Joe Biden, truth teller?!? (Part I)

In the first of what will surely have to be an on-going series, let’s examine the proposition that President Joe Biden is that rarest of rare things, an honest politician.

Let’s start with his well-documented past deceptions and lies. And they are well-documented indeed, primarily because it was documented at a time when the media was still making nods to at least the pretense of being an objective and honest broker of information. Biden’s first run at the presidency in 1988 ended in failure when it was revealed that he was plagiarizing other people’s political speeches, most notably those of British Labour MP Neil Kinook, going so far as to even steal Kinook’s stories about his own family’s history. The late Robert Kennedy was also someone from whom he stole.

And it wasn’t Biden’s first foray with presenting other people’s work as his own. Back when he was in law school, he was caught plagiarizing from others’ work in one of his law papers. In a confrontation with a reporter, in which he prefaced his remarks with the Trumpesque braggadocio “I probably have a much higher I.Q. than you do, I suspect”, he claimed that he earned three degrees as an undergraduate, was the only person in his law school class to get a full scholarship, and ultimately finished in the top half of his law school class. All of these were lies.

During that 1988 campaign, his staffers tried to stop him from falsely claiming to have joined the Civil Rights marches of the 1960s, but the lie was repeated at several campaign stops. When the campaign was imploding on the back of the plagiarism charges, and Biden was struggling to stay in the race, he implicitly copped to the lie while trying to avoid admitting it, saying ““I find y’all going back and saying, ‘Well, where were you, Senator Biden, at the time?’ — you know, I think it’s bizarre. Other people marched. I ran for office.”

But the lies about his activism during the Civil Rights era didn’t start with his 1988 campaign. He’d been telling porky pies about it for years.

When Biden gave up on his 1988 quest for the presidency, he finally admitted:

”I was not an activist…I worked at an all-black swimming pool in the east side of Wilmington, Del. I was involved in what they were thinking, what they were feeling. But I was not out marching. I was not down in Selma. I was not anywhere else. I was a suburbanite kid who got a dose of exposure to what was happening to black Americans.”

That burst of honesty proved to be only temporary. By the time he was running for the presidency again in 2020, he was back to touting his imagined youthful activism again.

Of course, the 2020 campaign provided Biden with the opportunity to lie about all kinds of things, not just his Civil Rights (non-)activism. In South Carolina he told an audience that:

When I got out of the United State Senate, instead of taking a Wall Street job – and they’re not bad, I’m not making them bad – but instead of doing the things that I never did before, I figured I wasn’t going to change all these years from what I was comfortable doing. So I became a teacher. I became a professor.

Actually, the job he took when he left the US Senate was the job of Vice President of the United States. But aside from his confusion about the job he left in 2016, what he actually became at that point was the recipient of what was essentially a no-show job with a huge salary, an honorary “professorship” at UPenn in exchange for his name and a few appearances at “big ticket” events. He never taught a single student in a single class.

He also repeatedly told campaign audiences that he had been arrested trying to visit Nelson Mandela. Eventually he was forced to admit that it wasn’t true.

And it isn’t just his own personal history that he lies about. He’s an inveterate liar about policy. In his final debate with Trump, he claimed that “not one single person, private insurance, would lose their insurance under my plan, nor did they under Obamacare.” Of course, Obamacare literally outlawed certain insurance plans, resulting in many millions of people losing their insurance.

In that same debate he said ““I have never said I oppose fracking.” Sure, Joe.

During an earlier debate, speaking about Obama era border enforcement policies, he said “What Latinos should look at is, comparing this president to the president we have is outrageous, number one. We didn’t lock people up in cages. We didn’t separate families. We didn’t do all of those things, number one.” Whether one wants to call them cages or not, in fact the facilities used to detain illegal immigrants under Trump were the exact same facilities used to detain illegal immigrants under Obama.

In an interview with Anderson Cooper, Biden had this to say about his opponent, President Donald Trump:

Have you ever heard this president say one negative thing about white supremacists? Have you ever heard it? That’s the reason I got back in this race because of what happened in Charlottesville. People coming out of the woods carrying torches, their veins bulging. Close your eyes and remember what you saw. And a young woman gets killed, that resisting the hate and violence. And the president gets asked to comment on it. what does he say? He says there were “very fine people on both sides.” He wouldn’t even condemn David Duke, for God’s sake.

