Morning Report - 4Q GDP revised downward

Vital Statistics:

	Last	Change	Percent
S&P Futures	1852.3	-1.6	-0.09%
Eurostoxx Index	3128.0	-7.0	-0.22%
Oil (WTI)	102.1	-0.3	-0.32%
LIBOR	0.236	0.000	-0.19%
US Dollar Index (DXY)	79.82	-0.465	-0.58%
10 Year Govt Bond Yield	2.66%	0.02%
Current Coupon Ginnie Mae TBA	106	-0.1
Current Coupon Fannie Mae TBA	104.8	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.31

Markets are up small after a mixed bag of economic data. Bonds and MBS are up.

The second revision to 4Q GDP came in at 2.4%, lower than the 2.5% consensus, a big revision downward from the advance 3.2% estimate. Consumption came in lower than expected as well. Given that the big Q3 number (+4.1%) was driven largely by inventory build, and consumption hasn't really materialized, some of the weakness we have seen in the numbers lately can be attributed to this "borrowed" growth. Of course weather is another factor. 

In other economic data, the Chicago Purchasing Managers Index came in at 59.6, which was better than expected. Readings over 50 indicate growth. University of Michigan consumer confidence rose to 81.6 from 81.2 last month (better than expected).

Pending home sales were flat in January, according to NAR. Blame low inventory / high prices in the West and lousy weather in the East. Existing home sales are expected to be weak in the first quarter, while limited inventory is expected to drive price appreciation. While the builders have been able to raise prices at will, they seem to be at the point where buyers are balking, which means they will need to rely on volume to drive the top line. This will help solve the inventory problem.

Foreclosures were down 19% year-over-year and 11.8% month over month, according to CoreLogic. The foreclosure inventory has fallen by a third but we still have a ways to go. For every completed foreclosure, there are 954 mortgaged homes in non-judicial states and 896 mortgaged homes in judicial states. A normal ratio would be one for every 2000. The time to complete a foreclosure increased to 943 days, according to Black Knight Financial Services (formerly knows as Lender Processing Services).

The CFPB is aggressively going after servicers. Walter Investment (WAC) disclosed during their earnings report that the FTC and the CFPB has sought authority to bring enforcement action. For what, the company doesn't know. Ocwen (OCN) really couldn't comment on their call regarding the NYS action. Finally, Nationstar (NSM) is up small on no volume after reporting earnings. The CFPB has the non-bank servicers in the crosshairs and their stocks have been hit accordingly. That said, MSR valuations continue to increase. How many people bought the servicers as a way to hedge interest rate risk and ended up getting the view of the underlying assets correct, but missing the regulatory onslaught?

Speaking of the CFPB, another industry that they hate, hate, hate are payday lenders and check cashing places, which charge what they claim to be "usurious" rates. Yes, if a loan is only going to last a week, any fees are going to make the implied interest rate look huge. Given that QM has effectively shut many people out of the mortgage market and payday lenders will probably go away, it is ironic that the government will end up forcing people to go to the neighborhood loan shark all in the name of consumer protection. 

Morning Report - Annaly Capital's view on interest rates

Vital Statistics:

	Last	Change	Percent
S&P Futures	1841.5	-0.4	-0.02%
Eurostoxx Index	3122.4	-25.8	-0.82%
Oil (WTI)	102.8	0.3	0.24%
LIBOR	0.236	0.003	1.20%
US Dollar Index (DXY)	80.49	0.061	0.08%
10 Year Govt Bond Yield	2.65%	-0.01%
Current Coupon Ginnie Mae TBA	106	0.0
Current Coupon Fannie Mae TBA	104.8	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.37

Markets are flat this morning after a mixed bag of economic data. Durable Goods Orders came in better than expected, but initial jobless claims were a bit high. Bonds and MBS are rallying.

Some interesting tidbits on the Annaly conference call. Annaly is a big buyer of mortgage backed securities. 

• Regarding the Fed: "I think they will continue to taper come hell or high water; with respect to the Fed target, I think that's another story altogether. They have already backed down a little bit."
• Regarding MBS and tapering "The market has sobered up a little bit about the implications of that lack of demand." 

Annaly expects to boost their leverage ratio to 7x over the next several quarters, which is high for them. It is an aggressive bet that (a) MBS have gone down about as far as they are going to go, and (b) short term interest rates are going nowhere for the near and intermediate term. In other words, Annaly thinks the top in mortgage rates is in for the next few years.

