All Things in Moderation

Vital Statistics:

Another sloppy morning as people watch the Greeks try and form a governing coalition which may well reject the austerity measures agreed to with the EU. The Greek 10 year is yielding 23.3% and the Athens Stock Exchange Index is now touching 20-year lows. The turmoil in Greece has investors nervously eyeing Spain and Portugal.

This has put pressure on the S&P futures, and a bid under Treasuries. The 10-year traded below 1.8% this morning. I am watching the 1345 level in the S&P 500, which is the 200 day moving average and the low of early March. We came within a couple of points yesterday. Mortgages are rising, but not as much as Treasuries.

Corelogic released its March 2012 Home Price Index yesterday, which showed prices flat YOY. Excluding distressed sales, prices increased overall. The top markets were Wyoming, Virginia, Arizona, North Dakota, and Florida. The worst were Delaware, Illinois, Alabama, Georgia, and Nevada.

FHA foreclosures increased in March, and it released an interesting statistic – that half the mortgages it modified entered into foreclosure a year later. Speaking of mods, Bank of America is offering principal reductions to 200,000 homeowners as part of the State AG settlement.

University of Chicago economist Raghuram Rajan has an interesting paper discussing the best way forward to improve the economy. He points out that for the past 20 years, the US has attempted to address inequality through the credit mechanism. If we can’t do something directly for the middle class, we can allow them to do cash-out refis to spend as if they weren’t middle class. Ideologically, there will be something for everyone to love and something for everyone to hate. It provides an excellent historical background on how we got here in the first place. Good read.

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Vital Statistics:

Markets are generally lower this morning on follow-through from the weekend elections in Europe. German industrial output rose more than forecast, suggesting that Germany may avoid a recession. German GDP growth was negative in Q4, however as an exporter, they benefit form Euro weakness. Such is they symbiotic relationship between the North and South – the Southern European countries benefit from their ability to borrow at lower rates than they otherwise would, while the Northern European countries benefit from the currency weakness that results. Bonds and MBS continue to rally, and the 10-year yield has cracked 1.85% 

The National Federation of Independent Businesses released its Small Business Optimism Report this morning. The report contained an interesting statistic – nearly half of the respondents hired or tried to hire in the last three months, and 3/4 of them said they had “few” or “no” qualified applicants. Hard-to-fill job openings rose, and are typically a leading indicator to a drop in unemployment. Capital Expenditures have increased from the record lows of August 10, but are still below “normal” levels, indicating spending is in maintenance mode, not expansion mode.  Contrary to public perception, access to credit remains low on the list of concerns. Earnings are pushing to cyclical highs. Anyway, it is an interesting report. RTWT.

Wells Fargo made nearly 34% of the $385 billion of mortgages originated in the first quarter. Their next closest competitor was JP Morgan at 10.6%.  Should the Federal Trade Commission start preparing an antitrust lawsuit?  Probably not, as the reason for their increased market share was due to their competitors scaling back the business.

It is looking more like Ally will put its Residential Capital unit into bankruptcy and Treasury will support the decision if it happens. Treasury wants to put Ally on the block and recoup their money, but the liability stream from ResCap is making that impossible. The end result could be an acceleration of putback claims.

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Vital Statistics:

Global markets are weaker this morning after the far left won elections in France, and Greece voters rejected austerity measures. Greek bond yields have blown out 240 basis points this morning. French yields have taken the election in stride. The CAC-40 (French stock market) is actually up. The S&P futures were initially down 20 points on the Asian open, but have largely recouped their losses. Bonds and MBS are flat / up.

Pundits will be trying to read the tea leaves in the European election. Needless to say, Paul Krugman is delighted. Mohamed El-Arian is cautious.

Robert Samuelson sums up the debate going on in the academic community over how to address the current recession. Paul Krugman has been urging the Fed to target increased inflation in order to decrease unemployment. Ben Bernake considers Krugman’s prescription to be reckless.  FWIW, I side with Bernake here. With so much slack in the labor force, we are seeing zero upward pressure on wages, and the Fed’s profligacy has created a bull market in commodities. Stagnant wages plus higher food and energy costs are a recipe for more consumer misery, not less.

The Obama administration has released its April Housing Scorecard. Punch Line: The housing market remains fragile and the administration remains committed to try and prevent avoidable foreclosures and to stabilize the housing market. It more or less reads like a campaign ad.

This week is Loanapalooza – the Mortgage Bankers Association Secondary Conference, which is being held in NYC. Certainly the top issues will be the CFPB, the return of the private label market, and the new regulatory environment.

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Vital Statistics:

Markets are flat this morning after disappointing economic data out of Europe. Eurozone PMI data was solidly below 50, indicating business conditions are getting worse, not better. Equity markets recovered after initially selling off on the payroll data. Bonds and MBS are down slightly. 

Payroll data is out – 115k jobs were added in April, well below the 160k estimate. The unemployment rate fell to 8.1%, and the labor force participation rate fell to 63.6%. Average hourly earnings were flat. By all accounts, this was a disappointing report, and the markets sold off on the number, but then recovered. I suspect that predicting market reactions to economic data are going to become more difficult as disappointing numbers raise the possibility of QEIII.  

Lender Processing Services has put out its full report on March foreclosures. Delinquencies are continuing to decline (lowest level since Aug 08), while the foreclosure inventory is still at all-time highs, especially in judicial states. 

More data on the Facebook IPO.  The pricing range is $28 – $35 for a company that earned 43 cents a share last year. 81x trailing earnings. Click to Like.  

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