Morning Report: Lousy numbers out of Walter and Ocwen.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1941.7	-1.0	-0.05%
Eurostoxx Index	2920.2	-8.9	-0.30%
Oil (WTI)	32.89	0.1	0.34%
LIBOR	0.635	-0.001	-0.08%
US Dollar Index (DXY)	98.3	0.153	0.16%
10 Year Govt Bond Yield	1.75%	-0.01%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Markets are higher this morning after the Chinese cut reserve requirements in an effort to stimulate their economy. Bonds and MBS are flattish.

The ISM Milwaukee Index improved to 55.2 from 50.4, while the Chicago Purchasing Manager index fell to 47.6 from 55.6.

Pending Home Sales fell 2.5% in January, according to NAR. A dearth of inventory continues to weigh on the market. 

The corporate bond market is having difficulty digesting new issuance. Over the past 12 months, there have been 75 "no go" days, where the primary market was essentially shut. This is higher than the bad old days of 2008-2009. High Yield is even worse, with issuance down 75% year-over-year. 

When the stock and bond markets disagree, go with what bonds day. Unsurprisingly, asset managers continue to rotate out of stocks and into bonds. 

Warren says don't worry, be happy. Also the annotated version of the annual letter.

What are the characteristics of houses that sell quickly? Spanish architecture and 1,500-2,000 square feet.

Originator and servicer Walter Investment reported lower than expected earnings this morning and the stock is down about 10%. for 2015, originations were up 36% and the servicing portfolio increased by 4%. In the fourth quarter, origination volume was up 8% YOY. 

Walter wasn't the only company to miss this morning: Ocwen also is down about 11% after missing its quarter. Delinquencies rose to 13.7% from 13.1%. 

Morning Report: Home prices continue to rise

Vital Statistics:

	Last	Change	Percent
S&P Futures	1930	0.6	0.04%
Eurostoxx Index	2867.6	-27.6	-0.95%
Oil (WTI)	30.09	-0.7	-2.21%
LIBOR	0.619	0.001	0.19%
US Dollar Index (DXY)	96.93	-0.019	-0.02%
10 Year Govt Bond Yield	1.71%	-0.03%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.68

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

Initial Jobless Claims came in at 272k, an increase of 10k from last week.

Durable Goods orders rebounded smartly after a terrible December. They were up 4.9%, way better than the Street expectations.

Capital Goods orders rose 3.9% as well. Capital Goods orders are a proxy for business capital investment, so whatever turmoil is happening in the financial markets doesn't seem to be affecting Main Street, at least not yet. 

House prices rose 1.4% in the fourth quarter, according to the FHFA House Price Index. Home prices have now surpassed their bubble peaks and are making new highs. Note that this index is a sub-index of the real estate market - it only looks at homes with conforming mortgages, so it excludes all cash distressed sales and the jumbo market. 

In other economic data, the Bloomberg Consumer Comfort Index fell slightly last week to 44.2. Consumer comfort is crawling back to the bubble days, but still is lower than the Big 90s when the stock market bubble was raging. 

One thing that is apparent in this election cycle is that it is hip to bash big business. Why won't they fight back and tell their side of it? In essence, they dismiss the current populism as so much heated campaign rhetoric and believe that when the election is over, it is back to business as usual. FWIW, they have scored some big victories with the Ex-Im bank and the TPP trade deal. Wall Street, for some inexplicable reason, continues to be content with being a punching bag. 

Realtor.com lays out the 20 hottest real estate markets in February. Cliff Note version: mainly California. The Northeast is deader than Elvis.

The Atlanta Fed lowered their Q1 GDP estimate to 2.5% from 2.6%. 

Morning Report: New Home Sales fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	1896.0	-20.6	-1.04%
Eurostoxx Index	2867.6	-27.6	-0.95%
Oil (WTI)	30.09	-0.7	-2.21%
LIBOR	0.619	0.001	0.19%
US Dollar Index (DXY)	96.93	-0.019	-0.02%
10 Year Govt Bond Yield	1.67%	-0.03%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.68

Markets are getting pounded on the new worry du jour: Brexit. Bonds and MBS are rallying..

