tag:blogger.com,1999:blog-84460391314530078502024-03-13T06:14:08.072-04:00The Daily TearsheetAnonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.comBlogger1455125tag:blogger.com,1999:blog-8446039131453007850.post-44609731798805670852018-09-18T10:18:00.000-04:002018-09-18T11:11:09.763-04:00Morning Report: The Urban Institute studies mannie price behavior. Vital Statistics:<br />
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<style type="text/css"><!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--></style><br />
<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2899}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2899</td><td data-sheets-value="{"1":3,"3":3.25}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">3.25</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":377.35}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">377.35</td><td data-sheets-value="{"1":3,"3":-0.96}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-0.96</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":69.63}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">69.63</td><td data-sheets-value="{"1":3,"3":0.75}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.75</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0301}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">3.01%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0468}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.68%</td></tr>
</tbody></table>
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Stocks are higher after Trump's proposed tariffs against China were smaller than expected. Bonds and MBS are flat.<br />
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Same store sales increased 5.4% last week, continuing a string of strong reports. Consumption data suggests that the fourth quarter is going to be strong, supported by the best holiday shopping season since the recession.<br />
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Builder sentiment was unchanged in September, according to the NAHB Housing Market Index. A lack of construction workers and higher construction costs are offsetting a strong seller's market for new homes.<br />
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The <a href="https://www.wsj.com/articles/debt-offer-tests-appetite-for-low-rated-companies-1537268400">credit markets for corporations with speculative credit remains robust</a>. A Blackstone-led investor group raised $13.5 billion for a 55% stake in Reuters data business. Huge leveraged buyouts have been largely absent since the financial crisis, and the covenants are extremely borrower-friendly. Aside from the RMBS shenanigans of the 06-07 era, we saw a lot of reaching on leveraged buyout deals (LBO firms buying non-LBO friendly businesses like semis and retailers). In fact, the first indication of a problem in the credit markets in 06 was when the buy side refused to bite on the paper issued to fund the Alliance Boots transaction (an LBO of a British drug store chain). The banks got stuck with the inventory, and the rest is history.<br />
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With LBO credit widely available, you would think the private label MBS market would be coming back. So far, it is a shadow of its former self, with a number of issues (prepays, conflicts) preventing it from returning in any size. If it can't do so in this environment, it almost makes you wonder if it ever will.<br />
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A UBS strategist is <a href="https://www.bloomberg.com/news/videos/2018-09-18/fed-will-hold-after-september-until-1q-says-ubs-zuercher-video">out with a bold call</a> that the Fed will take a break after September and skip tightening at the December meeting. He believes that trade war fears will keep the Fed cautious, and will not be as inflationary as feared.<br />
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A <a href="https://www.urban.org/urban-wire/new-evidence-shows-manufactured-homes-appreciate-well-site-built-homes">new study</a> by the Urban Institute finds that contrary to popular belief, manufactured homes appreciate in value, although at a smaller rate (3.4% annually versus 3.8% for tradition homes). They suggest that geographical differences could explain the difference - mannies are concentrated in slower growth states and are underrepresented in pricey markets like the California. Currently the government only finances mannies when the land is part of the deal, and since this study uses the FHFA House Price Index, they are excluding structure-only chattel loans, which are something like 80% of the market. Note that mannies are overall more volatile that site-built homes, which means more risk for the lender all things being equal and therefore justifies the LLPAs.<br />
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<a href="https://4.bp.blogspot.com/-xuK2JhLx6WQ/W6EIg5HmbmI/AAAAAAAADzM/Cwh-nAH3BgEZKa-gdigWXp1DJPHWl0begCLcBGAs/s1600/mannies.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="494" data-original-width="700" height="225" src="https://4.bp.blogspot.com/-xuK2JhLx6WQ/W6EIg5HmbmI/AAAAAAAADzM/Cwh-nAH3BgEZKa-gdigWXp1DJPHWl0begCLcBGAs/s320/mannies.PNG" width="320" /></a></div>
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A couple of economists <a href="http://review.chicagobooth.edu/finance/2018/article/how-make-money-fed-announcements-less-risk">think they have found a profitable trading strategy around the Fed</a>. The idea is to buy or sell the market after the Fed makes a surprisingly dovish or hawkish monetary announcement and then unwind the trade 15 days later. The trade provides a higher return without increasing risk (higher Sharpe ratio). Something to think about ahead of next week's FOMC announcement. If the dot plot comes out a bit more dovish than expected, supposedly you can make some money buying some SPYs and unwinding the trade mid-October. Full disclosure, not recommending you do that, just saying the study says it should work.<br />
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<a href="https://3.bp.blogspot.com/-scTf5ROXjOQ/W6D_O7CFZFI/AAAAAAAADzA/U60DcpAPjvckH-xxzp3ZwoIxys2dXNVWgCLcBGAs/s1600/Fed%2Bannouncement%2Btrade.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="628" data-original-width="656" height="306" src="https://3.bp.blogspot.com/-scTf5ROXjOQ/W6D_O7CFZFI/AAAAAAAADzA/U60DcpAPjvckH-xxzp3ZwoIxys2dXNVWgCLcBGAs/s320/Fed%2Bannouncement%2Btrade.PNG" width="320" /></a></div>
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Finally, I plan on retiring this website and will begin posting this content exclusively at <a href="https://thedailytearsheet.com/">https://thedailytearsheet.com/</a></div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-25197681078358591102018-09-17T10:16:00.000-04:002018-09-17T10:43:54.978-04:00Morning Report: Hurricane Florence might cost $5 billionVital Statistics:<br />
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<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2908.5}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2908.5</td><td data-sheets-value="{"1":3,"3":-2.9}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-2.9</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":377.97}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">377.97</td><td data-sheets-value="{"1":3,"3":0.1}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.1</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":69.63}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">69.63</td><td data-sheets-value="{"1":3,"3":0.64}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.64</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0301}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">3.01%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0468}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.68%</td></tr>
</tbody></table>
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Stocks are flat on no real news. Bonds and MBS are down. </div>
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We should have a quiet week ahead with not much in the way of economic data and no Fed-speak. Bonds have been selling off ahead of the FOMC meeting next week. The Fed Funds futures continue to bump up the chance of a December hike, with the odds now over 80%. </div>
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While not market moving, we will get some housing data with builder sentiment tomorrow, housing starts on Wednesday, and existing home sales on Thursday. </div>
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Chinese stocks are trading at a 4 year low, partially driven by threats of a trade war. Declining stock markets typically put pressure on real estate prices (asset classes generally correlate on the downside), and China has a bubble on its hands. This has the potential to spill over to the US, at least in the higher priced West Coast markets, which should see an exit of Chinese speculative money. Separately, China is considering declining further trade talks. </div>
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Trade talks should continue on NAFTA this week. The biggest effect of NAFTA talks will be on housing costs, particularly lumber prices. Base metals have been weak on trade issues, which should dampen the inflation indices a bit. </div>
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Hurricane Florence didn't pack the punch that people expected, but the flooding has been probably worse. <a href="https://www.corelogic.com/news/hurricane-florence-wind-and-storm-surge-could-cause-between-3-billion-and-5-billion-in-estimated-insured-property-loss-corelog.aspx">CoreLogic estimates that the insured flood costs will be between 3 and 5 billion</a>. For servicers, this will suck up some cash, as delinquencies will invariably spike and we will be heading into the holiday forbearance period just as these loans go 90 days down. Nonbank servicers should expect to see a spike in advance activity to go along with the normal seasonal spike. </div>
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Manufacturing growth moderated in September, <a href="https://www.newyorkfed.org/medialibrary/media/survey/empire/empire2018/esms_2018_9_survey.pdf?la=en">according to the Empire State Manufacturing Survey</a>. New Orders and employment were pretty much the same. </div>
