Angeles Lakers is largely credited with reviving the moribund NBA of the 1970’s and propelling it to new found heights of popularity. I had never been an NBA follower, but found myself in Boston at the height of the Celtics success during the 1980’s and became a huge Bird and Celtic fan. He was a wonder to watch, both because of his talent and the arrogant self-confidence he exuded, typified by the story of his participation in the inaugural 3-point shooting contest at the 1986 All-Star game. Apparently all of the participants had been gathered in the locker room just prior to the event for a meeting with NBA officials, and Bird had not yet arrived. Finally he walked in, looked around the room and announced “Who’s coming in second?” One of my favorite Bird moments below. (BTW, check out those shorts.)
1991 – With the Soviet Union slowly disintegrating as a result of Soviet President Mikhail Gorbachev’s reforms, hard-line communists within his administration along with the heads of the Soviet army and the KGB launch a coup, placing Gorbachev under house arrest his Crimean vacation villa. Gorbachev refuses their demand for his resignation, and a state of emergency is declared with vice president Gennady Yanayev attempting to seize control of the government. The coup was thwarted in large part when Russian President Boris Yeltsin, who himself was inexplicably not detained, calls for a general strike to protest the coup, and rallies the people of Moscow to gather at the Russian White House. Major Evdokimov, chief of staff of a Tamanskaya tank battalion declares his loyalty to Yeltsin, providing Yelstin with a base to resist the coup. The coup eventually falls apart and Gorbachev is restored to power, but it accelerates the dissolution of the Soviet Union, with the emboldened Yeltsin asserting Russian independence, followed by most of the rest of the Soviet Republics. Within 5 months, the Soviet Union will officially cease to exist.
1963 – James Meredith becomes the first African American to graduate from the University of Mississippi. Meredith had one year earlier become the first African American admitted to the university, the result of a court order which had to be enforced over the objections of the university by US marshals sent to the school by President Kennedy. While Meredith’s enrollment was accompanied by violent protests including 2 deaths, his graduation ceremony was reported to be uneventful.
1920 – The 19th amendment to the US Constitution, guaranteeing the right to vote to women, officially becomes law when Tennessee becomes the 36th state to ratify the amendment. Women had already gained the right to vote in only 15 states, and the ratification marks the culmination of nearly a century of the women’s suffrage movement. Susan B. Anthony, a major force behind the movement from the middle of the 19th century, did not live to see this day, having unfortunately died in 1906.
1872 – The first ever mail order catalog is issued by Aaron Montgomery Ward. The first catalog is a single 8″ by 12″ piece of paper, but within a decade it will grow into a 500 page book with over 20,000 items for sale.
1998 – Bill Clinton becomes the first sitting president in history to testify in front of a grand jury. The testimony arises out of an earlier deposition in which Clinton had lied about having a sexual relationship with White House intern Monica Lewinsky, prompting Independent Prosecutor Kenneth Starr to charge Clinton with perjury. Clinton’s grand jury testimony becomes infamous for his parsing the meaning of the word “is”. Asked if he was lying when he had claimed that “there’s nothing going on between us,” Clinton says “It depends upon what the meaning of the word ‘is’ is. If the—if he—if ‘is’ means is and never has been, that is not—that is one thing. If it means there is none, that was a completely true statement.” The whole episode leads to Clinton’s becoming only the second president to ever be impeached, although he was eventually acquitted by the Senate.
1987 – Rudolf Hess, the last living member of the Nazi inner circle, asphyxiates himself with a lamp cord in Spandau Prison. He was 93. The third highest ranking Nazi, behind Hitler and Hermann Goring, Hess was captured and imprisoned by the British in 1941 after he parachuted into Scotland in a bizarre and unauthorized attempt to negotiate a peace agreement with the British. Following WWII Hess was tried at Nuremburg with other high ranking Nazis, and was sentenced to life in prison. At the time of his death, he was the only remaining resident of Spandau Prison.
1978 – Ben Abruzzo, Maxie Anderson, and Larry Newman complete the first ever transatlantic balloon flight when they land their craft, the Double Eagle II, in a barley field in France. The flight, covering 3,233 miles and taking 137 hours, had begun in Preque Isle, Maine, and is the 18th attempt to cross the Atlantic in a balloon. The crew itself had tried and failed to achieve the feet a year earlier in the Double Eagle I.
1974 – The Night Chicago Died by UK band Paper Lace tops the US charts. The song tells the story of Al Capone’s defeat at the hands of police in a street battle on the East Side of Chicago. No such battle ever actually took place, as Capone was in fact arrested and imprisoned on tax evasion charges, and indeed there is no “East Side” of Chicago, as the center of downtown Chicago sits on the west coast of Lake Michigan. Still, the song goes Platinum in the US, with more than 1 million in sales. The song is in fact the band’s second big hit, the first being Billy Don’t Be a Hero, although it was a cover version of Billy by Bo Donaldson and the Heywoods that hit number 1 in the US.