In 2000, Trump condemned David Duke as “a bigot, a racist, a problem”. During the 2016 campaign, Trump condemned and disavowed Duke over, and over, and over again.

As for white supremacy, Trump has repeatedly condemned it. In one White House address Trump said:

Racism is evil. And those who cause violence in its name are criminals and thugs, including the KKK, neo-Nazis, white supremacists, and other hate groups that are repugnant to everything we hold dear as Americans.

Even his infamous and much mischaracterized “very fine people” comments following the violence in Charlottesville, which is the basis for the Biden’s deceitful insinuation, Trump specifically said (12:55) ” I’m not talking about the neo-Nazis and the white nationalists, because they should be condemned totally.”

So is President Joe Biden an honest politician, or does it seem more like he is dishonest? On past evidence, it appears that he has been dishonest pretty much perpetually about his past, about policy, about other people, about his own actions, going all the way back to his law school days in 1966. We’ll see if he maintains his record for dishonesty while he remains President. Stay tuned…

 

Morning Report: Delinquencies Decline

Vital Statistics:

 

  Last Change
S&P futures 3823 -23.3
Oil (WTI) 51.64 -1.44
10 year government bond yield   1.09%
30 year fixed rate mortgage   2.86%

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are up.

 

Delinquencies fell in December to 6.08%, the lowest level since April, according to Black Knight Financial Services. This is down 3.9% compared to November, but is up 78% on a YOY basis.

 

The MBA is requesting a $25 billion housing assistance fund. “We are requesting that you include a $25 billion Housing Assistance Fund, modeled on the Hardest Hit Fund, to provide funds to state housing finance agencies to help homeowners with COVID-19 hardships bring their mortgage loans current through targeted assistance,” the letter said. “The funds would be used for mortgage payment assistance, utility payments, property tax assessments and other support to prevent eviction, mortgage delinquency, default, foreclosure or loss of utility services.”

 

Flagstar reported fourth quarter earnings numbers that revealed that gain on sale margins are beginning to compress. “Our mortgage team continues to deliver, achieving revenues of $232 million for the quarter. While gain on sale margins did compress, we were pleased with how well they held up, finishing at 1.93 percent for the quarter. The team’s all-out efforts—coupled with our diverse, multi-channel mortgage platform—made it possible for us to deliver a quality experience to customers all year long in the face of unprecedented volumes. It will be interesting to see if this margin compression continues through 2021.

 

United Wholesale completed its merger with the Gores SPAC and should begin trading today under the new ticker UWMC. Third quarter originations were $54 billion for the company.

 

The three hottest real estate markets are Austin TX, Phoenix, and Nashville. The coldest are New York, San Francisco, and Los Angeles. “The pandemic has not upended the housing market so much as accelerated trends we saw coming into 2020,” said Zillow senior economist Jeff Tucker. “These Sun Belt destinations are migration magnets thanks to relatively affordable, family-sized homes, booming economies and sunny weather. Record-low mortgage rates and the increased demand for living space, coupled with a surge of millennials buying their first homes, will keep the pressure on home prices there for the foreseeable future.”

 

The PMI Flash index shows manufacturing and services perking up. Growth is the fastest since the start of 2015, however keep in mind that it is exaggerated given the drop in activity last year. The index did note that supply chain constraints are creating a backdrop for inflation.

Morning Report: Housing starts hit a record

Vital Statistics:

 

  Last Change
S&P futures 3885 0.3
Oil (WTI) 53.24 0.04
10 year government bond yield   1.11%
30 year fixed rate mortgage   2.86%

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.

 

Housing starts came in at 1.67 million, while building permits rose to 1.7 million. This is the fastest pace since the peak of the bubble years in 2006. For the full year of 2020, housing starts rose 1.38 million, which was 9% above the 2019 number.

You can see in the chart above that we are still kind of around historical averages, although they should trend upward with population growth. That chart goes back to 1960, when the US population was 181 million. We are at 331 million now. We will get existing home sales tomorrow, and the NAR has been reporting for-sale inventory is at record lows. The homebuilders have a lot of wood to chop in order to get inventory back to normal levels.

 

Initial Jobless Claims came in at 900k last week, which was a decline from the previous week.