The House will consider a reform of the CFPB to bring some sort of accountability to the agency. Right now, it is funded from the Fed and there is no Congressional oversight of the agency. The plan would be to replace the single, non-accountable director with a five member commission, subject the agency to the normal appropriations process and prevents the CFPB from undermining the safety and soundness of U.S. financial institutions through regulatory overreach. Probably DOA in the Senate if it even gets there, but a marker has been laid down. At some point, the CRA types are going to get annoyed that more credit isn't being extended to their preferred constituencies and it is possible they might put 2 and 2 together and realize that the CFPB is being a drag on credit creation. 

New Home Sales increased to an annualized pace of 468k, much higher than expected. December's numbers were revised upward. Average selling prices have been increasing for the builders due to low inventory and increasing activity at the higher price points. At some point, they won't be able to raise prices the same way and will have to pump out more homes in order to drive the top line. Remember, we used to consider 1.5 million housing starts per year normalcy. The most recent starts number of 880k was the sort of number we used to find at the depths of recessions. We have been barely keeping up with obsolescence, and we have a tremendous amount of pent-up demand. 

Morning Report - Subprime is back

Vital Statistics:

	Last	Change	Percent
S&P Futures	1849.0	2.7	0.15%
Eurostoxx Index	3142.2	-15.3	-0.48%
Oil (WTI)	102.4	0.6	0.55%
LIBOR	0.233	0.000	-0.13%
US Dollar Index (DXY)	80.29	0.150	0.19%
10 Year Govt Bond Yield	2.71%	0.01%
Current Coupon Ginnie Mae TBA	105.8	0.0
Current Coupon Fannie Mae TBA	104.5	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.3

Markets are higher this morning on no real news. Mortgage Applications fell 8.5% last week. Both purchase and refi apps fell. We will get new home sales at 10:00am

Toll Brothers didn't have anything earth shattering to say on its earnings conference call, but here are some bullet points: Remember, Toll is in the McMansion business so they will outperform in places with strong economies (DC / Texas) or quality of life (California).

• Consumer Confidence still "a bit fragile"
• Company is "a bit stumped by low demand"
• Texas and California sales are "fabulous"
• Minnesota is slow, Virginia is stronger than Maryland
• Toll will be more careful about raising prices this year
• Construction costs rose $1,700 per home in quarter
• Incentives fell
• Toll will slow land buying over the next 12-18 months 

Fun fact: the average size of a new home has increased 300 square feet from 2009 to 2013. This is part of the reason we have been seeing such growth in average selling prices from the builders and why you shouldn't automatically assume existing homes will see similar appreciation. Funny, I thought the end of the real estate boom was supposed to close the curtain on gaudy oversized McMansions. Guess not.

Cool slideshow on the housing boom and bust.

Annaly Capital reported earnings yesterday, which came in better than expected. The company continues to de-leverage, and has been swapping out of RMBS into CMBS. Leverage dropped to 5:1 from 5.4:1 in Q3 and 6.5:1 a year ago. The company is primarily invested in agency fixed rate MBS. Annaly's activity affects TBA pricing which in turn affects mortgage rates, so it pays to keep tabs on what the big agency REITs are doing. As the Fed reduces their footprint in the MBS market, the REITs will dominate again.

Hey interested in a no-money down mortgage with no credit score check and a rate under 4%? Bank of America has funded a non-profit lender who wants rekindle the subprime market for "underserved" communities. (I guess no-no loans under 4% would probably be money-losers, so the "non-profit" label is a bit superfluous). Will the CFPB come after them given that roughly 15% of the loans would not meet QM standards? Looks like we have the first lender to stick their neck out of the QM box... Not sure why BOA would fund such a thing, (they get no upside and all the downside) unless they get CRA points for it. FWIW, the guy behind this (Bruce Marks) is a CRA bomb-thrower going way back, so maybe figured out a way to extort BOA into giving him money to do this by threatening protests in front of their branches if they didn't.

Morning Report - home price appreciation is moderating

Vital Statistics:

	Last	Change	Percent
S&P Futures	1844.2	-1.7	-0.09%
Eurostoxx Index	3145.9	-11.4	-0.36%
Oil (WTI)	101.6	-1.2	-1.20%
LIBOR	0.234	-0.001	-0.32%
US Dollar Index (DXY)	80.08	-0.119	-0.15%
10 Year Govt Bond Yield	2.72%	-0.02%
Current Coupon Ginnie Mae TBA	105.5	0.0
Current Coupon Fannie Mae TBA	104.4	0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.35

Markets are lower this morning on no major news. We had earnings from the Despot and Toll, who both reported better than expected numbers. Later on today, we will get numbers from mortgage REIT giant Annaly.