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Realtor.com lists the <a href="https://www.realtor.com/news/trends/best-places-live-2018/">top 10 suburbs in the US</a>. Most are pretty pricey with respect to incomes, with median price / median income ratios ranging from 3.5x to 7.4x. To put that number in perspective, up until the late 90s, the median home price to median income ratio averaged about 3.2 - 3.6. It peaked at 4.8 in 2006. While median home price to median income ratios are an imperfect measure (since they ignore the effects of interest rates on affordability) they are still a relevant measure of how overpriced an area can be. </div>
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Retailers <a href="https://www.wsj.com/articles/out-of-stock-this-holiday-season-store-workers-1537176600?mod=hp_lead_pos5">are struggling to hire temps</a> heading into the holiday season. Some decided to start hiring this summer in order to beat the expected shortages, while others are offering higher pay and vacation time. Is the just-in-time employment model about to exhibit its weakness? </div>
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Goldman is <a href="https://www.thestreet.com/investing/stocks/stocks-are-expensive-right-now-goldman-sachs-14713765">forecasting growth to slow</a> to 2.6% in 2019 and 1.6% in 2020. Many are now calling for a recession in 2020. The catalyst will be higher interest rates and end of the Trump tax cut "sugar high." Perhaps the big investment in inventory build we are currently seeing will be the catalyst. Regardless, we don't seem to have any asset bubbles in the US so we probably aren't going to be looking at any sort of credit crunch. Overseas, there are issues (Canada, Scandinavia, Australia, China).</div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-52160926128744423892018-09-13T10:26:00.001-04:002018-09-13T10:43:12.454-04:00Morning Report: inflation comes in weaker than expectedVital Statistics:<br />
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<style type="text/css"><!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--></style><br />
<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2898}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2898</td><td data-sheets-value="{"1":3,"3":9.5}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">9.5</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":378.25}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">378.25</td><td data-sheets-value="{"1":3,"3":1.14}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1.14</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":69.66}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">69.66</td><td data-sheets-value="{"1":3,"3":0.71}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.71</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0295}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.95%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0464}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.64%</td></tr>
</tbody></table>
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Stocks are higher this morning on positive trade comments out of China. Bonds and MBS are up. </div>
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The European Central bank left rates unchanged, which is helping bonds rally.</div>
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Inflation at the consumer level came in weaker than expected, with the Consumer Price Index rising 0.2% MOM and 2.7% YOY. Both numbers were 10 basis points below Street estimates. Ex-food and energy, they were up 0.1% / 2.2%, which pretty close to the Fed's target. Falling health care costs, which make up about 10% of the index, helped offset increasing housing costs. </div>
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Increased housing costs are fueling a rise in home improvement activity. Both The Home Despot and Lowes are surging following results. <a href="https://www.bloomberg.com/news/articles/2018-09-13/u-s-consumer-comfort-increases-for-first-time-in-five-weeks?utm_source=twitter&utm_content=markets&utm_campaign=socialflow-organic&utm_medium=social&cmpid%3D=socialflow-twitter-markets">Consumer Comfort rose for the first time in 5 weeks</a>. Despite the run over the last month, the index is at highs not seen since 2000 (as are most of the consumer confidence / sentiment indices). </div>
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Initial Jobless Claims fell to 204,000, which is another 50 year record. When you take into account population growth, the number becomes even more dramatic:</div>
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<a href="https://4.bp.blogspot.com/-uRCIjZbo6hw/W5pjXstOxhI/AAAAAAAADy0/Dr9yTeN1_-47CT39SMBrA8qmloZItdDFACLcBGAs/s1600/initial%2Bjobless%2Bclaims%2Bdivided%2Bby%2Bpopulation.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="789" data-original-width="1258" height="200" src="https://4.bp.blogspot.com/-uRCIjZbo6hw/W5pjXstOxhI/AAAAAAAADy0/Dr9yTeN1_-47CT39SMBrA8qmloZItdDFACLcBGAs/s320/initial%2Bjobless%2Bclaims%2Bdivided%2Bby%2Bpopulation.PNG" width="320" /></a></div>
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Hurricane Florence has been downgraded to a Category 2 hurricane, but it is <a href="https://www.reuters.com/article/us-storm-florence/mammoth-hurricane-florence-creeps-toward-u-s-east-coast-idUSKCN1LT14V">still expected to pack a wallop and dump a lot of rain</a>. The hurricane is expected to dump 20-30 inches of rain over the area, which means flooding issues well inland. Servicers should expect to see an uptick in DQs going into the end of the year. Note that <a href="https://www.wsj.com/articles/thousands-of-homes-in-hurricane-florences-path-lack-flood-insurance-1536831000?mod=hp_lead_pos6">fewer households have flood insurance this time around</a>. “Residents of these states are materially less prepared than they were in the past to deal with the financial consequences associated with major flooding events,” said Robert Hartwig, a risk-management and insurance professor at the University of South Carolina’s Darla Moore School of Business.</div>
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Ex-US Treasury Secretary Jack Lew is <a href="https://www.cnbc.com/2018/09/13/fmr-treasury-secretary-jack-lew-to-advise-mortgage-start-up-blend.html">getting into the mortgage business</a>, joining the advisory board of Blend, which is a consumer finance start-up that handles online mortgage applications for the GSEs and some of the larger banks. </div>
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<br /></div>
<div>
Doug Kass made the great <a href="https://twitter.com/DougKass/status/1040211407063732224">observation</a> about the business media and the 10th anniversary of the financial crisis, recalling Mickey Mantle's observation: "I didn't know how easy the game of baseball was until I entered the broadcasting booth."</div>
<div>
<br /></div>
<div>
HUD Secretary Ben Carson plans on doing more to remove zoning impediments to multifamily construction, though his approach will be different than the Obama Adminstration's. He plans on using Community Development Block Grant funds to encourage changes in zoning. The Obama admin sued localities directly, with the most prominent case being Westchester County in New York. Westchester County ended up being able to fend off HUD for the most part, which kind of shows the futility of that exercise. Westchester should have been a lay-up. Separately, the House is <a href="http://nlihc.org/article/house-subcommittee-reviews-regulatory-burdens-affordable-multifamily-development">looking at regulatory costs</a> and multifamily construction, which supposedly account for 30% of the cost of multi fam homebuilding according to NAHB. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-46289461617815102782018-09-12T10:38:00.002-04:002018-09-12T11:14:36.447-04:00Morning Report: Wholesale inflation remains mutedVital Statistics:<br />
<br />
<style type="text/css"><!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--></style><br />
<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2888.5}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2888.5</td><td data-sheets-value="{"1":3,"3":-0.25}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-0.25</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":376.66}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">376.66</td><td data-sheets-value="{"1":3,"3":1.28}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1.28</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":70.21}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">70.21</td><td data-sheets-value="{"1":3,"3":0.93}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.93</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0297}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.97%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0464}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.64%</td></tr>
</tbody></table>
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<div>
Stocks are flat this morning as the East Coast braces for Hurricane Florence. Bonds and MBS are flat.</div>
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<div>
<a href="https://www.mba.org/2018-press-releases/september/mortgage-applications-decrease-in-latest-mba-weekly-survey">Mortgage Applications fell 1.8% during the Labor Day week</a> as purchases increased 1% and refis fell 6%. The refi index is now at an 18 year low. We saw a 5 basis point increase in rates, which drove the drop in refis. As rates rise, cash-outs, fixed-for-ARM, and FHA for conventional are about the only game in town. </div>
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<br /></div>
<div>
Despite tariffs and increases in raw materials prices inflation at the wholesale level remains under control. The producer price index fell 0.1% last month but rose 2.8% on an annualized basis. Ex-food and energy, the number was down 0.1% MOM and up 2.3% YOY. So, despite the increase in wages we saw in the jobs report, inflation overall remains subdued. </div>
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<div>