1933 – Yankee great Lou Gehrig plays in his 1,308th consecutive game, topping the previous consecutive game record held by Everett Scott. Gehrig, known as the Iron Horse, will go on to play in 2,130 consecutive games, eventually removing himself from the lineup on May 2, 1938, in response to symptoms of what will later be diagnosed as amyotrophic lateral sclerosis, a rare disease that will go on to take Gehrig’s life and which, as a result, will come to more popularly be known as Lou Gehrig’s Disease. Gehrig’s streak, which will stand as a record for 57 years, almost came to an end 4 years earlier. Suffering from back pain on July 13, 1934, Gehrig is listed in the away game lineup as a shortstop rather than his normal first base, and after getting a hit in the top of the first inning, Gehrig is removed for a pinch runner having never played in the field.
1977 – Elvis Presley, the King of Rock ‘n Roll, is found dead on the bathroom floor of his Graceland Mansion in Memphis. He was 42 years old. Despite declining health in his final years, Presley continues to tour extensively, with 100 shows in 1976 and 55 more in 1977 before is death. (In fact he is scheduled to fly out on yet another tour the night of his death.) Overweight and taking numerous prescription drugs, there are times when he can barely remember the words he is supposed to sing. Still, his concerts continue to sell-out, and a reported 80,000 people line the streets for his funeral procession. Presley remains to this day the greatest selling solo artist of all time.
1974 – The Ramones make their first appearance at New York City’s famous music club CBGB. A vanguard of the punk rock genre, The Ramones find limited commercial success but are often hailed as one of the most influential punk rock bands ever, and even place 26 on Rolling Stone Magazine’s top 100 artists of all time list. I never got the attraction, to be honest, although I did find their 1979 movie Rock ‘n roll High School to be amusing when I was a teenager. And for some reason I find Blitzkreig Bop to be oddly likeable.
1955 – US singer/entertainer and activist Paul Robeson is denied his appeal to force the US to issue him a passport. One of the most famous black entertainers in the world, he had become controversial for of his outspoken criticism of US civil rights policies and for his support for the Soviet Union, which included a tribute to “the great Stalin” upon the death of the Soviet dictator in 1953. His passport was initially denied in 1950 while he was investigated for communist ties, and while he was finally allowed to travel in 1958, he remained under FBI investigation until his death in 1976. As an entertainer, Robeson is perhaps most well known for his renditions of ‘Ol Man River.
1948 – Yankee and home run king George Herman “Babe” Ruth dies of cancer at the age of 53. Ruth had been a member of the early New York baseball dynasty of the 1920’s and 30’s, and held the record for most career home runs (714) for 39 years, until it was broken by Hank Aaron in 1974. Regarded as the first true sports celebrity, Ruth once famously quipped, when asked about the fact that he made more money than President Hoover, “I had a better year.” Ruth’s body lays in state in front of Yankee Stadium for 2 days, as more than 10,000 file past to see him for the last time.
1896 – While salmon fishing in Canada’s Yukon territory, George Carmack and his two companions discover gold in a creek bed near the Klondike River. Over the next two years “Kloondike fever” will run rampant and 50,000 people will travel to the area in search of gold, marking the last major gold rush of the American west. Among the 50,000 is a young man named Jack London, who fails to find gold but uses his experiences to become a renowned writer of short stories. Large scale mining would continue in the area until 1966, producing some $250 million in gold.
Markets are stronger after yesterday’s bloodbath, although bonds / MBS are still heavy.
Housing starts came in at 896k, slightly below the 900k estimate. Building permits increased to 943k. Multi-fam construction drove the increase. Single Family starts actually fell. I am having a tough time reconciling the housing starts numbers with the order growth being reported by the homebuilders. We should be seeing faster housing start growth than we are. Maybe it is just that lead times are longer.
Productivity and Unit Labor costs both rose more than expected. Employee hours increased, as did compensation.
CFPB Monitor has its take on the new QRM rule, along with speculation that the CFPB may raise the required downpayment to 30%.
The MR will be spotty the next two weeks as I will be on the West Coast.
1989 – In his 2nd start following treatment for a cancerous tumor in his pitching arm, Dave Dravecky of the league leading San Fransisco Giants breaks his arm while throwing a pitch to Tim Raines. Dravecky later retires from baseball after breaking his arm a second time during the Giants celebration following their pennant clinching victory, and will eventually have his left arm and shoulder entirely amputated. He is currently an author and motivational speaker. (The video of the break is out there, but it is included with some other gruesome injuries you probably don’t want to see.)
1979 – Francis Ford Coppola’s Apocalypse Now is released in theaters. Beset by all kinds of production problems including a change in the lead after one week of shooting (Harvey Keital as Willard was quickly dropped by Coppola), a heart attack in mid-film (Martin Sheen), unprepared starring actors (an overweight Marlon Brando ad libbed most of his role since he didn’t know his lines), and weather problems (a typhoon destroyed several of the sets), production costs soared and the release date was postponed several times. Coppola himself suffered a nervous breakdown. Still, the film was met with critical acclaim and garnered 6 Academy Award nominations, winning for Best Cinematography and Best Sound. Coppola later released a documentary of the making of the film, taken largely from home movies filmed by his wife, called Hearts of Darkness: A Filmmaker’s Apocalypse.