Case-Shiller reported home prices increased 13.42% year-over-year, while FHFA reported prices were up 7.7%. The FHFA index only looks at sales with a conforming mortgage so that accounts for the difference between the two indices. Case-Shiller includes distressed (cash only) sales as well as luxury sales. They noted that the month-over-month increases have been declining, signalling that momentum is starting to fall. That said, mid teens price appreciation is simply an unsustainable pace and a slowdown was inevitable. 

McMansion builder Toll Brothers reported better than expected first quarter earnings with deliveries up 52% in dollars and 24% in units. Contracts however have slowed - they only rose 14% in dollars and dropped 6% in units. Toll is beginning to have some tough comps so the numbers will moderate a bit. Weather was a factor again, as roughly half of their business is in the Northeast, Mid-Atlantic and Midwest. Toll is optimistic on the spring selling season, which has been echoed by other builders like Horton and Pulte.

The hits keep coming... JPM is cutting 8,000 jobs in consumer and mortgage banking. Dimon said that JP Morgan sets goal of "fortress" compliance / control environment. That choice of words encapsulates the current relationship between regulators and the regulated perfectly.

John Boehner travels to the White House for a rare meeting with Obama. (the last one was in 2012). I am sure the subject will be the minimum wage and immigration reform which are contentious subjects to say the least. Obama intends to go hyper-partisan into 2014, and his budget was basically a left-wing wish list, so I don't know what he intends to accomplish here, except to add a talking point that he met with House Republicans leaders and couldn't get anywhere with them.

Morning Report - upcoming earnings and data

Vital Statistics:

	Last	Change	Percent
S&P Futures	1838.0	3.7	0.20%
Eurostoxx Index	3137.6	6.0	0.19%
Oil (WTI)	102.5	0.3	0.29%
LIBOR	0.234	-0.001	-0.21%
US Dollar Index (DXY)	80.28	0.045	0.06%
10 Year Govt Bond Yield	2.73%	0.00%
Current Coupon Ginnie Mae TBA	105.5	0.1
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 higher this morning on no real news. Bonds and MBS are flat.

This week contains some important economic data, starting with the real estate price indices Case Shiller and FHFA. Wednesday, we will get new home sales. Thursday we get durable goods orders, and Friday is the second revision to Q4 GDP. The Street is forecasting a big revision downward - the advance estimate of Q4 GDP came in at +3.2%; The forecast for the second estimate is 2.5%. 

This week contains a lot of earnings reports which are related to the real estate business. We will hear from big box home improvement retailers Lowe's and The Despot, Agency MBS REIT giant Annaly, luxury builder Toll Brothers, and servicing biggies Ocwen and Nationstar. It will be interesting to see if management of NSM or OCN weighs in on the latest hostilities out of Washington or steers clear. 

Ally (ex-GMAC) is planning to go public in March and hopefully give the government an exit from their position. The government owns 37% and is expected to be the only one selling. As of now, it seems like they are sticking with the auto loan business, but we'll see if they get back into resi lending. 

Good article on why the current housing weakness my be temporary.

Morning Report - Is the REO to Rental trade played out?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1838.3	2.1	0.11%
Eurostoxx Index	3122.8	1.3	0.04%
Oil (WTI)	102.4	-0.3	-0.34%
LIBOR	0.235	-0.001	-0.32%
US Dollar Index (DXY)	80.36	0.076	0.09%
10 Year Govt Bond Yield	2.77%	0.02%
Current Coupon Ginnie Mae TBA	105.4	0.0
Current Coupon Fannie Mae TBA	103.9	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.35

Markets are up small this morning on no real news. Bond and MBS are down. HP's earnings beat consensus. Nat Gas continues to move higher based on forecasts of another polar vortex to hit next week. Nat Gas is up 36% over the past two weeks.