Yesterday's JOLTs report showed the quits rate (which is considered a leading indicator for wage inflation) hit the highest level since early 2001. Construction job openings increased to set <a href="http://eyeonhousing.org/2018/09/construction-job-openings-rise-again-in-july/">another post-bubble high</a>. Hurricane Florence will only exacerbate the labor shortage as workers get drawn into repair jobs. This probably means disappointing housing starts numbers for the rest of the year. </div>
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Below is a chart which shows that average hourly earnings and the quits rate tend to correlate pretty closely.</div>
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-q4Y_i6h8SSs/W5kdLxkyHLI/AAAAAAAADyo/iBLUgQ5V0i0gAZxgT8BfW6h5YApaXiJDwCLcBGAs/s1600/AHE%2Bvs%2Bquits.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="733" data-original-width="1218" height="192" src="https://4.bp.blogspot.com/-q4Y_i6h8SSs/W5kdLxkyHLI/AAAAAAAADyo/iBLUgQ5V0i0gAZxgT8BfW6h5YApaXiJDwCLcBGAs/s320/AHE%2Bvs%2Bquits.PNG" width="320" /></a></div>
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<div style="text-align: left;">
Here are some things that homeowners in the path of Florence <a href="https://www.cnbc.com/2018/09/12/what-homeowners-can-do-now-to-prepare-for-insurance-claims.html?__source=mnd%7Cnews%7C&par=mnd">can do</a> in order to prepare for impact. Note that the hurricane is expected to stall out once hit hits land, so you should expect some flooding inland. Servicers should prepare for an uptick in delinquencies. </div>
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<div style="text-align: left;">
Redfin has a <a href="https://www.redfin.com/blog/2018/09/housing-impact-of-2008-financial-crisis.html">good retrospective</a> on the top lasting impacts from the financial crisis. Probably the biggest surprise was that a leftist president presided over a huge jump in inequality. Given that Fed policy in the aftermath of the crisis was aimed at supporting asset prices, this shouldn't be a surprise. The other big surprise was the complete drop off in housing construction despite a tight housing market. 10 years down the road, it is still a head-scratcher. Everyone has a theory about the driver, from gun-shy builders, to labor shortages, to zoning restrictions. The places where the demand is greatest (CA and Seattle) have tight restrictions on building, and such an expensive market that businesses are relocating somewhere cheaper. On the other side of the coin, the Rust Belt is growing again, and that area has a surfeit of housing already built. </div>
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-66389507342218649462018-09-11T10:27:00.001-04:002018-09-11T10:40:32.559-04:00Morning Report: Wage pressures buildingVital Statistics:<br />
<br />
<style type="text/css"><!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--></style><br />
<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2872}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2872</td><td data-sheets-value="{"1":3,"3":-8.25}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-8.25</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":373.62}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">373.62</td><td data-sheets-value="{"1":3,"3":-1.89}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-1.89</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":67.66}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">67.66</td><td data-sheets-value="{"1":3,"3":0.12}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.12</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0297}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.97%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0462}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.62%</td></tr>
</tbody></table>
<br />
<div>
Stocks are lower this morning on trade and weather fears. Bonds and MBS are continuing their post jobs-report sell-off. </div>
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<br /></div>
<div>
Job openings hit a record high in July, hitting 6.9 million, <a href="https://www.bls.gov/news.release/pdf/jolts.pdf">according to the JOLTS survey</a>. Job openings increased in finance and insuring, but fell in retail and government. The quits rate increased to 2.4%, the highest level since 2001. </div>
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<br /></div>
<div>
<a href="https://www.nfib.com/surveys/small-business-economic-trends/">Small business optimism set a record last month</a>, hitting 108.8 and beating the previous high set in July 1983. The number of businesses saying it is a good time to expand hit a high, and plans for capital expenditures and inventory investment also hit pre-crisis highs. The NFIB index had a discontinuous jump upward starting in late 2016, but that was primarily driven by expectations of hiring and investment. Now the index is being driven higher by actual hiring and investment and that is driving GDP growth. Labor shortages continue to be a problem. </div>
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<br /></div>
<div>
Same store sales continued their recent strength, rising 6.3% last week. All of this points to a strong Q4. </div>
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<br /></div>
<div>
Signs of building wage pressures? Leaders for the United Steelworker's Union are <a href="https://www.wsj.com/articles/steel-workers-demand-higher-pay-raises-as-tariffs-lift-profits-1536668815?mod=hp_lead_pos2">demanding pay increases</a> as steelmakers get a profit boost from tariffs. They are targeting US Steel and Arcelor Mittal. Steel prices are up 30% - 40% this year, which is boosting profits. This issue of course is that these increases will probably prove to be temporary as the tariffs are a negotiating tool. That said, expect to see more of this as the labor market tightens. US Steel has offered the union a 4% wage increase next year, and 3% the following two years. After that, base pay will increase by 1%, but profit-sharing bonuses will be implemented. </div>
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<br /></div>
<div>
Finally, a note on 9/11</div>
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<div>
I was on the trading floor at Bear, Stearns in London. It was just after lunch. A headline went across Bloomberg saying a plane had hit one of the WTC towers. CNBC mentioned the story as well, but no one was thinking “terrorism.” I emailed one of my friends at Merrill Lynch (right across the street at the World Financial Center) and he wasn’t even aware of what happened. The European markets were down a bit on the day, but didn’t really react to the first hit.</div>
<br />
After a few minutes, CNBC started showing live footage of the fire and then we saw plane 2 hit. Immediately, the world realized what had happened. The Euro markets were collapsing and I was inundated with sell orders. The news of the Pentagon hit came out. People on our floor started freaking out. We were in Canary Wharf (One Canada Square) in the tallest building in the UK. Planes routinely come close to the building as they approach City Airport. The head of Bear Stearns Europe came on the trading floor and told everyone if they were uncomfortable, to go home. No one knew if today was “fly a plane into financial headquarters day” Everyone bailed, and I was one of the last guys on the trading floor, trying to reconcile my book by hand and get flat before I left.<br />
<br />
I looked up at CNBC before I left and saw the place I got married at a year earlier collapse on my birthday.<br />
<br />
P.S. As I headed to the tube to go home, I passed the Slug and Lettuce (a pub) and found all of the “uncomfortable” Bear Stearns employees having a pint directly below the building they were so uncomfortable being in.<br />
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<br /></div>
<div>
By the way, I am still searching for a senior capital market role at a mortgage bank. If anyone is hearing of anyone looking, I would appreciate the head's up. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-89778064333537897532018-09-10T10:15:00.001-04:002018-09-10T12:51:24.944-04:00Morning Report: Florence eyes the East CoastVital Statistics:<br />
<br />
<style type="text/css"><!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--></style><br />
<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2884.25}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2884.25</td><td data-sheets-value="{"1":3,"3":9.55}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">9.55</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":375.79}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">375.79</td><td data-sheets-value="{"1":3,"3":2.02}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.02</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":68.05}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">68.05</td><td data-sheets-value="{"1":3,"3":0.29}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.29</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0293}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.93%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.046}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.60%</td></tr>
</tbody></table>
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<div>
Stocks are higher this morning on no real news. Bonds and MBS are up small. </div>
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<div>
In terms of economic data, we will get CPI and PPI on Wed and Thursday and retail sales on Friday. There will be little in terms of Fed-speak. The Fed Funds futures continue to up the probability of a Dec hike (Sep is in the bag), which is now sitting at 79%. </div>
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<div>
We are coming up on the 10 year anniversary of Lehman's collapse. Expect a lot of <a href="https://www.realtor.com/news/trends/new-mortgage-kings-theyre-not-banks/">handwringing articles</a> about whether we are set up for another collapse (we aren't). Residential real estate bubbles are rare events (the previous one was in the 1920s) and the psychological basis for bubbles to inflate requires decades and decades of bull markets to build up that sort of complacency. Not saying that we can't see pockets of decline, but a broad-based drop of 20% or more? Highly unlikely. </div>
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<br /></div>
<div>