Brexit is the threat of the UK leaving the EU. It has implications mainly in the foreign exchange markets, but if the markets need something to worry about, well there you go. 

Mortgage Applications fell 4.3% last week as purchases rose 2.2% and refis fell 7.7%. The spike in rates last week killed the refis. 

New Home Sales continue to disappoint. Sales fell in January to 494k from 544k in December. For whatever reason, homebuilders continue to hold back production and rely in price hikes to move the top line. 

Regardless, people are still optimistic about the housing sector going forward. Toll Brothers mentioned that a dearth of skilled labor is an issue. Interestingly, average selling prices on signed contracts are falling for them in some areas of the country (the Mid-Atlantic and the South) and are flat in the West. Their urban luxury apartment sector was where all the ASP growth was. Perhaps the builders have pushed price hikes about as far as they can and now buyers are beginning to balk. 

Donald Trump performed well in the Nevada caucuses, easily beating Ted Cruz and Marco Rubio.

Morning Report: Home Prices continue to rise

Vital Statistics:

	Last	Change	Percent
S&P Futures	1910.0	-6.6	-0.34%
Eurostoxx Index	2867.6	-27.6	-0.95%
Oil (WTI)	30.09	-0.7	-2.21%
LIBOR	0.619	0.001	0.19%
US Dollar Index (DXY)	96.93	-0.019	-0.02%
10 Year Govt Bond Yield	1.77%	0.03%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.68

Stocks are lower this morning on fears of another yuan devaluation. Bonds and MBS are down.

Home Prices continued to rally in December, according to the Case-Shiller Home Price Index. They were up 0.8% on a month-over-month basis and up 5.7% on a year-over-year basis. Prices remain about 11.5% below their July 2006 peak. Note the FHFA House Price index which we will get on Thursday is already at new highs.

Existing Home Sales were up 0.4% at 5.47 million units in January, according to the National Association of Realtors. On a year-over-year basis, they are up 11%, the biggest gain in 3 years. The median home price rose 8.2% year-over-year to $213,800 as supply constraints continue to drive up prices. Housing inventory is 1.82 million units, which represents a 4 month supply. A balanced market is more like 6 - 6.5 month's worth. Ultimately, the big price increases are unhealthy because incomes have yet to really exhibit growth (although that may be changing). The median house price to median income ratio is roughly 3.8x, using the median income data from Sentier. 3.3 - 3.7x which is about normal. 

Speaking of home supply, McMansion builder Toll Brothers reported earnings this morning. Revenues were driven again by an 11.7% increase in average selling prices and not by unit growth. Gross margins fell, which speaks to increasing costs. So far this February, deposits and contracts are flat with last year. The decline in stocks probably has a lot to do with it as the luxury buyer is going to be more sensitive to asset prices than the first time homebuyer. 

Interesting to see this dynamic with the builders - a reluctance to build more units despite higher prices. Interestingly, CalAtlantic (the new name for Standard Pacific and Ryland after their merger) is bringing back the buydown loan. 

In other economic news, consumer confidence slipped in in February, and the Richmond Fed Manufacturing Index both fell. 

Blackrock is warning clients that the Fed is not likely to sit out the rest of 2016, the way the Fed Funds futures markets are predicting. Efficient market theorists might scoff at that notion, however the interest rate markets are so manipulated by central banks at the moment it makes sense to look at market signals with a jaundiced eye. What does that mean to mortgage types? Make hay now, because no one knows how long these low rates are going to stick around. 

Speaking of credit markets, the new subprime - auto loans - are beginning to exhibit signs of trouble. Auto loans are being priced like mortgages, however a mortgage is secured by a generally appreciating asset, while an auto loan is secured by a depreciating asset. This is the result of financial repression, which is the act of pushing interest rates to the floor. Investors who have to earn a return (like pension funds and insurance companies) are forced to move further and further out on the risk curve to earn their required return. The actuarial tables really couldn't care less that interest rates are zero. 