Fannie Mae posted a profit for the fourth quarter and will distribute $7.2 billion to Treasury. At this point, Fannie Mae has sent Treasury $121 billion, more than the $116 billion in aid it has received. The stock continues to climb, but emails have shown that the Obama Administration has no intention of letting the common shareholders have anything. So why do the common shareholders still exist? Because as long as the government holds under 80% of the company (they hold 79.9%), Fannie Mae's debt doesn't get consolidated on the government's balance sheet (which incidentally was the reason why LBJ spun out a piece of Fannie Mae in the first place - so that Fannie Debt is not counted as sovereign debt. Of course the Obama Administration will have to deal with court cases from Perry and Fairholme so the Administration's edict is not necessarily the last word.

The MBA just released fourth quarter delinquency and foreclosure data. The delinquency rate for 1-4 family homes was 6.39% in the fourth quarter, a drop of 2 bps from the 3rd quarter and 70 bps from a year ago. The foreclosure inventory was 2.86%, the lowest since 2008. The remaining inventory is concentrated in the judicial states on NY, NJ, CT, FL, IL.

Investors are beginning to focus more on buying distressed mortgages as a cheap way to secure property as the supply of foreclosed inventory has shriveled up, at least out West. Blackstone is beginning to wind down the amount of additional capital they are putting in the business. As I said yesterday, given that the big price increases are probably in the past and forecasts are predicting a more normal mid-single digit price appreciation pace going forward, the returns in this business today look a lot different than they did two years ago. When the smart early entrants are starting to eye the exit, you know the trade is getting played out.

The government regulators have trained their sights on the non-bank servicers which is evident from the stock prices of Ocwen and Nationstar. Ocwen's sale of bonds tied to MSRs raised less than expected. New York has placed an indefinite hold on Ocwen's purchase of a Wells MSR portfolio. The CFPB also gave a tongue-lashing to the industry at a MBA conference. So, while the servicers should have an interest rate wind at their backs, the regulators are dominating the news flow, which has put a damper on valuations.

Morning Report - Some housing affordability numbers

Vital Statistics:

	Last	Change	Percent
S&P Futures	1828.6	3.1	0.17%
Eurostoxx Index	3095.7	-25.2	-0.81%
Oil (WTI)	103.3	0.0	-0.01%
LIBOR	0.236	0.002	0.86%
US Dollar Index (DXY)	80.22	0.080	0.10%
10 Year Govt Bond Yield	2.75%	0.01%
Current Coupon Ginnie Mae TBA	105.4	-0.1
Current Coupon Fannie Mae TBA	104.1	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.31

Markets are higher this morning on no real news. Inflation at the consumer level and initial Jobless Claims came in as expected. Bonds and MBS are down small.

The latest CoreLogic Market Pulse is out, and it has some really good stuff on the state of the first time homebuyer. The rise in real estate prices (especially on the coasts) has hit first time homebuyers harder than existing homebuyers (in other words, buyers who currently own a home). Existing homeowners aren't as affected by increasing home prices because they have equity in their existing home. First time homebuyers do not. Of course, historically housing remains very affordable. 

CoreLogic also has a piece on the new rental boom, and whether we are experiencing a new age in the single family rental market. We have seen a massive conversion of single family homes into rentals as professional investors have scooped up distressed properties and put them out for rent. Certainly the demand for rental housing has been somewhat driven by a lousy economy, and lousy economies don't last forever. On the supply side, don't forget that professional investors are driven by the economics of a trade going forward, and the potential returns from single family rentals may look a lot different today as the easy money in distressed properties has already been made and future home price appreciation may be harder to come by. For the first time homebuyer, the buy vs rent decision is still almost as skewed towards buying as it has ever been:

If professional investors begin to let some of their rental property go (and given the tight inventory, they would be wise to) we will begin to see some of this property absorbed by "real" buyers - in other words, buyers with a mortgage. This will be the next big change in the mortgage banking industry - the exit of cash-only buyers and the return of a more normal mix of cash buyers vs buyers with a mortgage. 

Following on this, tomorrow we will get existing home sales, which is expected to come in around 4.7 million. In normal times, that number is over 5 million and during booms it will approach 7 million. The thing to keep in mind however is that cash sales represent 40% - 50% of all transactions right now, while historically, that number is closer to 20%. In terms of "gettable" business right now, 55% of 4.7 million homes is about 2.6 million purchase mortgages. If we get back to a normal cash / mortgage ratio of 20%, that number becomes 3.8 million, an increase of 46%. And if we get back to historical existing home sales numbers, it tops 4 million. As a purchase shop, we are in a good position to pick up that incremental business. 

So LOs, this lousy environment too shall pass. Better days lie ahead, even if the refi boom doesn't return. 