Boston Fed President Eric Rosengren <a href="https://www.bloomberg.com/news/articles/2018-09-10/fed-s-rosengren-wants-two-more-hikes-in-2018-as-economy-grows?utm_source=google&utm_medium=bd&cmpId=google">would like to see two more rate hikes</a> in 2018 as the economy strengthens. He sees the economy expanding at a 3% pace for the rest of the year, and believes the Fed needs to keep going: “Going beyond just the next two hikes, I see no reason why we wouldn’t want to be at a more normalized rate, given the economic conditions we currently have, unless something changes dramatically that we’re not anticipating.” He also advocated that the Fed impose the counter-cyclical buffer, which requires banks to set aside additional capital in good times to draw upon when credit tightens. </div>
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<div>
<a href="https://www.reuters.com/article/us-storm-florence/hurricane-florence-to-become-major-hurricane-soon-forecasters-say-idUSKCN1LP096">Hurricane Florence</a> is looking more and more likely to hit the East Coast, with North and South Carolina as the center of the projected path. It is expected to reach the coast late Thursday night / early Friday morning. Lots of areas are already waterlogged so flooding will be an issue even inland. </div>
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<div>
Canada <a href="https://www.reuters.com/article/us-trade-nafta/canada-sees-increasing-chance-nafta-deal-can-be-struck-this-month-source-idUSKCN1LN1U1?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29">sees reasons for optimism</a> in NAFTA discussions and thinks we could see a deal. Any major changes will require legislation, but a tweak here and there will allow Trump to declare victory and move on. </div>
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Interesting map of the average age of homes in the US. In the Northeast, the average age of an owner-occupied home is over 50 years. Most of these MSAs have been losing population over the past 10 years. </div>
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<a href="https://1.bp.blogspot.com/-2ieGIeOzDI4/W5Z1dSgEJII/AAAAAAAADyc/2-ZPEeiXovMcchTyhU0UqIH4vCijo8vwgCLcBGAs/s1600/housing%2Bstock%2Bage.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="539" data-original-width="697" height="247" src="https://1.bp.blogspot.com/-2ieGIeOzDI4/W5Z1dSgEJII/AAAAAAAADyc/2-ZPEeiXovMcchTyhU0UqIH4vCijo8vwgCLcBGAs/s320/housing%2Bstock%2Bage.PNG" width="320" /></a></div>
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-69768708407622295652018-09-07T10:19:00.001-04:002018-09-07T10:52:05.495-04:00Morning Report: Average hourly earnings tick up againVital Statistics:<br />
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<style type="text/css"><!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--></style><br />
<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2870.5}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2870.5</td><td data-sheets-value="{"1":3,"3":-9}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-9</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":372.33}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">372.33</td><td data-sheets-value="{"1":3,"3":-1.26}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-1.26</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":67.74}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">67.74</td><td data-sheets-value="{"1":3,"3":-0.02}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-0.02</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0292}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.92%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0457}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.57%</td></tr>
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Stocks are lower this morning on overseas weakness. Bonds and MBS are down. </div>
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<a href="https://www.bls.gov/news.release/empsit.nr0.htm">Jobs report</a> data dump:</div>
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<ul>
<li>Payrolls up 205,000</li>
<li>Unemployment rate 3.9%</li>
<li>Average hourly earnings up 2.9%</li>
<li>Labor force participation rate 62.7%</li>
</ul>
<div>
The payroll number and the wages were higher than what the Street was looking for, which explains the reaction in the bond market. The labor force participation rate fell as 467,000 workers dropped out of the labor force. A big decrease was seen in the 16-19 year old category, which would mean summer jobs ending. With more and more schools starting in before Labor Day, perhaps it is time for BLS to make some re-adjustments in their seasonality calculations. In terms of sectors, professional and business services rose by the most, followed by health care. Surprisingly, construction increased going into what is a seasonally slow period and despite the jump in same store sales, retailers shed jobs. Overall, a decent report, which should keep stock investors happy and will also give bond investors something to fret about. Wage growth is getting close to a 3-handle and that will be a big number. </div>
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<a href="https://2.bp.blogspot.com/-oG6Ots8gLcU/W5KIyEaOK_I/AAAAAAAADyQ/WC6xXytDx88VoPMd7WAtwcipnWnsD3m3wCLcBGAs/s1600/average%2Bhourly%2Bearnings%2Bgrowth.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="729" data-original-width="1222" height="190" src="https://2.bp.blogspot.com/-oG6Ots8gLcU/W5KIyEaOK_I/AAAAAAAADyQ/WC6xXytDx88VoPMd7WAtwcipnWnsD3m3wCLcBGAs/s320/average%2Bhourly%2Bearnings%2Bgrowth.PNG" width="320" /></a></div>
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In response to the jobs report, the December Fed Fund futures raised their 2 hike probability to 75%. </div>
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The Trump administration continues to hammer out a trade deal with Canada and Mexico. Separately, the deadline passed for an additional 200MM in Chinese tariffs, which means he can implement them at any time. </div>
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Rep. Jeb Hensarling <a href="https://www.wsj.com/articles/fannie-and-freddie-make-way-for-ginnie-mae-1536189030">penned an editorial in the Wall Street Journal</a> yesterday, where he laid out a framework for dealing with the GSEs. His solution will be to run everything through Ginnie Mae, with private capital taking the first loss position, and the taxpayer taking a catastrophic loss position. It would create a common securitization platform and still maintain some sort of affordable housing fund. Originators would have to get a private credit enhancer to guarantee the loan. The private credit enhancer would have to be market-based and have a bank-like balance sheet. Note that this is the first bipartisan housing reform bill, which means we may be getting closer to having the political will to de-nationalize the US mortgage market. </div>
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Skilled construction labor is hard to find. <a href="http://eyeonhousing.org/2018/09/reported-shortage-of-rough-carpentry-contractors-hits-record-90-percent/">83% of builders report some sort of shortage for rough carpenters</a>. It is even worse for subcontractors. With those sorts of shortages, we should see wages accelerate. It is inevitable. The 9-occupation trade shortage is as big as it has ever been. </div>
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<a href="https://3.bp.blogspot.com/-yTPhl6tkM-s/W5KBs-it8OI/AAAAAAAADyE/GqG2LGYyycoJdx_YzJyeztTn4cTlTn5sgCLcBGAs/s1600/construction%2Blabor%2Bshortages.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="587" data-original-width="735" height="255" src="https://3.bp.blogspot.com/-yTPhl6tkM-s/W5KBs-it8OI/AAAAAAAADyE/GqG2LGYyycoJdx_YzJyeztTn4cTlTn5sgCLcBGAs/s320/construction%2Blabor%2Bshortages.PNG" width="320" /></a></div>
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-63502819000926063322018-09-06T10:30:00.000-04:002018-09-06T18:31:49.545-04:00Morning Report: Real wage growth? Depends on the inflation index.Vital Statistics:<br />
<br />
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<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2890}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2890</td><td data-sheets-value="{"1":3,"3":2.9}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.9</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":375.35}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">375.35</td><td data-sheets-value="{"1":3,"3":-0.33}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-0.33</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":68.96}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">68.96</td><td data-sheets-value="{"1":3,"3":-0.25}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-0.25</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.029}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.90%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0456}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.56%</td></tr>
</tbody></table>
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<div>
Stocks are flattish despite the continued rout in emerging markets. Bonds and MBS are down small. </div>
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<div>
Lots of labor market data this morning. </div>
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Initial Jobless Claims fell to 203,000, which is the lowest level since late 1969. That said, job cut announcements did pick up, according to the Challenger and Gray job cut report. </div>
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<div>
<a href="https://www.bls.gov/news.release/prod2.nr0.htm">Productivity came in at 2.9% in the second quarter</a>, according to BLS. This was driven by a 5% increase in output and a 2% increase in hours worked. Unit Labor costs fell 1% as compensation increased 1.9% and productivity increased 2.9%. The jump in productivity is important, not only because it generally portends higher wages, but because it portends non-inflationary wage inflation, which will allow the Fed to continue on its slow interest rate hike path. </div>
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<div>
<a href="https://www.adpemploymentreport.com/2018/August/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-August2018-Final-Press-Release.pdf">The economy added 163,000 jobs in August</a>, according to the ADP report. This is below the Street's 195,000 estimate for tomorrow's employment situation report. This is the lowest number in a year. Despite the slowdown, Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is hot. Employers are