Donald Trump looks to be cruising to a third consecutive victory in Nevada. The big question for the D is whether he is a plurality winner or a majority winner. Once the establishment coalesces around one candidate will he continue to lead? One other interesting tidbit: Democratic turnout for the primaries is pretty depressed. Republican turnout is huge. Kind of pokes a hole in the media's attempt to create a Bernie Sanders movement, doesn't it?

Morning Report: inflation returning to the Fed's target

Vital Statistics:

	Last	Change	Percent
S&P Futures	1910.0	-6.6	-0.34%
Eurostoxx Index	2867.6	-27.6	-0.95%
Oil (WTI)	30.09	-0.7	-2.21%
LIBOR	0.619	0.001	0.19%
US Dollar Index (DXY)	96.93	-0.019	-0.02%
10 Year Govt Bond Yield	1.77%	0.03%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.68

Markets are lower this morning on no real news. Bonds and MBS are down.

Real Average weekly earnings increased 1.2% in January.

Inflation at the consumer level was flat month-over-month and up 0.3% YOY. Ex food and energy, it was up 2.2%, which is the highest level since June of 2012. This would indicate the Fed is actually getting there as far as its inflation target. That said, the Fed prefers to use the Personal Consumption Expenditure index, which is still below their target.

Chart: YOY inflation, ex-food and energy:

Good explanation of why the markets and the price of oil have become positively correlated. Old timers might remember back when an increasing oil price was a bad thing. Punch line: the banks have a lot of exposure to the energy patch and are lugging debt that made sense at $60 a barrel, but not at $30. That said, energy companies have issued $5 billion in equity secondary offerings this year, which is a surprise. The appetite is there, at least for some investors. 

The thinking behind negative interest rates, explained. European economists give their take on it. Basically they work well in smaller. open economies as a lever to manipulate foreign exchange rates, but they aren't all that effective for larger economies which are trying to boost inflation and growth. In other words, they might work for Denmark, but probably won't do much good here. Japan recently went negative, so that will be a good test of that theory.

Housing affordability is getting a little better as rates fall. Unsurprisingly, the Rust Belt and the Northeast are the most affordable, while California remains the worst. Note San Francisco is proposing transfer taxes for luxury properties in order to address affordability. Between rich tech workers and Chinese investors, property prices in San Francisco are sky-high. 

There is legislation afoot to eliminate the caps on VA loans, which will make them much more popular in high cost areas. Basically it will become a no money down jumbo. It has passed the House, and the prospects are good in the Senate and the WH. 

Morning Report: FOMC minutes show Fed preparing to back off tightening

Vital Statistics:

	Last	Change	Percent
S&P Futures	1928.5	5.8	0.30%
Eurostoxx Index	2922.3	24.6	0.85%
Oil (WTI)	31.37	0.7	2.32%
LIBOR	0.618	0.000	0.00%
US Dollar Index (DXY)	96.93	0.144	0.15%
10 Year Govt Bond Yield	1.82%	0.00%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.67

Stocks are higher this morning after oil continues its rally. Bonds and MBS are flat

Initial Jobless Claims fell from 269k to 262k., while the Philly Fed improved to -2.8.

The Bloomberg Consumer Comfort Index fell slightly to 44.3 from 44.5 the prior week. The Economic Expectations index fell markedly from 47 to 42.5.

The Index of Leading Economic Indicators improved slightly in January from -0.3% to -0.2%. 

Mortgage Delinquencies fell from 4.99% to 4.77% and foreclosures fell from 1.88% to 1.77% in the fourth quarter, according to the MBA. 