Morning Report - Housing starts buried by snow

Vital Statistics:

	Last	Change	Percent
S&P Futures	1832.3	-5.1	-0.28%
Eurostoxx Index	3111.5	-6.0	-0.19%
Oil (WTI)	102.7	0.3	0.24%
LIBOR	0.234	-0.001	-0.41%
US Dollar Index (DXY)	80.08	0.067	0.08%
10 Year Govt Bond Yield	2.68%	-0.03%
Current Coupon Ginnie Mae TBA	105.7	0.1
Current Coupon Fannie Mae TBA	104.5	0.3
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.32

Stocks are lower this morning after a weak housing starts number. Bonds and MBS are benefiting from the riots in Ukraine. Mortgage applications fell 4% last week. Inflation at the wholesale level remains under control.

January housing starts came in at 880k, well below the 950k forecast. December was revised upward by 50k. Bad weather certainly played a part, and the low number would be consistent with the weak homebuilder sentiment number yesterday. 

Bad weather doesn't account for the entire drop in homebuilder sentiment - a shortage of lots, rising materials prices, and a dearth of skilled labor contribute to the problem. Many skilled construction workers left the industry after the collapse and went to work in the energy patch. Interesting fact: The average age of a mason in Texas is over 60. Apparently wages have increased 50%.

Later on today we will get the FOMC minutes. Don't expect anything market moving in there, but you never know. While the dovish tilt of the Chair remains in place, we picked up some more hawkish members. New voting member Charles Plosser is in favor of ending QE ASAP.

Servicers are coming under closer scrutiny. We saw NY State block a MSR deal between Wells and Ocwen. Consumer Advocates are criticizing servicers for not modding enough loans (as if more mods are more better). 

Morning Report - Economists are lifting their forecasts for GDP growth

Vital Statistics:

	Last	Change	Percent
S&P Futures	1835.2	0.2	0.01%
Eurostoxx Index	3115.1	-3.8	-0.12%
Oil (WTI)	101.4	1.1	1.09%
LIBOR	0.235	-0.001	-0.23%
US Dollar Index (DXY)	80.08	-0.053	-0.07%
10 Year Govt Bond Yield	2.73%	-0.01%
Current Coupon Ginnie Mae TBA	105.8	0.0
Current Coupon Fannie Mae TBA	104.2	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.33

Markets are flat coming off a 3 day weekend. Bonds and MBS are up small. The Empire Manufacturing Survey came in lower than expected. We also have a big merger in the pharma space with Forest Labs buying UK-based Actavis.

We should get the FOMC minutes this week, but judging by the way the market behaved after the FOMC decision, it should be a yawner. Plus, we just had Janet Yellen in front of Congress last week so I can't really imagine much coming out of the minutes that wasn't already addressed there.

This week will have some interesting housing-related data, but nothing much that should move markets or create rate volatility. We have inflation numbers this week, but the Fed isn't really concerned about inflation these days. On Thursday, we get housing starts and building permits, and on Friday existing home sales and leading economic indicators.

The Philly Fed has put out a projection of economic forecasts based on a survey of professional economists. 2014 GDP forecasts have been taken up from 2.6% to 2.8% and unemployment has been taken down from 7% to 6.5%. They are forecasting a 5.5% to 6% increase in home prices for 2014.

Morning Report - blame the weather

Vital Statistics:

	Last	Change	Percent
S&P Futures	1828.2	3.9	0.21%
Eurostoxx Index	3114.2	16.3	0.53%
Oil (WTI)	99.73	-0.6	-0.62%
LIBOR	0.236	0.000	0.00%
US Dollar Index (DXY)	80.2	-0.124	-0.15%
10 Year Govt Bond Yield	2.74%	0.01%
Current Coupon Ginnie Mae TBA	106	-0.2
Current Coupon Fannie Mae TBA	104.3	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.27

Markets are higher in spite of some disappointing manufacturing data this morning. Bonds and MBS are flat. We are headed into a 3 day weekend, so volumes should be somewhat light.

Industrial Production and Manufacturing Production came in well below estimates, and capacity utilization dropped by 80 bps, a huge amount. Weather seems to have been the culprit so that is why the market is shrugging off the numbers.

Consumer confidence came in unch'd for February.

The spring selling season is off to a slow start, according to Redfin. FWIW, the homebuilders are reporting exactly the opposite.