aggressively competing to hold onto their existing workers and to find new ones. Small businesses are
struggling the most in this competition, as they increasingly can’t fill open positions.” </div>
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<a href="https://4.bp.blogspot.com/-W96zPDLBJEM/W5EyijORzlI/AAAAAAAADxs/hNVJvp90PXADXjHguhrfv4B_dFjhKiH7wCLcBGAs/s1600/ADP%2Bjobs%2Breport.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="524" data-original-width="881" height="190" src="https://4.bp.blogspot.com/-W96zPDLBJEM/W5EyijORzlI/AAAAAAAADxs/hNVJvp90PXADXjHguhrfv4B_dFjhKiH7wCLcBGAs/s320/ADP%2Bjobs%2Breport.PNG" width="320" /></a></div>
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The <a href="https://www.cnbc.com/2018/09/05/white-house-says-wages-are-growing-faster-than-traditional-measures-indicate.html?__source=mnd%7Cnews%7C&par=mnd">WH says that wages are growing faster than traditional measures would indicate</a>. The Administration is saying that real wage growth is in the 1.4% to 1.9% range. According to BLS, nominal (non-inflation adjusted) wage growth has been around 2.7%, and with the CPI running at 2.9%, that would imply slightly negative wage growth. What is the difference? First of all compensation includes more than simply wages. It also includes benefits and health care costs have been increasing at well above the rate of inflation. This is a valid (albeit unsatisfying) point. Second, a lot depends on <a href="https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2014-economic-trends/et-20140417-pce-and-cpi-inflation-whats-the-difference.aspx">which inflation index one uses</a>. The Personal Consumption Expenditure Index is the one preferred by the Fed and it generally runs slower than the CPI. This is due to a number of reasons, but the primary one is that the PCE takes into account the substitution effect and CPI doesn't. In other words, the CPI assumes that people's behavior doesn't change when presented with increased prices, while the PCE assumes that people will consume less high priced goods and consume more low-priced goods. The classic example of this is that when meat prices rise, people eat more vegetables. Another difference is that PCE looks at costs from the business sense more than CPI does. This is important in wages, because the cost of an employee to an employer is more than just the paycheck. CPI generally ignores this, while PCE takes it into account. Punch line is that partisans are going to cherry pick the inflation index they want in order to push their interpretation of events. Left econ wants to push the narrative that wages are going nowhere and the headline CPI number gets them there. Right econ / the Admin will prefer to use PCE, which shows real wage growth. </div>
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<a href="https://4.bp.blogspot.com/-FkaCVa8gA4w/W5E365vM5gI/AAAAAAAADx4/NSQUMhOJ0PMoDbDy0i8I9Dxa_uiOgLshQCLcBGAs/s1600/CPI%2Bvs%2BPCE.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="502" data-original-width="616" height="260" src="https://4.bp.blogspot.com/-FkaCVa8gA4w/W5E365vM5gI/AAAAAAAADx4/NSQUMhOJ0PMoDbDy0i8I9Dxa_uiOgLshQCLcBGAs/s320/CPI%2Bvs%2BPCE.PNG" width="320" /></a></div>
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Left econ is trying to use slow wage growth to push a <a href="http://rooseveltinstitute.org/how-widespread-labor-monopsony-some-new-results-suggest-its-pervasive/">theory that employers are exhibiting monopsonistic behavior</a> and the remedy is for the government to break up big employers. Monopsonistic behavior implies that there is only one buyer for something (the classic example is the government and defense technology). Left econ thinks the labor market is a lot more concentrated than common sense would suggest. Their conclusion is that the average worker has only 3 companies to choose from which is hard to accept. </div>
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<a href="https://www.wsj.com/articles/senior-trump-officials-deny-writing-anonymous-critical-piece-1536237773?mod=hp_lead_pos1">Trump administration officials are denying</a> they wrote an <a href="https://www.nytimes.com/2018/09/05/opinion/trump-white-house-anonymous-resistance.html?ref=oembed">anonymous op-ed</a> published in the New York Times that describes cabinet members trying to steer a mercurial executive to do the right things and to blunt his worst impulses. There has been plenty of evidence that has been the case already, especially on trade. Regardless, it just seems to be the latest in the war between Trump and the press, and the markets don't seem to care. </div>
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<div>
On the trade front, today is the deadline for public comment on some $200 billion in new tariffs on Chinese goods. Trump is expected to impose these tariffs once the period is over. He also made comments regarding NAFTA and Canada, saying there has been progress on the issue. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-88597253716906379532018-09-05T10:17:00.002-04:002018-09-05T10:38:28.773-04:00Morning Report: Land prices still below bubble years. Vital Statistics:<br />
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<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2889}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2889</td><td data-sheets-value="{"1":3,"3":-9}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-9</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":376.86}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">376.86</td><td data-sheets-value="{"1":3,"3":-2.5}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-2.5</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":68.97}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">68.97</td><td data-sheets-value="{"1":3,"3":-0.89}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-0.89</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0288}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.88%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0456}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.56%</td></tr>
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<div>
Stocks are lower this morning on overseas weakness. Bonds and MBS are up.</div>
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<div>
Yesterday was a bit of a milestone as the 1 month T-bill briefly cracked the 2% level. Farewell, zero bound. </div>
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Tropical Storm Gordon is hitting the Gulf Coast. Oil prices have softened as the storm looks to be weaker than expected. We can still expect to see flooding issues and servicers should be prepared for an uptick in delinquencies. <a href="https://www.cnbc.com/2018/09/04/homeowners-outside-of-gordons-path.html?__source=mnd%7Cnews%7C&par=mnd">Things to know about your insurance if you are in the storm's path</a>. </div>
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Not much in the way of data today, but we have a lot of Fed-speak. </div>
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Emerging markets are getting slammed as a combination of central bank tightening, trade woes, and currency issues are pushing the asset class down. The flight to quality trade should support bond prices and help push yields lower. </div>
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Like Freddie Kreuger, government shutdown threats just keep returning. Congressional Republicans are looking to wrap up funding by October 1. Controversial issues like funding the wall would likely get pushed until after the election. As far as shutdowns go, the markets generally do not care, but originators need to remember that things like tax transcripts were unavailable the last time we shut down. </div>
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<a href="https://www.mba.org/2018-press-releases/september/mortgage-applications-slightly-decrease-in-latest-mba-weekly-survey">Mortgage applications fell 0.1% last week</a> as purchases increased 1% and refis fell 1%. Rates increased about 2 basis points. </div>
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Same store sales rose 6.5%, yet another indication that the back-to-school shopping season was strong. As goes BTS, so goes the holiday season, meaning growth in Q4 should be strong. Note the Atlanta Fed <a href="https://www.reuters.com/article/us-usa-economy-atlantafed/atlanta-fed-raises-u-s-third-quarter-gdp-view-to-4-7-percent-idUSKCN1LK1Z5?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29">raised their Q3 GDP estimate to 4.7%</a>. Consumption is 70% of GDP.</div>
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<a href="https://1.bp.blogspot.com/-TVPI2pmrgSg/W4_c9PRov1I/AAAAAAAADxU/uuqC2QWckVAKZpssf8kAqGWylcvhcrXewCLcBGAs/s1600/Redbook.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="403" data-original-width="567" height="227" src="https://1.bp.blogspot.com/-TVPI2pmrgSg/W4_c9PRov1I/AAAAAAAADxU/uuqC2QWckVAKZpssf8kAqGWylcvhcrXewCLcBGAs/s320/Redbook.PNG" width="320" /></a></div>
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Wells is <a href="https://www.cnbc.com/2018/09/04/these-three-factors-are-a-recipe-for-higher-yields-wells-fargo-strategist-says.html?__source=mnd%7Cnews%7C&par=mnd">out with a call</a> for a 3.2% 10-year yield by the end of the year. A combination of higher deficits, lower trade deficits, and the expiration of a tax provision will lower demand in the face of rising supply. With strong spending bolstering the economy and a tight labor market, the Fed may try and squeeze in an extra rate hike to provide more breathing room in case the economy rolls over. </div>
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The September Fed Funds futures are at 99% chance of a rate hike, and the Dec futures are at a 70% chance of another. </div>