 

The FHA said it will approve mortgages for DACA applicants. (or kids who’s parents are in the US illegally). It will be interesting to see how the government can push FHA lending going forward. They want the banks to do more of it, but the banks are understandably gun-shy after the Obama Admin used the False Claims Act to extract billions in settlements. I suspect we will be back to the Obama-era policy of cognitive dissonance: How hard can we kick the banks while simultaneously encouraging them to make more mortgages?

 

Homebuilder sentiment slipped on rising materials prices. “Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” said NAHB Chairman Chuck Fowke. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices. They are also concerned about a changing regulatory environment.”

 

The Biden Administration is going to have to walk a fine line with respect to building more homes. Housing shortages are most acute in deep-blue urban areas where environmentalism and NIMBY-ism conspire to keep supply low. In other words, he is going to have to buck his own party’s base on this.

Morning Report: Janet Yellen testifies in front of the Senate

Vital Statistics:

 

  Last Change
S&P futures 3813 24.3
Oil (WTI) 53.64 0.64
10 year government bond yield   1.10%
30 year fixed rate mortgage   2.86%

Stocks are higher this morning on no real news. Bonds and MBS are flat.

 

The MBA reported that mortgage loans in forbearance fell 5.37% compared to 5.46% a week ago. Fannie and Fred loans in forbearance fell to 3.13%, an improvement of 6 basis points. “The week of January 10 saw the largest – and only the second – decrease in the share of loans in forbearance in nine weeks, with declines across almost every tracked loan category,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “The rate of exits from forbearance has picked up a bit over the past two weeks but remains much lower than what was seen in October and early November.”

 

The FHFA has extended its foreclosure moratorium until Feb 28. The FHFA projects the COVID-19 foreclosure moratorium and its extension will create an additional $1.4 to $2 billion in expenses for the government-sponsored enterprises.

 

Mortgage Applications decreased 1.9% last week according to the MBA. Purchases increased 3%, while refinances fell 5%. “Market expectations of a larger than anticipated fiscal relief package, which is expected to further boost economic growth and lower unemployment, have driven Treasury yields higher the last two weeks,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “After a post-holiday surge of refinances, higher rates chipped away at demand. There was a 5 percent drop in refinance activity, driven by a 13.5 percent pullback in government refinances.”

 

Janet Yellen testified yesterday in front of the Senate Finance Committee. Here were the big takeaways:

  • Higher taxes are coming, but not now.
  • The government needs to get spending under control, but not now.
  • The dollar should be strong
  • Fiscal stimulus needs to be big.

Morning Report: Freddie Mac sees mortgage originations hitting $3.2 trillion in 2021

Vital Statistics:

 

  Last Change
S&P futures 3798 27.3
Oil (WTI) 52.84 0.54
10 year government bond yield   1.12%
30 year fixed rate mortgage   2.88%

Stocks are higher this morning as more financial stocks report earnings. Bonds and MBS are down.

 

The upcoming week is pretty data-light, although we will get some housing data with housing starts, the NAHB Housing Market Index and Existing Home Sales. The Spring Selling Season will be starting in about a month or so, and we should see plenty of pent-up demand from last year. Existing home inventory is at record lows, and prices are rising.

 

Bank of America reported better than expected earnings, however revenues fell 10%. The Fed has loosened the reins on stock buybacks, and the company announced it intended to repurchase $2.9 billion shares. Separately, Goldman Sachs reported strong earnings.

 

Janet Yellen is scheduled to return to the Hill today for testimony about her new role as Treasury Secretary. Unsurprisingly, she is going to advocate for a lot of additional fiscal stimulus. Note that with the change of the administration, many Democratic lawmakers are suddenly interested in re-opening the economy.

 

Joe Biden nominated Rohit Chopra to lead the CFPB. It sounds like the Administration is going to focus on student loan servicing practices. I am sure that the Agency will also focus on mortgage servicing as well. Chopra is a well-known name in DC and was most recently at the FTC where he focused on market domination in the tech space.

 

Merrill Lynch is out with a bullish take on the 2021 economy, predicting that the most vulnerable parts of our population will be vaccinated by April and May, and earlier and larger stimulus package will help things as well. They are taking up their GDP forecast from 4.6% to 5%. Note the Fed is predicting 4.2% for next year. If historical patterns hold, we can expect the Fed to overshoot growth estimates for the next four years.