Morning Report - Snowmageddon issue

Vital Statistics:

	Last	Change	Percent
S&P Futures	1812.7	-4.4	-0.24%
Eurostoxx Index	3074.2	-20.7	-0.67%
Oil (WTI)	100.2	-0.1	-0.14%
LIBOR	0.236	0.000	-0.11%
US Dollar Index (DXY)	80.33	-0.347	-0.43%
10 Year Govt Bond Yield	2.74%	-0.02%
Current Coupon Ginnie Mae TBA	106	0.3
Current Coupon Fannie Mae TBA	104.5	0.3
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.28

Markets are lower this morning after a lousy retail sales number. Bonds and MBS are up small. Initial Jobless Claims came in at 339k.

Another major snowstorm has hit the New York area today, so expect volumes to be on the light side and rates to be a little more volatile than normal.

The low retail sales number was based on bad weather, so it might be tough to read too much into it.

Big merger in the cable TV space - Comcast is buying Time Warner cor $45 billion. Gives the arbs something to chew on for a while. And brings the NFL network to the New York area.

Delinquencies continue to drop. According to TransUnion, only 3.85% of mortgages were 60 days down, the lowest in 6 years.

In a true "man bites dog" situation, Ralph Nader is contesting the effective nationalization of Fannie and Freddie. Just before the companies started generating cash, the WH changed the rules and decreed that all funds must flow to Treasury and that they would not count as "debt repayment." In other words, they nationalized the company without taking the existing shareholders out. The fate now resides in the courts.

Morning Report - "Viligant" Janet data dump

Vital Statistics:

	Last	Change	Percent
S&P Futures	1818.5	4.9	0.27%
Eurostoxx Index	3098.2	21.1	0.69%
Oil (WTI)	101.1	1.2	1.19%
LIBOR	0.236	-0.001	-0.21%
US Dollar Index (DXY)	80.8	0.166	0.21%
10 Year Govt Bond Yield	2.75%	0.03%
Current Coupon Ginnie Mae TBA	105.9	0.0
Current Coupon Fannie Mae TBA	104.3	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.25

Markets are stronger this morning on no real news. Bonds and MBS are down. Stocks loved the Yellen testimony yesterday, bonds not so much..

Janet Yellen's testimony was pretty much as expected. She is a primary architect of the Fed's current course of action, so it makes sense she will pretty much continue with doing what they have been doing. Her Congressional testimony had few interesting tidbits, although she is pretty unconcerned about the debt. According to her, it should become an issue in about 30 years. She also sees no bubbles right now (of course when has the Fed ever seen bubbles until after it is too late?). She also made a comment regarding the decline in the labor force participation rate - saying that some of it is structural. So, once unemployment hits their target, the Fed may not wait for the labor force participation rate to return to pre-recession levels because in their minds, it won't.

Maxine Waters praised Janet for her "viligance." 

Mortgage applications fell 2% last week, which is disappointing given that rates fell a couple basis points. Both purchases and refis fell, but purchases fell the most. 

The House passed a clean debt limit bill, so that takes the risk of another debt ceiling hike off the table. Separately, the House is working on a bill to clip CFPB's wings a little, and subject it to some sort of Congressional oversight.

Morning Report - Here's Janet

Vital Statistics:

	Last	Change	Percent
S&P Futures	1797.6	2.9	0.16%
Eurostoxx Index	3055.4	22.8	0.75%
Oil (WTI)	100.2	0.1	0.15%
LIBOR	0.237	0.003	1.18%
US Dollar Index (DXY)	80.58	-0.067	-0.08%
10 Year Govt Bond Yield	2.70%	0.03%
Current Coupon Ginnie Mae TBA	106.1	-0.2
Current Coupon Fannie Mae TBA	105	-0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.24

Markets are flat on no real news. Bonds and MBS are down.

Janet Yellen will have her first sit-down with Congress today in her new role as Federal Reserve Chairman. The prepared remarks are here. Regarding monetary policy, she will more or less continue on the path that the Bernanke Fed started:

"Turning to monetary policy, let me emphasize that I expect a great deal of continuity in the FOMC's approach to monetary policy. I served on the Committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve's statutory mandate of maximum employment and price stability."

Other than that, the Fed expects the economy to improve moderately. Testimony begins at 10:00 am EST.

Separately, hawkish voting member Charles Plosser is speaking today as well.