1969 – The Woodstock Music and Art Festival, advertised as “3 days of peace and music”, opens on the grounds of Max Yasgur’s dairy farm in Bethel, New York on Friday, August 15. Although Bethel permit authorities are told to expect no more than 50,000 people, some 186,000 tickets are sold prior to the event. Unable to manage security for the expected numbers, the events organizers decide at the last minute to open the gates for free admittance, and at its peak about 400,000 people are in attendance. Thirty three different bands are scheduled to appear, including some of the top performers of the day such as Arlo Guthrie, Joan Baez, The Grateful Dead, Janis Joplin, The Who, Jefferson Airplane, and CSN&Y. The concert becomes a defining event of the 1960’s and the decade’s youth culture. The final act, former army paratropper Jimi Hendrix, finished up Monday morning and included this now historic nod to his country.
1945 – Japan’s Emperor Hirohito takes to the radio for the first time ever and announces Japan’s unconditional surrender. This is the first time his voice has ever been heard by the vast majority of Japanese citizens. Noting that “the enemy has begun to employ a new and most cruel bomb, the power of which to do damage is, indeed, incalculable”, the Emperor says that “Should we continue to fight, it would not only result in an ultimate collapse and obliteration of the Japanese nation, but also it would lead to the total extinction of human civilization.” Although Japan’s official surrender will not be signed until early September, August 14-15 (US/Japan time zones) is generally accepted as V-J Day.
1914 – After 30 years of of digging, first by the French and later by the US, the Panama Canal is officially opened to commercial traffic, cutting the time it takes ships to travel from the Atlantic Ocean to the Pacific Ocean in half. While the canal was originally completed and owned by the United States, it reverted back to Panamanian control in 1999. Interestingly, owing to the geography of Panama, traveling through the canal from the Atlantic to the Pacific will have one traveling eastward, not westward.
Famous Birthdays – Napoleon Bonaparte (1769), T.E. Lawrence (1888), Julia Child (1912), Ben Affleck (1972)
Somebody beat the tape with the ugly stick this morning, with stock index futures and bonds both down sharply. For stocks, an earnings miss from Wal Mart and yet another restructuring out of Cisco Systems are feeding the negativity. On the bond side, stronger data has driven the 10 year yield out of its recent 2.57% – 2.74% trading range.
Let’s run through the economic data:
Initial Jobless Claims 320k vs 335k expected
Empire Manufacturing 8.24 vs 10 expected
Consumer Price Index + .2% in line with expectations
Industrial Production flat vs expectations of a .3% increase
Capacity Utilization 77.6% vs 77.9% expected
Bloomberg Consumer Comfort Index -26.6, first decline in a while
NAHB Homebuilder Sentiment Index rose to 59 from 57
Philly Fed 9.3 vs expectations of 19.8
So overall, a mixed bag of data. Initial Jobless Claims were the best news (lowest in 6 years), while the drop in capacity utilization is an ominous sign.
The latest CoreLogic Market Pulse is out. While everyone knows that rising rates have more or less killed the refi market, they estimate that 29% of borrowers are in the money to refinance – meaning that the savings will cover the up-front fees to refi. So, that is still a good chunk of people. If Obama does HARP 3.0 and extends the dates , then another refi wave is on the way.
Mortgage debt has fallen $91 billion over the past quarter, and HELOCs fell by $12 billion. Non-housing debt rose. Overall household debt fell by .7% to $11.15 trillion. The Great American Deleveraging Continues…
FBR analyst Edward Mills is predicting that regulators will release new draft rules concerning mortgage secuiritzations, including the removal of down payment requirements for QRMs and premium capture cash reserve accounts. The original proposal was to require 20% down in order to release the securitizer from “skin in the game” holdings. (non-QRM MBS would require the issuer to hold 5% risk retention). Consumer Groups opposed the rule because it will restrict credit. Also they are ditching the Premium Capture Cash Reserve Accounts, which mandated that any securitization gain on sale could not be touched until the security no longer exists. The government right now is backing 90% of all newly issued mortgages and they finally figured out that regulatory overreach was preventing that number from dropping.
The long-awaited foreclosure wave that dates back to the beginning of the crisis is finally starting to happen. Foreclosures increased 3x in Baltimore. This is due to all of the foreclosure prevention actions taken by state and local governments are finally winding down. New York State is legendary for how long you can go without making a mortgage payment. Of course this is why prices are rocketing on the West Coast and they are modestly increasing on the East Coast. Maybe politicians and regulators finally figured out that all of the foreclosure restrictions they put on banks were having the effect of depressing prices, instead of supporting them, as they had hoped.
Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojkt