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<a href="http://eyeonhousing.org/2018/09/lot-values-climb-higher/">Single-family lot prices reached a record level last year</a>, however if you adjust for inflation, they are below the peak. Note however that <a href="http://eyeonhousing.org/2018/08/lot-size-remains-record-low/">lot sizes have been falling</a>, and I don't think this analysis corrects for that. For example, the typical lot size in the Northeast is 0.4 acres, and the typical price is $128k, which amounts to $320k an acre. On the Left Coast, the average lot size is .15 acres and the average price is $84k, which works out to be $560k an acre. Even if you correct for the declining lot size, we still aren't back to peak levels in inflation-adjusted land prices. Builders constantly mention that land availability is a constraint on building, but this analysis shows that things were worse during the bubble years. </div>
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<a href="https://2.bp.blogspot.com/-u5e2JE0AgcQ/W4_jyKr1NrI/AAAAAAAADxg/IiDbenSKu8EE-FFKTLXeTjtxa3_9xs2EQCLcBGAs/s1600/Lot%2Bvalue.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="514" data-original-width="699" height="235" src="https://2.bp.blogspot.com/-u5e2JE0AgcQ/W4_jyKr1NrI/AAAAAAAADxg/IiDbenSKu8EE-FFKTLXeTjtxa3_9xs2EQCLcBGAs/s320/Lot%2Bvalue.PNG" width="320" /></a></div>
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-12166702842411677912018-09-04T10:15:00.002-04:002018-09-04T10:28:14.502-04:00Morning Report: The OCC solicits input for CRA modernizationVital Statistics:<br />
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<style type="text/css"><!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--></style><br />
<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2897}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2897</td><td data-sheets-value="{"1":3,"3":-4.25}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-4.25</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":379.06}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">379.06</td><td data-sheets-value="{"1":3,"3":-3.45}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-3.45</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":71.13}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">71.13</td><td data-sheets-value="{"1":3,"3":1.33}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1.33</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0288}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.88%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0455}" style="font-family: "Times New Roman"; font-size: 12pt; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.55%</td></tr>
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Stocks are lower this morning on no real news. Bonds and MBS are down small. </div>
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The highlight of the upcoming week will be the jobs report on Friday, although we will get a lot of Fed-speak on Wednesday. Productivity and costs on Thursday will be an important report as well. </div>
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Construction spending rose 0.1% which was lower than the Street 0.4% expectation. Residential construction rose 0.6% MOM and 6.6% YOY. </div>
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<a href="https://www.instituteforsupplymanagement.org/ISMReport/MfgROB.cfm?SSO=1">Manufacturing expanded in August</a>, according to the ISM PMI Index. The August PMI increased 3.1% to 61.3, driven by increases in production and new orders. Employment rose as well. Many of the participants noted that trade is injecting some uncertainty into their business, especially with respect to price negotiations with suppliers. The reading of 61.3 is unusually strong, and is typically associated with 5.6% GDP growth. </div>
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The OCC is <a href="https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-87.html">asking for input</a> regarding the CRA and modernization. “As a long-time banker, I have seen firsthand the benefit of CRA investment and how it makes communities vibrant. I applaud the effort of community development practitioners and bankers who work together to make an important difference in our nation’s neighborhoods,” said Comptroller of the Currency Joseph M. Otting. “I have also seen how limitations in the current CRA regulation can fail to provide consideration to a bank that wants to lend and invest in a community with a need for capital, including many low- and moderate-income areas. Unfortunately, the operation of the current CRA regulation can result in restricted resources. It is time for a national discussion on how we can make the CRA work better.”</div>
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The ANPR solicits comment on a number of questions regarding improvements to the CRA regulations related to<br />
<ul>
<li>increasing lending and services to people and in areas that need it most, including in LMI areas;</li>
<li>clarifying and expanding the types of activities eligible for CRA consideration;</li>
<li>revisiting how assessment areas are defined and used;</li>
<li>establishing metric-based thresholds for CRA ratings;</li>
<li>making bank CRA performance more transparent;</li>
<li>improving the timeliness of regulatory decisions related to CRA; and</li>
<li>reducing the cost and burden related to evaluating performance under the CRA.</li>
</ul>
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Donald Trump was jawboning Canada over trade and threatening China with $200 million in higher tariffs. I think markets are pretty much shrugging off trade threats any more. Note that Trump will need legislation to carry out some of the changes he wants to make with Canada, which isn't going to happen. </div>
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Home prices increased 0.3% MOM and 6.2% YOY in July, <a href="https://www.corelogic.com/insights-download/corelogic-home-price-insights.aspx">according to CoreLogic</a>. They are forecast to rise about 5% over the upcoming year. We are seeing sellers in the hot markets decide to pull properties off the market to see if they can ride the home price appreciation for a bit longer. This is adding to the supply crunch. CoreLogic's model always seems to predict a slowdown in home price appreciation that never seems to materialize. </div>
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<a href="https://2.bp.blogspot.com/-ndi7m_6AejU/W46Cd56qKqI/AAAAAAAADw8/-U269KHljLUBkN02PkZWyQAfeKMaGKEuQCLcBGAs/s1600/Corelogic%2Bovervalued.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="554" data-original-width="733" height="241" src="https://2.bp.blogspot.com/-ndi7m_6AejU/W46Cd56qKqI/AAAAAAAADw8/-U269KHljLUBkN02PkZWyQAfeKMaGKEuQCLcBGAs/s320/Corelogic%2Bovervalued.PNG" width="320" /></a></div>
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<a href="http://eyeonhousing.org/2018/08/lot-size-remains-record-low/">An interesting tidbit</a> - the median lot size fell to 8.560 square feet in 2017 (about 1/5 of an acre). Lot sizes had been trending downward, but climbed during the bubble years as more and more building was done in the exurbs. New England has the largest lot sizes at about 0.4 acres, while the left coast has the smallest (.15 acres). Note this study is only looking at single family spec homes. It looks like this is basically a secular trend, and the the bubble years (building in the exurbs) was largely a blip. It also could be a function of building activity being dominated in regions (like the West Coast), where lots are smaller. </div>
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<a href="https://3.bp.blogspot.com/-A4Syoj1kPTA/W46IMx3a27I/AAAAAAAADxI/7HfBWUyzy8czeyVrqnGmJJdT9U_20IstACLcBGAs/s1600/Lot%2Bsize.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="513" data-original-width="688" height="238" src="https://3.bp.blogspot.com/-A4Syoj1kPTA/W46IMx3a27I/AAAAAAAADxI/7HfBWUyzy8czeyVrqnGmJJdT9U_20IstACLcBGAs/s320/Lot%2Bsize.PNG" width="320" /></a></div>
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The <a href="https://www.cnbc.com/2018/08/31/the-1-billion-price-cut-luxury-real-estate-gets-slashed.html?__source=realestate%7Cnews%7C&par=realestate">ultra-high end luxury market has been getting whacked</a> as foreign investors step away. Changes in tax laws might be having an impact, but it could have also been driven by overbuilding at the top end. I suspect it is the latter, since we are seeing softness in states like Florida which benefit from the tax law. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-42426633625967980052018-08-30T10:20:00.001-04:002018-08-30T20:56:32.818-04:00Morning Report: Self-employed borrowers get some help from CongressVital Statistics:<br />
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<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
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<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2911}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2911</td><td data-sheets-value="{"1":3,"3":-3.75}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-3.75</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":385.16}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">385.16</td><td data-sheets-value="{"1":3,"3":-1.42}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-1.42</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":69.93}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">69.93</td><td data-sheets-value="{"1":3,"3":0.42}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.42</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0286}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.86%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="[null,3,"0.00%",1]" data-sheets-value="{"1":3,"3":0.0455}" style="font-family: "Times New Roman"; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.55%</td></tr>
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Stocks are lower this morning on no real news. Bonds and MBS are up small. </div>
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Donald Trump is <a href="https://www.reuters.com/article/us-trade-nafta/as-clock-ticks-canada-and-u-s-seek-ways-to-salvage-nafta-idUSKCN1LF16R">suggesting that a new NAFTA could be in place by the end of the week</a>. One sticking point is removing a provision that inhibits the US from pursuing anti-dumping and anti-subsidy cases. Mexico has agreed, but Canada is still fighting it. </div>
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Initial Jobless Claims slipped 1K to 213,000 last week. </div>