The NFIB Small Business Optimism Report is out, and it shows sentiment increased slightly in January, although they note that inventories are too high - remember that the 4.1% Q4 GDP number was driven by inventory build. It looks like the demand for that inventory has yet to materialize. That said, optimism about future sales and hiring jumped, so perhaps businesses are seeing something (foot traffic, inquiries, etc) that has yet to percolate into the data. That said, 94.1 is still a depressed number (100 is more or less average), and government is driving a big part of that, with taxes as the #1 problem and government regulation as #2. Poor sales comes in at a distant third. Bill Dunkelberg is a limited government guy, so take his interpretation of the data with that in mind, but still it does speak to a bifurcation in the market, where the big S&P 500 names are doing fantastic and small businesses are struggling. 

Morning Report - takeaways from Friday's jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1789.8	-3.7	-0.21%
Eurostoxx Index	3036.5	-2.0	-0.07%
Oil (WTI)	99.6	-0.3	-0.28%
LIBOR	0.234	0.000	0.00%
US Dollar Index (DXY)	80.67	-0.019	-0.02%
10 Year Govt Bond Yield	2.69%	0.01%
Current Coupon Ginnie Mae TBA	106	0.1
Current Coupon Fannie Mae TBA	105	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.24

Markets are flat without a lot of news out there. Bonds and MBS are flat. The market seems to have been unsurprised by the jobs report on Friday.

The Wall Street Journal did a nice piece on the takeaways from Friday's jobs report. Punch line: January's report was almost as disappointing as December, but you can't blame the weather this time around.

Sometime today, the MBA will release delinquency and foreclosure data.

The CFPB is making data from the Home Mortgage Disclosure Act available on line. It is a way to compare fees and points charged to borrowers. It will also be used by regulators to determine which branches they want to hit. For lenders, it is a good way to gain insight into how you stack up in your geographic area.

Consumer Credit jumped in December, a potentially positive sign for the economy.

Morning Report - meh jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1775.2	8.6	0.49%
Eurostoxx Index	3005.0	-5.8	-0.19%
Oil (WTI)	97.71	-0.1	-0.13%
LIBOR	0.234	-0.003	-1.27%
US Dollar Index (DXY)	80.71	-0.195	-0.24%
10 Year Govt Bond Yield	2.67%	-0.03%
Current Coupon Ginnie Mae TBA	105.9	0.0
Current Coupon Fannie Mae TBA	105	0.4
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.29

Markets are higher after a weak jobs report. Bonds and MBS are up.

Jobs report data dump

• Payrolls + 113k vs +180k expected
• Prior 2 month revision +34k
• Unemployment rate 6.6% vs 6.7% expected
• Hourly earnings + .2%, in line with expectations
• Labor force participation rate 63%

Retailers cut back jobs after the holidays and government hiring fell. Construction added 48k jobs. Surprising to see weak payrolls in conjunction with a drop in the unemployment rate and a tick up in the participation rate, but it appears to have been driven by annual population adjustments out of Census. It is important to keep in mind that the Employment Situation report is a noisy report that is often very sensitive to modeling adjustments and revisions after the fact. It probably gets more attention than is warranted. This report seems more or less in line with what the Fed has been forecasting, so it shouldn't have any effect on Fed policy re QE.

Sellers are returning for the Spring Selling season, which should help alleviate the inventory problem. At some point, we should see the pros getting itchy to ring the register as well. What does this mean? Probably (a) more purchase transactions with a mortgage, and (b) a moderation in home price appreciation. Remember, cash sales have been 40% to 50% of all purchase transactions lately, and that number has been historically closer to 20%. Cut the cash transactions in half, and the gettable business increases by 30% to 60%, even if the number of existing home sales doesn't increase.

Immigration reform appears to be dead for the time being. The reason is that the right believes the WH would only enforce the parts of the law it likes based on the administration's fast and loose way of handling obamacare.

Morning Report - Awaiting the Jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1748.2	4.2	0.24%
Eurostoxx Index	2975.3	12.8	0.43%
Oil (WTI)	98.62	1.2	1.27%
LIBOR	0.237	0.001	0.21%
US Dollar Index (DXY)	80.83	-0.203	-0.25%
10 Year Govt Bond Yield	2.68%	0.01%
Current Coupon Ginnie Mae TBA	105.9	0.0
Current Coupon Fannie Mae TBA	104.7	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.26

Markets are up small this morning on overseas strength. Market darling TWTR is down 20% this morning after an earnings miss #bloodbath. Initial Jobless Claims came in at 331k, slightly below expectations. 