The FOMC minutes were released yesterday, and for the most part they were a non-event as far as the markets were concerned. The Fed did spend some time talking about the slowdown in China, and the reverberations in the markets. A number of officials are beginning to think the inflation forecasts are too high. In addition, the stresses in the financial system act as a tightening even if rates go nowhere. The Fed seems to be setting the stage for a cut in the GDP and inflation forecasts at the March meeting, as well as a pause in tightening. Separately, the OECD took down its forecast for global growth to 3.0% from 3.3%. 

Mortgage REIT MFA Financial reported earnings this morning. They continue to position their portfolio of MBS more towards credit risk and less towards interest rate risk. When the private label securitization market comes back, REITs like MFA will be the big buyers of non-QM paper. Their appetite for non-agency MBS will be the key driver bringing back the widespread use of products that don't fit in the agency box. 

FHFA Chairman Mel Watt says that the GSE's lack of capital is the most serious risk to the mortgage market right now. He says that guarantee fees have increased 25 basis points since 2009 and they are now "appropriate." He also said that the current state of conservatorship is "not a desirable end state" and said that the GSE's protection from market forces "presents itself in multiple decisions, including pricing." 

Morning Report: Neel Kashkari wants to get tougher on the banks

Vital Statistics:

	Last	Change	Percent
S&P Futures	1906.7	17.9	0.95%
Eurostoxx Index	2885.9	64.6	2.29%
Oil (WTI)	30.17	1.1	3.89%
LIBOR	0.618	0.000	0.00%
US Dollar Index (DXY)	96.97	0.105	0.11%
10 Year Govt Bond Yield	1.82%	0.04%
Current Coupon Ginnie Mae TBA	105.2
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.65

Stocks are higher this morning as yesterday's rally has follow-through on overseas markets. Bonds and MBS are down.

Mortgage Applications rose 8.2% last week as purchases fell 3.7% and refis rose 16%.

Housing starts came in 1.1 million, missing the 1.17 million estimate. Building Permits were flat at 1.2 million. 

The Producer Price Index rose 0.1% in January. The core index (ex food and energy) rose 0.4%. The headline number was up 0.6% YOY and the core number was up 0.8%. 

Industrial Production jumped in January by 0.9%, however the preior month was revised lower from -0.4% to -0.7%. Manufacturing Production rose 0.5%. Capacity Utilization improved markedly from 76.4% to 77.1%. 

At 2:00 pm, we will get the FOMC minutes. Given the uncertainty around the Fed's future plans, we could see the market more sensitive to these than usual. 

Neel Kashkari of the Minneapolis Fed gave a speech to Brookings yesterday, calling for even more regulation for the banks and to turn them into public utilities. Of course any examination over whether the Fed had a hand in creating the real estate bubble in the first place is nowhere to be found. 

The new enemy for consumer direct is not the government - it is a new robot designed to waste a telemarketer's time.  

Morning Report: Markets rebound after long weekend

Vital Statistics:

	Last	Change	Percent
S&P Futures	1879.3	21.0	1.13%
Eurostoxx Index	2828.2	-5.7	-0.20%
Oil (WTI)	29.44	0.0	0.00%
LIBOR	0.618	0.001	0.16%
US Dollar Index (DXY)	96.66	0.724	0.75%
10 Year Govt Bond Yield	1.76%	0.01%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.64

Green on the screen as investors return after a long weekend. Bonds and MBS are down small.

The Empire Manufacturing Index improved slightly to -16.64 versus -19.37 in the prior month. 

The NAHB Homebuilder Sentiment Index fell to 58 from 61 in February.

Saudi Arabia, Russia, Venezuela and Qatar agreed to freeze production at January levels provided the other members of OPEC agree to go along. Apparently this has been in the works for a while, so oil isn't having much of a reaction. 

Household debt increased 0.4% in the fourth quarter, according to the NY Fed. Student Loan and Auto loan financing are growing the most, while mortgage and HELOC is steady or falling. Credit quality for mortgage debt remains strong, however you can see the increase in low-FICO auto loans (the new subprime). Debt levels below:

As the Spring Selling Season begins, inventory remains tight, especially close to urban areas. The supply of homes is the lowest since 2005. 