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Personal incomes rose 0.3% and personal spending rose 0.4% in July, which was right in line with estimates. The PCE inflation index came in at 0.1% MOM / 2.3% YOY, and the core PCE index rose 0.2% MOM / 2.0% YOY. Inflation is pretty much right at the Fed's target, which means they don't have to move quickly to increase rates and can still just gradually lift off the lower bound. </div>
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A Reuters poll of real estate experts <a href="https://www.reuters.com/article/us-usa-property-poll/us-house-prices-to-rise-more-than-6-percent-this-year-then-slow-reuters-poll-idUSKCN1LF00L">suggests</a> that home prices will rise 6% this year and then begin to taper off the growth. Limited inventory has pushed up home prices well in excess of wage growth and inflation over the past 6 years. That sort of phenomenon can work when interest rates are falling, as the lower mortgage payment offsets the higher prices, but that game is over. </div>
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Congress is entertaining legislation that <a href="https://www.housingwire.com/articles/46630-bipartisan-push-begins-in-senate-to-expand-mortgage-access-for-self-employed-borrowers">will make it easier</a> for self-employed borrowers to get a mortgage. The bipartisan "Self-Employed Mortgage Access Act" will address the needs of borrowers who don't have traditional W-2 income. Sponsor Mark Warner said: “An increasing number of Americans make their living through alternative work arrangements, like gig work or self-employment. Too many of these otherwise creditworthy individuals are being shut out of the mortgage market because they don’t have the same documentation of their income – paystubs or a W-2 – as someone who works 9-to-5. This bill will allow these workers to supply other forms of paperwork to verify their income while continuing to protect consumers from predatory lending.” The bill will expand the universe of income documentation to allow these borrowers to fall under QM. The bill is supported by the MBA and the Consumer Federation of America. </div>
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The Great Recession <a href="https://www.frbsf.org/economic-research/publications/economic-letter/2018/august/financial-crisis-at-10-years-will-we-ever-recover/">left</a> what looks to be a permanent gap between potential GDP and actual GDP, which amounts to something like $70,000 per person. You can see the output gap in the chart below. Interestingly, the word "bubble" appears nowhere in the article - it is as if the financial crisis appeared out of nowhere, which certainly demonstrates a blind spot for the Fed (and central bankers in general). </div>
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<a href="https://4.bp.blogspot.com/-nw1hVFVN_9s/W4f6mlXyL7I/AAAAAAAADww/wLR6_cHY0pc6WM3wNYzNZoPV7BnSd8QqwCLcBGAs/s1600/potential%2BGDP.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="647" data-original-width="812" height="254" src="https://4.bp.blogspot.com/-nw1hVFVN_9s/W4f6mlXyL7I/AAAAAAAADww/wLR6_cHY0pc6WM3wNYzNZoPV7BnSd8QqwCLcBGAs/s320/potential%2BGDP.PNG" width="320" /></a></div>
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They don't take into account that the trajectory of growth (beginning in 1998 through 2006) was artificially boosted due to increasing asset prices. The trajectory begins with the stock market bubble and ends with the real estate bubble. Granted the late 90s growth was also influenced by a boom in productivity, but that ended soon after. I always find it interesting that central bankers believe "too much money chasing too few goods" (i.e. inflation) is a monetary phenomenon, but "too much money chasing too few assets" (i.e. asset bubbles) is not. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-52180913893260054772018-08-29T10:17:00.002-04:002018-08-29T15:05:34.899-04:00Morning Report: Q2 GDP revised upwardVital Statistics:<br />
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<table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: arial,sans,sans-serif; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="231"></col><col width="100"></col><col width="100"></col></colgroup><tbody>
<tr style="height: 21px;"><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Last"}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">Last</td><td data-sheets-value="{"1":2,"2":"Change"}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">Change</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"S&P futures"}" style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;">S&P futures</td><td data-sheets-value="{"1":3,"3":2899}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">2899</td><td data-sheets-value="{"1":3,"3":-1}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">-1</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Eurostoxx index"}" style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;">Eurostoxx index</td><td data-sheets-value="{"1":3,"3":385.81}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">385.81</td><td data-sheets-value="{"1":3,"3":0.35}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">0.35</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Oil (WTI)"}" style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;">Oil (WTI)</td><td data-sheets-value="{"1":3,"3":69.08}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">69.08</td><td data-sheets-value="{"1":3,"3":0.55}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">0.55</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"10 year government bond yield"}" style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;">10 year government bond yield</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0288}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">2.88%</td></tr>
<tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"30 year fixed rate mortgage"}" style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;">30 year fixed rate mortgage</td><td style="overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0455}" style="overflow: hidden; padding: 2px 3px 2px 3px; text-align: right; vertical-align: bottom;">4.55%</td></tr>
</tbody></table>
<br />
<div>
Stocks are flat this morning after GDP came in better than expected. Bonds and MBS are down small. </div>
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Mortgage Applications fell 1.7% last week as purchases fell 1% and refis fell 3%. This is despite a drop in rates. </div>
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<a href="https://www.bea.gov/system/files/2018-08/gdp2q18_2nd.pdf">Second quarter GDP was revised upward to 4.2% from 4.1%</a>, which was higher than the street estimate of 4.0%. The main revisions were to consumption (downward) and fixed residential investment (upward). Inventories were a drag on GDP, which means that we should see a bump to Q3's numbers. The GDP price index was also revised up a touch, from 1.8% to 1.9%. All of this provides a good environment for the Fed to ease back from the zero bound. </div>
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<a href="https://2.bp.blogspot.com/-VwUVsYQLYYY/W4adypyjEyI/AAAAAAAADwY/Oxo5Cgk68WwZHSofL6QVG6ieYGPrlpNagCLcBGAs/s1600/GDP.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="436" data-original-width="1018" height="137" src="https://2.bp.blogspot.com/-VwUVsYQLYYY/W4adypyjEyI/AAAAAAAADwY/Oxo5Cgk68WwZHSofL6QVG6ieYGPrlpNagCLcBGAs/s320/GDP.PNG" width="320" /></a></div>
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<a href="https://www.mba.org/2018-press-releases/august/second-quarter-imb-profits-up-over-first-quarterdown-year-over-year">Mortgage bankers made $580 per loan in the second quarter</a>, an increase from $118 in the first quarter. Banks cut costs aggressively (dropping production costs per loan by about $1,000) however declining volumes offset that, and this turned out to be the weakest quarter since the MBA began keeping records in 2008. That $580 represents a profit of 21 basis points per loan, which was a drop form 24 bps a year ago. Fee income dropped to 341 bps from 370 in the first quarter. Refis continue to decline, with purchases accounting for 81% of all volume. </div>
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Here is something wild. Last night, <a href="https://www.bloomberg.com/news/articles/2018-08-29/no-trades-in-japan-10-year-bonds-shows-limits-of-boj-tweaks?utm_source=google&utm_medium=bd&cmpId=google">there were no trades</a> in the JGB market (the world's second largest bond market). This is the 7th time this has happened this year. The Bank of Japan basically controls the market, and trading has dried up. We live in interesting times, at least if you are a central banker. </div>
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Pending Home sales fell 0.7% in July, <a href="https://www.nar.realtor/newsroom/pending-home-sales-trail-off-07-percent-in-july">according to NAR</a>. Lawrence Yun, NAR chief economist, says the housing market’s summer slowdown continued in July. “Contract signings inched backward once again last month, as declines in the South and West weighed down on overall activity,” he said. “It’s evident in recent months that many of the most overheated real estate markets – especially those out West – are starting to see a slight decline in home sales and slower price growth.” Blame tight supply, which has driven up prices to unaffordable levels. </div>
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The housing slowdown has not been lost on the stocks of the homebuilders, who despite strong earnings (and an incredibly strong stock market) are down 14% YTD. At some point, the sector will be unable to rely on increasing ASPs and will have to pump up volume to show growth. Despite the clear need for new housing, especially at the starter level, builders seem content to meter their growth and plow excess cash into buybacks. </div>
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<a href="https://3.bp.blogspot.com/-bjOW7jafRfs/W4aq22NYWbI/AAAAAAAADwk/8K1YRqqJfycMUwaVg4z3DWrGGXyTMvv6QCLcBGAs/s1600/XHB%2Bchart.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="785" data-original-width="1058" height="237" src="https://3.bp.blogspot.com/-bjOW7jafRfs/W4aq22NYWbI/AAAAAAAADwk/8K1YRqqJfycMUwaVg4z3DWrGGXyTMvv6QCLcBGAs/s320/XHB%2Bchart.PNG" width="320" /></a></div>