 

Freddie Mac is forecasting that originations will decline 20% from their all-time high of $4 trillion in 2021. $3.2 trillion is still a hefty number, and should allow for great times for the industry. They see mortgage rates averaging about 2.9% this year before rising to 3.2% in 2022. Freddie also sees home price appreciation leveling out to about 0.7% in 2021. With the current supply-demand imbalance, that seems unlikely.

Morning Report: Jerome Powell says rates are going nowhere for a while.

Vital Statistics:

 

  Last Change
S&P futures 3770 -21.3
Oil (WTI) 52.74 -0.74
10 year government bond yield   1.10%
30 year fixed rate mortgage   2.88%

Stocks are lower this morning as we kick off earnings season. Bonds and MBS are up.

 

Retail Sales dropped 0.7% in December. This was well below expectations. Ex-gasoline and autos, sales fell 2.1%. This shows the economy is moving in the wrong direction, and I suspect we will see economists take down their estimates for fourth quarter US GDP growth. Separately, the University of Michigan Consumer Sentiment Index fell in January.

 

Industrial Production rose 1.6% while manufacturing production rose 0.9%. Capacity Utilization rose to 74.5%. We still have a lot of wood to chop to get back to pre-COVID levels here as well.

 

Fed Chairman Jerome Powell said that “now is not the time” to discuss tapering bond purchases. “Now is not the time to be talking about exit,” from the $120 billion in government securities the Fed is buying each month, Powell said in a web symposium with Princeton University. “A lesson of the Global Financial Crisis is be careful not to exit too early, and by the way try not to talk about exit all the time…because the markets are listening.” ”The economy is far from our goals…and we are strongly committed…to using our monetary policy tools until the job is well and truly done.” He went on further to say that the goal is to get the labor economy back to where it was pre-pandemic. The focus for that will be on lower-wage employment and wage growth.

Bottom line: mortgage rates are probably not going to get away from us for a while. A easy non-legislative way to put money in people’s pockets is to allow them to refinance their mortgage at a lower rate. With 32 million borrowers out there able to save 75 basis points on their rate, it will take years to do all of those loans, given industry capacity constraints. Powell knows this, and unless inflation magically appears from out of the blue, rates are staying low.

 

The FHFA will not leave conservatorship in the near term. There was talk of the Trump Administration letting them go, but that was always a long shot. FWIW, I do not see the Biden Administration releasing them either – if anything I could see them reinstituting the profit sweep and getting a whole slew of new affordable housing mandates.

 

 

Morning Report: Small Business Optimism headed back down.

Vital Statistics:

 

  Last Change
S&P futures 3811 7.3
Oil (WTI) 51.67 0.94
10 year government bond yield   1.01%
30 year fixed rate mortgage   2.88%

Stocks are higher this morning on hopes of a stimulus package. Bonds and MBS are flattish.

 

Joe Biden revealed a $2 trillion stimulus package. It will include $2,000 payments, aid for state and local governments and extended unemployment benefits. Separately, Mitch McConnell moved the impeachment trial for Trump until after Joe Biden takes office.

 

New York City renters owe $1 billion in back rent, according to one survey. It probably is closer to $2 billion. According to one housing advocate, the government could wipe that amount out with aid to the New York City. “It’s not an insurmountable amount,” Mr. Martin said. “The numbers tell us that, probably, if we could get an additional billion or two dollars in the city, we could probably pay off every single renter’s arrears in the entire city of New York over the last year of the crisis.” This may be where the government is headed, with the government making rent payments until the crisis is over. This is a risky course of action, as it will encourage a stampede of rent defaults with the government writing checks and asking questions later. Also, it has to be bearish for apartment pricing in the City as well. I don’t know how you account for potentially unenforceable rent contracts in your cap rate assumptions.

 

The National Federation of Independent Businesses reported that sentiment fell dramatically in December. “This month’s drop in small business optimism is historically very large and most of the decline was due to the outlook of sales and business conditions in 2021,” said NFIB Chief Economist Bill Dunkelberg. “Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.”

The plus side for the economy going forward is more government aid, and a robust housing market. The downside is more government regulation and general anti-business sentiment.