Morning Report: Rates are back to pre taper-tantrum levels

Vital Statistics:

	Last	Change	Percent
S&P Futures	1822.6	-24.9	-1.22%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	26.84	-0.63	-2.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.62%	0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.64

Global stock markets are down again on no real news. Whatever comfort markets took in Janet Yellen's remarks yesterday are over. Bonds and MBS are up, with the 10 year bond yield pushing a 1.5% handle.

Speaking of Janet Yellen's plan to continue to increase the Fed Funds rate, the markets are not buying. The Fed Funds Futures contracts are forecasting no rate hikes until 2018.

Loan officers, you have been given an unexpected gift with the 10 year. Rates are now at the pre "taper tantrum" level when the Fed started bracing the markets for the end of QE. So I guess the Fed didn't need to purchase $4 trillion worth of assets to get rates down?

Initial Jobless Claims fell to 269k from 285k last week. It bears repeating that these numbers are exceptionally good and are associated with boom times. The tape doesn't care, but still...

The Bloomberg Consumer Comfort Index rose slightly to 44.5 from 44.2 last week. Lower gasoline prices are helping improve the mood. 

Most commodities have been getting crushed lately, however one has been on a tear: Gold. Gold is a strange animal, in that it is one of the few financial assets that isn't some else's liability. The price of gold can be considered to be the (inverse) confidence indicator in the world's central banks. Gold up, confidence down. 

Continuing on the central bank thread, one of the bright spots in the US markets has been auto sales. This has been driven by a couple things: The biggest was that people deferred replacing cars until they absolutely had to due to the lousy economy. However another reason is cheap credit, and some hedge funds think they have found the new "big short" in subprime auto. When you can get an 8 year loan for a new car at a rate below the 30 year fixed rate mortgage, something is awry. 

So, yet another pillar holding up the economy was based on cheap credit. Janet Yellen must feel like Michael Corleone: “Just when I thought I was out, they pull me back in.”

The House Financial Services Committee is having a hearing today on FHA MIP. Expect Democrats to push for another cut and Republicans to be against it. The Democrats are in a strange position with the base continuing to push for even tougher regulations for the industry and the affordable housing types getting sick and tired of the tight credit that results.

Morning Report: Yellen calms the markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	1866.6	-17.9	0.92%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	27.85	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.74%	0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Stocks are higher this morning based on prepared testimony for Janet Yellen's appearance before Congress. Bonds and MBS are down small.

Keep in mind that the Chinese stock market is closed all week in observance of the Chinese New Year, so the biggest catalyst for downside movement in the markets will be absent this week. 

Janet Yellen is traveling to the Hill for her Humphrey Hawkins testimony. In her prepared remarks she did spend some time talking about the turmoil in the financial markets and that acknowledgement was soothing enough to stocks to give them a boost. Overall, however the message is that the US economy is improving, and rate are going up gradually. The rest of the testimony will probably be a bunch of ideological questions from various congresscritters trying to get the Chairman of the Fed to agree with their ideological worldview. 

Goldman is forecasting 3 rate hikes in 2016. Given the overall weakness in the global economy and the rush to negative interest rates globally, it may not affect long-term interest rates in the US (or mortgage rates for that matter).

Blackrock is forecasting that US growth has probably peaked for the near term as more and more central banks enter the negative interest rate vortex. I wonder what our grandkids will think about today's PhD standard. If it ends up not working, do we go back to the gold standard?

In New Hampshire, Bernie Sanders won the Democratic primary vote, and Donald Trump won the Republican primary vote. John Kasich had a surprisingly strong showing.

Mortgage Applications rose 9.3% last week as purchases were up 0.2% and refis were up 15.8%. The refi index has had a nice run since rates started collapsing, but we are nowhere where we used to be compared to 2013.