Other economic data this morning - productivity rose 3.2%, while unit labor costs fell. Challenger, Gray, and Christmas reported announced job cuts increased 11.6% in January.

Regarding obamacare, we are now getting earnings announcements from the big health insurers who are considering pulling out of markets - Aetna and Humana both made such announcements. 

Tomorrow we will get the January Jobs report and find out how many people are still liberated from working.The partisan spin war on that CBO report continues... One thing to watch for is a sharp sell-off in the bond market. Emerging markets woes have been on the back burner the past couple of days, which means the bond market could be setting up for a sharp sell off on a strong number. I would highly advise against floating right now.

Morning Report - Another Elmendorf special

Vital Statistics:

	Last	Change	Percent
S&P Futures	1742.0	-1.7	-0.10%
Eurostoxx Index	2968.5	6.1	0.20%
Oil (WTI)	97.58	0.4	0.40%
LIBOR	0.236	0.000	-0.04%
US Dollar Index (DXY)	81.15	0.024	0.03%
10 Year Govt Bond Yield	2.64%	0.01%
Current Coupon Ginnie Mae TBA	106.1	0.0
Current Coupon Fannie Mae TBA	104.8	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.24

Markets are flattish this morning after the ADP Employment Report forecast that 175,000 jobs were created in January. Bonds and MBS are flat. Markets might be a little thin today as the Northeast is snowed in once again.

The ADP report suggests a "meh" number for this Friday's jobs report, although the ADP report has been a lousy predictor of the BLS numbers lately - last month, ADP forecast 238k jobs and the BLS number came in at 87K. So take this number with a grain of salt. Given what we know about the Fed's intentions regarding tapering, it would take an extraordinary number on either side to change the Fed's glidepath.

Mortgage Applications rose .4% last week, which is actually a pretty dismal number when you think about it - mortgage rates fell 7 basis points last week and we had an easy comparison given the MLK holiday the week before. Purchase apps were down 3.8%, while refis were up 2.8%. That said, this is a seasonally weak time, so it is hard to read too much into it, but there it is. FWIW, the homebuilders that have reported fourth quarter earnings so far noted strong traffic in January, which is an encouraging sign.

In the partisan spin wars about obamacare, the CBO launched a new toy to tussle over, with a study showing that obamacare would cost the economy about 2 million jobs. Republicans cited the study, saying that it confirmed what we knew all along, that obamacare would be a job killer. When you look at what CBO actually said, however, they concluded that the job losses would come from people voluntarily leaving the work force, not employers cutting hours / jobs. In fact, CBO said the job losses attributable to employers cutting jobs was so small they didn't bother to measure it. Obviously Elmendorf (head of the CBO) hasn't been checking out the reports put out by the regional Federal Reserve banks, or the NFIB small business surveys, which document actual hiring plans from actual businesses and instead is relying on some sort of model to predict what will happen. 

Regardless of how their model is specified, the CBO is in effect arguing that the laws of supply and demand are different in the labor market (which is an underlying assumption of most other left-wing labor policy). The normal supply / demand curve looks like this:  As prices increase, more supply comes out (which means if compensation increases, more people want to work) and demand decreases ( which means businesses will want to cut costs / substitute labor for technology, etc) All pretty common-sense stuff. Anyone who has taken Econ 101 will recognize this chart:

However, CBO is making a different argument: Because of obamacare (which raises the price of labor through employer mandates, etc) people will drop out of the labor force more than they would otherwise.  In other words, as price increases, supply will decrease. If people are starting to make more, does anyone really think that would encourage people to quit working? And their second argument makes even less sense - that employers will ignore increased compensation costs and continue to hire as before. Anyone who has used a self-checkout at the supermarket knows that argument is bunk. The CBO is arguing that employer demand for labor is inelastic - meaning that no matter what the price of labor is, they will pay it. In other words, if prices increase, demand stays the same. That may be true of certain items (think life-saving drugs like insulin), but certainly not 99.9% of the goods out there, and certainly not labor. Heck, if that was the case, raise the minimum wage to a million dollars and we'll all be rich! Essentially, CBO is arguing that the labor market looks like this:

I'll leave it to the reader to figure out whether this makes sense or not. 

This study, along with another Elmendorf special - that mass principal mods would save the government money - makes me wonder how partisan the supposedly non-partisan Elmendorf CBO is.