Morning Report: Freddie Mac anticipates a 6% drop in originations in 2018

Vital Statistics:

	Last	Change
S&P Futures	2499.5	-5.8
Eurostoxx Index	382.9	0.1
Oil (WTI)	50.4	-0.1
US dollar index	85.7	0.1
10 Year Govt Bond Yield	2.25%
Current Coupon Fannie Mae TBA	103.24
Current Coupon Ginnie Mae TBA	104.21
30 Year Fixed Rate Mortgage	3.85

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

We will have some Fed-speak today, however nothing should be market-moving given how recent the FOMC decision was. 

The Markit PMI flash index came in at 54, showing manufacturing remains strong. Separately, businesses expect to see about 1.9% inflation in the coming year, according to the Atlanta Fed. 

San Francisco Fed President John Williams sees the Fed gradually raising rates and considers 2.5% on the Fed Funds rate the "new normal." “Although I do expect us to need to raise rates gradually over the next couple of years, it’s not like we need to raise rates a lot over the next couple of years,” Williams said, adding that the pace “will depend on how the economy progresses.”

US household wealth hit a record in the second quarter as asset price appreciation continued. Household wealth increased to 96.2 trillion. Total debt grew at 3.8% as households and businesses borrowed more than governments. State and local government borrowing actually fell. 

Freddie Mac is out with its 2018 forecast, which basically predicts more of the same. Economic growth is expected to hang out in the 2% range, while mortgage rates are expected to rise. The increase in purchase activity will not offset the drop in refis, however and they are forecasting a 6% drop in originations versus 2017. They see home price appreciation of 5%. They expect the limited inventory problem to remain as the aging of the population and limited mobility keep a lid on home sales. They see the 30 year fixed rate mortgage increasing by 40 basis points to 4.4% and only a modest increase in housing starts to 1.33 million. 

Ray Dalio of Bridgewater on why the US economy resembles 1937. His point was that the Fed began to remove accomodation from the markets in 1937, which caused (in his opinion) the "recession within the Depression in 1937. While it is possible that monetary policy caused that recession, it is also possible policy had an effect too, especially FDR's undistributed profits tax, which basically told companies to "use it or lose it" with respect to their retained earnings. It was a political disaster from the start and only lasted two years, but it certainly was an ominous sign for business, which didn't help release the animal spirits. The Fed is going so cautiously at the moment, I don't see how they will send us into a recession by overshooting. 

Jamie Dimon doubled down on his criticism of Bitcoin, saying cryptocurrencies are a "novelty" and "worth nothing."