Competition in the jumbo market is fierce, and the typical rate for a jumbo is now 15 basis points below a conforming mortgage. Historically, jumbos have cost an extra 25 basis points to the borrower. 

Do you think your underwriters are approving too many shaky loans? Move them to Seattle. Are they too conservative? Move them to San Diego. 

Morning Report: The global engines of growth are stalling

Vital Statistics:

	Last	Change	Percent
S&P Futures	1847.6	-4.9	-0.12%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	32.15	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.73%	-0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Markets are down after yesterday's blood bath. Bonds and MBS are up small.

Since the Fed tightened rates at the December meeting, the 10 year bond yield has fallen by 58 basis points. Fun fact: The Japanese 10 year bond yield is now negative.

In economic data, the NFIB Small Business Optimism Index fell from 95.2 to 93.9 last week. This is surprisingly tame given the activity in the markets over the past couple months. That said, small business optimism didn't ride the post-2009 rally in the markets up, so it probably will be a little insulated on the way down. Hiring plans remain intact, which is a good sign, however finding qualified applicants continues to be an issue. 

Job openings are pushing close to new highs, according to the JOLTS job report. Quits are increasing, which is a bullish sign for the labor markets.

Wholesale sales and inventories both fell in December. We are seeing a buildup in inventory, which is bearish for the economy.

Bottom line: the markets are signalling pain in the global economy, but it is hard to draw the conclusion that conditions in the US are driving it. If anything, the US appears to be taking its historical role of the engine of growth in a soft global economy.

The canary in the coal mine (besides oil) has been the absolute carnage in the banking sector, especially overseas. Deutsche Bank has been cut in half since September. Same as Credit Suisse. Citigroup is down 27% since Jan 1. So is BNP Paribas. Not sure what this is signalling (exposure to energy? exposure to China?) but it is a big warning button for the global economy and it is flashing red.

Even though the economy has recovered, the hatred of the financial sector hasn't changed, and it is being channeled through Bernie Sanders. The ironic thing is that the "Wall Street" they are railing against hasn't existed for 10 years. Regardless it isn't an environment conducive to risk-taking. 

Speaking of politics, the New Hampshire Primaries are today. Clinton and Sanders look neck and neck, and Trump looks to be ahead of the pack for the Republicans. 

Completed Foreclosures fell to 32,000 in December, which is down 2.4% from November and 22.6% year-over-year. 

Morning Report: Wage inflation is beginning to creep up

Vital Statistics:

	Last	Change	Percent
S&P Futures	1896.6	-11.9	-0.62%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	32.15	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.87%	-0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Stocks are lower this morning after the jobs report. Bonds and MBS are down

Jobs report data dump:

• Nonfarm payrolls + 151k vs 190k expected
• Unemployment rate 4.9%
• Average Weekly Hours 34.6
• Average Hourly Earnings up 2.5%
• Labor force participation rate

Overall a good report, Payrolls are disappointing, but the rest is strong. We are starting to see the beginning of wage inflation with average hourly earnings up 2.5%. December's number was revised upward from 2.5% to 2.7%. Stocks and bonds are down as this report will keep pressure on the Fed to maintain its posture of normalizing rates. The 2-year yield is higher by 4 basis points.

Higher wage inflation coupled with no inflation equates to lower profit margins. Ironically, this is the sort of "middle class economy" that politicians are promising to bring back. Good for workers, not so much for investors. 

The rise in the dollar and the corresponding fall in commodity prices is wreaking havoc on other economies though. Citi is saying fear oilmageddon. This will be felt not only in developing economies like Russia and Brazil, but also developed economies like Canada and Norway. Norway's "economic miracle" may have simply been a massive leveraged bet on oil and real estate. 

Obama proposed slapping a $10 per barrel tax on oil. Obviously that is going nowhere..

1 in 3 houses are still bought with cash, according to CoreLogic. This is a drop of 3 percentage points from a year ago. 