 

Mortgage Applications rose 16.7% in the first week of January as purchases rose 8% and refis rose 20%.

 

Initial Jobless Claims are headed in the wrong direction, with the number of newly unemployed increasing to almost 1 million.

TWO LINKS FROM VOLOKH

In which it is detailed how much violence occurred during mainly peaceful BLM demonstrations and how relatively sporadic police overreaction was.

In which a previously ignored ground for impeachment is argued.

Morning Report: Uncertainty

Vital Statistics:

 

  Last Change
S&P futures 3809 17.3
Oil (WTI) 51.67 0.94
10 year government bond yield   1.09%
30 year fixed rate mortgage   2.82%

Stocks are higher this morning despite a pretty lousy jobs report. Bonds and MBS are down.

 

The jobs report showed a loss of 140,000 jobs in December, which was well below the expected 50,000 gain. The unemployment rate slipped to 6.7% and hourly earnings rose by 5.1% YOY. The labor force participation rate was flat at 61.5%.

 

Given the riot that happened yesterday in DC, I am surprised to see bonds continuing to sell off. My gut tells me that part of the reason is that the bond market is still adjusting to the surprise result in the GA Senate runoff. Yes, we will get more stimulus which is theoretically inflationary. That said, all of the chaos in DC should be considered bond bullish, and I do think the stock market is in a state of denial. This is setting up for an unfriendly business environment.

As things settle down, I suspect the watchword for the business community will become uncertainty. Uncertainty is the reason for not hiring, not spending, etc. Ultimately, Biden is a bit of a blank screen, and until the business community knows whether we are getting Bill Clinton or Barack Obama’s regulatory state it will choose to sit on its hands. Someone remarked that the DC riot is the left’s 9/11, and they want revenge. An angry left is not conducive to commerce. All you can do is hunker down, play it safe and wait for the storm to pass.

I will be willing to bet that the NFIB Small Business Optimism Index will take a dive the next time it is released. Ultimately, this state of affairs should be considered bond bullish, and I suspect rates will be headed back down. The stock market is still being elevated by the Fed and speculative activity (I read somewhere that 6% of the volume in the market has been in one name: Tesla).

Ultimately, if the economy slows (which seems to be the case), the Fed’s bond purchases will have to stay in place. This means that mortgage rates should have a lid on them for the foreseeable future. While I don’t see a return to the economy of 2009-2010, I do think the pre-COVID economy is probably not in the cards for a long time. This is why I think rates are headed back lower.

 

 

Morning Report: Looking ahead

Vital Statistics:

 

  Last Change
S&P futures 3757 17.3
Oil (WTI) 50.57 -0.04
10 year government bond yield   1.07%
30 year fixed rate mortgage   2.81%

Stocks are higher this morning after Trump agreed to an orderly transfer of power. Bonds and MBS are down.

 

Now that the Democrats control 100% of government, the first order of business will be $2,000 stimulus checks. The other big item on the menu will be a bailout for the Big Broke Blue States of NY, CA and NJ. The left has been itching to raise taxes, however I see that as a long shot while the economy is still in a COVID weakened state. I don’t see a tax hike as something we need to worry about right off the bat. GSE reform will also go to the back burner. I wouldn’t be surprised to see the government re-instate the net profit sweep.

 

The bigger fear is that the bond market continues to sell off, which counteracts what the Fed is trying to do. The fact that TBA prices are lagging the move in Treasuries indicates that the Fed is still firmly in control of this market and that mortgage rates will stay low. The Fed realizes that the easiest way to get money into people’s pockets is to let them cut their mortgage payment or to get a cash-out refinance. I suspect the Fed will keep the refi boom going for the near term by supporting the TBA market.

 

The supply / demand imbalance in the housing market should guarantee that home prices keep appreciating. The one thing that worries me is an extended foreclosure and eviction moratorium. The left has zero sympathy for landlords, and they haven’t thought through the consequences of letting people live rent-free for an extended period of time. I wouldn’t touch a non-QM NOO mortgage with a barge pole right now.

 

The FOMC minutes were uneventful. Unsurprisingly, the Fed is worried about the economy, and low inflation. They didn’t say anything we didn’t already know.

 

Initial Jobless Claims came in at 787k last week, while the Challenger and Gray job cut report showed 77,000 announced job cuts in December.