Morning Report: Dismal economic numbers this morning

Vital Statistics:

	Last	Change	Percent
S&P Futures	1896.6	-11.9	-0.62%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	32.15	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.87%	-0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Stocks are lower this morning after we got some disappointing economic data. Bonds and MBS are up small.

Dismal economic numbers all around this morning

Productivity fell 3% in the fourth quarter and unit labor costs rose 4.5%. This is a recipe for falling profits in 2016. Given the tepid GDP growth being forecast for next year (sub 2%), companies will focus most on cost-cutting. Given the excess capacity in the manufacturing economy, companies have been reluctant to spend on capital expenditures, which has depressed productivity. Definitely not a recipe for releasing the animal spirits, although if builders start to address the tight supply, it will provide a good boost for the economy. 

Factory orders fell 2.9% in December, which was below the Street estimate. November's numbers were revised downward as well. 

Durable Goods orders fell 5% in December as well. Capital Goods orders (a proxy for capital expenditures by business) fell by 5%. This directly relates to the lousy productivity numbers above. 

Announced job cuts increased 41.6%, to over 75,000 according to outplacement firm Challenger and Gray. Most of the cuts are coming in retail and energy.  

Initial Jobless Claims rose 285k last week. 

The Bloomberg Consumer Comfort Index fell from 44.6 to 44.2 last week. 

Don't underestimate the Fed, which is the message from major strategists. Goldman Sachs Chief Economist Jan Hatzius is calling for a 3% 10 year by the end of the year. 

On the other hand, mortgage REIT American Capital Agency is calling for the Fed to abandon its "tightening bias" by the end of 2016. They see a hard landing in China, continued weakness in emerging markets, and undervalued Treasuries versus other benchmark sovereigns. 

In a testament to the change occurring in the financial markets, lenders like Quicken and SoFi will be advertising during the Super Bowl this year. 

Both Republicans and Democrats agree the economy is lousy, and both sides are going back to their boilerplate explanations. Democrats blame Wall Street and the rich, while Republicans blame government. The funny thing is that the "Wall Street" they rail against hasn't existed for almost 10 years.

Morning Report: How's that working for you?

Vital Statistics:

S&P Futures	1909.9	12.5	0.66%
Eurostoxx Index	2933.6	-18.2	-0.62%
Oil (WTI)	30.73	0.9	2.84%
LIBOR	0.619	0.006	0.98%
US Dollar Index (DXY)	98.32	-0.555	-0.56%
10 Year Govt Bond Yield	1.88%	0.04%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are higher this morning after oil rebounds overnight. Bonds and MBS are down. 

Mortgage Applications fell 2.6% last week as purchases fell 7% and refis rose 0.3%. 

The ISM Non-Manufacturing Index fell to 53.5 from 55.8 in January

The ADP Employment Change report came in at 205k. The Street is forecasting 190k in Friday's jobs report. 

Bill Gross's latest Investment Outlook takes some shots at central bankers, and asks why we think negative interest rates are going to generate growth. As he says "How's that working for you?" While the consumer has deleveraged over the past 10 years, corporate america has not. That said, corporate america has taken advantage of record-low interest rates to refinance and extend high coupon debt with lower coupon debt. When people are willing to lend you money at 2% for 20 years, why not take it?

Speaking of negative interest rates, it seems the only nation anymore that isn't playing the beggar thy neighbor devaulation game is the US. Exports are falling, while imports are rising. This is the reason why we are seeing everyone - from Republicans to Democrats - willing to take potshots at free trade. Of course foreigners can accept one of two things in payment for their imports: goods and services from the US or IOUs (Treasuries). So far, they seem to want the IOUs. Which means interest rates are lower than they ultimately would be. Still manufacturing job losses are easy to point to versus interest rates and the benefits of cheaper imports. 

Another day, another settlement with the banks: Wells is paying FHA $1.2 billion over "failure to properly review early payment defaults in 2010-2012." And the government is scratching its head wondering why banks like JP Morgan are reducing / exiting FHA lending... At what point do these constant suits and settlements become simply a surtax on banking?

Morning Report: Since the Fed hike, bond yields have dropped 42 basis points.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1912.5	-18.8	-0.97%
Eurostoxx Index	2972.3	-48.7	-1.61%
Oil (WTI)	30.16	-1.5	-4.62%
LIBOR	0.613	-0.003	-0.49%
US Dollar Index (DXY)	98.89	-0.119	-0.12%
10 Year Govt Bond Yield	1.90%	-0.05%
Current Coupon Ginnie Mae TBA	105.1
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are getting roughed up a little as overseas markets and oil continue to fall. Bonds and MBS are up sharply, with the 10 year trading just below 1.9%.

The ISM New York Index fell from 62 to 54.6 while the IBD / TIPP Economic Optimism Index ticked up slightly to 47.8. 

The winners in Iowa last night were Ted Cruz and Hillary Clinton. Unofficially, the winners were Rubio and Bernie. The losers? Donald Trump and the pollsters who had him in the high 40s. He came nowhere near that. Note that there are allegations of tomfoolery on the Democratic side with vote counting..

The correlation between global stock markets and the price of oil is somewhat strange - historically, high oil prices were considered bad for stocks, not good. While the drop in oil prices is certainly not good news for the big integrated energy companies, it is great news for consumers. Overall, the US benefits from low oil prices. The action in the stock market may be viewing the oil price as the canary in the coal mine for the global economy. 

For the time being, the drop in commodities and stocks is keeping a lid on interest rates, which is a good thing for originators. The 10 year is heading back to late winter / early spring of 2015 lows. Fun fact, since the Fed raised the Fed Funds rate on December 16th, the 10 year bond yield has dropped 42 basis points. The trader in me says bond yields have fallen too far too fast.  Loan officers, if you have someone floating, try and lock 'em.  And wake up any potential borrowers who missed out on refinancing the last time around. 

Delinquency rates continue to fall, according to Fannie Mae. In December, the seriously delinquent rate fell to 1.55% from 1.58% in November and 1.89% a year ago. Home price appreciation and an improving job market are doing their jobs. 

With house price appreciation increasing well in excess of wage inflation, how affordable is housing these days? It depends on the statistic you use. If you look at the median house price versus the median income, you would conclude that housing affordability is approaching the lows of the bubble. However, if you look at the mortgage payment on the median house divided by median income, housing is at pre-bubble levels affordability-wise. Another argument to find people with ARMs and refi them in to 30 year fixed rate mortgages. 

Morning Report: Big week ahead.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1918.6	-11.5	-0.60%
Eurostoxx Index	2998.5	-46.6	-1.53%
Oil (WTI)	32.32	-1.3	-3.87%
LIBOR	0.613	-0.003	-0.49%
US Dollar Index (DXY)	99.26	-0.343	-0.34%
10 Year Govt Bond Yield	1.94%	0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are being weighed down by commodity weakness. Bonds and MBS are down small.

We have a big week of economic data, with the ISM numbers, construction spending, and the jobs report on Friday. Friday's jobs report will be the highlight of the week. 

Personal Income rose 0.3% in December, which was a little better than expected, although that money wasn't spent. Personal Spending was flat in December, which means the Great American Deleveraging continues to take place.

Inflation remains nowhere to be found, with the PCE Deflator negative in December on a month-over-month basis and up 0.6% YOY. The core PCE was flat in December and up 1.4% YOY. 

The ISM Manufacturing Index fell to 52.4 from 52.7 last month, while the ISM Manufacturing Index rose slightly to 48.2 from 48. 

Construction Spending rose 0.1% in December after falling 0.6% in November. 

Here are Realtor.com's list of the 20 hottest real estate markets right now. Very California-centric, however some surprises in Stockton, Detroit MI, and Fort Wayne, IN.