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-80995364807026601672018-08-28T10:07:00.001-04:002018-08-28T11:13:57.544-04:00Morning Report: The Fed worries about the yield curveVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;"><colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col><col span="4" style="width: 48pt;" width="64"></col></colgroup><tbody>
<tr height="20" style="height: 15pt;"><td class="xl63" height="20" style="height: 15pt; width: 65pt;" width="87"></td><td class="xl63" style="width: 48pt;" width="64"></td><td class="xl63" style="width: 48pt;" width="64"></td><td class="xl63" style="width: 48pt;" width="64"> Last </td><td class="xl63" style="width: 48pt;" width="64"> Change</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl63" height="20" style="height: 15pt;">S&P futures</td><td class="xl63"></td><td class="xl63"></td><td align="right" class="xl63">2903</td><td align="right" class="xl63">3</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl63" colspan="2" height="20" style="height: 15pt;">Eurostoxx index</td><td class="xl63"></td><td align="right" class="xl63">386.36</td><td align="right" class="xl63">.8</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl63" height="20" style="height: 15pt;">Oil (WTI)</td><td class="xl63"></td><td class="xl63"></td><td align="right" class="xl63">68.91</td><td align="right" class="xl63">0.02</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl63" colspan="3" height="20" style="height: 15pt;">10 Year Government Bond Yield</td><td class="xl63"></td><td align="right" class="xl64">2.87%</td></tr>
</tbody></table>
30 Year Fixed rate mortgage 4.58%<br />
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Stocks are higher this morning on optimism over trade talks with Mexico. Bonds and MBS are down. </div>
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We saw a strong buildup of inventory in July, both at the retail level and the wholesale level. Inventory growth was negative in the second quarter, which depressed GDP growth slightly. This improvement in inventories will provide a boost to the third quarter numbers. Durable goods and autos led the increase, with retail inventories up 0.4% and wholesale inventories up 0.7%. </div>
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Redbook reported that same store sales rose 5.1% last week, which was the third fastest pace this year. This bodes well for the back-to-school numbers which are the best predictors of the holiday shopping season. Consumption has been generally strong and these numbers bear that out.</div>
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Consumer confidence jumped to 133.4 in August <a href="https://www.conference-board.org/data/consumerconfidence.cfm">according to the Conference Board</a>. This is the highest level since late 2000. </div>
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House prices rose 6.2% in June, <a href="https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/766551_cshomeprice-release-0828.pdf?force_download=true">according to the Case-Shiller home price index</a>. Las Vegas, San Francisco, and Seattle reported double-digit increases. The laggards included New York, Chicago and Washington DC which reported low single-digit gains. Las Vegas is one of the fastest growing US cities in terms of population and employment growth, which explains the rise there. Seattle and San Francisco has restricted supply along with foreign demand. On the other side, the Northeast continues to stagnate. </div>
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<br /></div>
<div>
The Urban Institute <a href="https://www.urban.org/urban-wire/traditional-mortgage-denial-metrics-may-misrepresent-racial-and-ethnic-discrimination">looked at mortgage denial rates</a> along demographic lines and found that most of the <a href="https://therealdeal.com/2018/04/19/black-applicants-twice-as-likely-as-whites-to-get-denied-for-mortgage-loans-study/">studies</a> that report discrimination overstate denial rates because they fail to take into account incomes and credit scores. While they still found some evidence of racial disparity it is much lower when you correct for these things. Not sure if the difference is statistically significant though. Given that CRA loans are worth more than traditional loans (all things being equal) it is surprising that there is any difference at all. </div>
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<br /></div>
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As the long end of the curve continues to rally, we will have a steady diet of recession prediction stories in the business press. The <a href="https://www.reuters.com/article/us-usa-fed-recession/markets-may-be-signaling-rising-recession-risk-fed-study-idUSKCN1LC1VO?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29">latest Reuters story</a> cites a Federal Reserve study that suggests the market may be warning of a potential recession: “In light of the evidence on its predictive power for recessions, the recent evolution of the yield curve suggests that recession risk might be rising,” wrote San Francisco Fed research advisers Michael Bauer and Thomas Mertens. </div>
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The flattening yield curve provides plenty of fodder for the Wall of Worry, however there are a couple of things to bear in mind. First, the yield curve almost always flattens during a tightening cycle. Take a look at the chart below, and you can see the yield curve flatten as short term rates rise. </div>
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-Ae1JSOLGom0/W4VSVo4J4eI/AAAAAAAADwM/ln-wGJS5r48Iv3Sprgic0QxOxwG-b-5EgCLcBGAs/s1600/10%2Byear%252C%2BFed%2Bfunds.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="634" data-original-width="878" height="231" src="https://4.bp.blogspot.com/-Ae1JSOLGom0/W4VSVo4J4eI/AAAAAAAADwM/ln-wGJS5r48Iv3Sprgic0QxOxwG-b-5EgCLcBGAs/s320/10%2Byear%252C%2BFed%2Bfunds.PNG" width="320" /></a></div>
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The behavior of the yield curve is 100% normal. Not only that, longer term interest rates are being held artificially low due to the behavior of central bankers throughout the world. The Fed is still buying Treasuries, albeit at a slower pace, while Japanese and European central bankers are pushing down long-term rates, which influences US rates. The signal-to-noise ratio of the yield curve is extremely low right now. Finally, the short Treasury trade is probably the biggest macro bet on the Street right now. Every wiseguy is short, and that means you will sometimes get these rallies for no apparent reason. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-47007676360720850452018-08-27T10:08:00.000-04:002018-08-27T10:20:08.178-04:00Morning Report: Moody's downgrades Chase's jumbo statusVital Statistics:<br />
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<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64">Last</td>
<td class="xl63" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">2888</td>
<td align="right" class="xl63">11</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl63"></td>
<td align="right" class="xl63">385</td>
<td align="right" class="xl63">0</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">68.79</td>
<td align="right" class="xl63">0.02</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl63"></td>
<td align="right" class="xl64">2.82%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl63"></td>
<td align="right" class="xl64">4.58%</td>
</tr>
</tbody></table>
<br />
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Stocks are higher this morning on news that the US and Mexico might strike a deal on NAFTA. Bonds and MBS are flat. </div>
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We should have a quiet week heading into the Labor Day weekend. We will get GDP on Wednesday and Personal Incomes / Personal spending on Thursday and those are probably the only potential market-moving reports. </div>
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<br /></div>
<div>
Mohammed El-Arian <a href="https://www.cnbc.com/2018/08/27/el-erian-60-percent-chance-trump-hard-line-with-china-yields-fairer-trade.html?__source=mnd%7Cnews%7C&par=mnd">believes</a> there is a 60% chance that Trump's hard line on trade will result in a better deal for the US. There is a 15% chance that Trump's stance could result in a beakthrough with China (similar to Reagan's approach with the USSR during the Cold War), and another 25% chance that we go into a full blown trade war. He stressed that the US's role as the world's biggest consumer matters: “I’ve said from day one, it’s just a matter of time until other countries realize that their best approach is to collaborate with the U.S. and fix things that are broken,” El-Erian said.</div>
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<br /></div>
<div>
Moody's <a href="https://www.nationalmortgagenews.com/news/chase-bank-hit-with-downgrade-over-jumbo-mortgage-underwriting-fintech-gaps?utm_campaign=bx%20lead%20gen-aug%2027%202018&utm_medium=email&utm_source=newsletter&eid=bfce545651125fc5cd918b9646471f7b">downgraded Chase's jumbo underwriting rating</a> to "above average" from "strong" based on concerns over the percentage of loans that come from its delegated correspondent channel. Moody's also dinged them over their proprietary LOS (licensed from Quicken), disliking the look and feel of it. Chase obviously disputes the downgrade, and defended their underwriting. "We respectfully disagree with the rating and feel it's based on insufficient information. While we provide select correspondent lenders with delegated underwriting authority, we also then conduct individual underwriting reviews on roughly half of those loans. These are high-quality loans that perform well," Amy Bonitatibus, chief marketing and communications officer of Chase Home Mortgage, said in an email.</div>
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<br /></div>
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Elon Musk <a href="https://www.wsj.com/articles/public-bravado-private-doubts-how-elon-musks-tesla-plan-unraveled-1535326249?mod=hp_lead_pos2">ended</a> his proposed buyout of Tesla late last week. The Street never took it seriously to begin with, and was highly skeptical of his claim that funding for the deal was secured. The SEC is investigating the "funding secured" comment, which sounds like it was based largely on the existence of a pitch book, not any sort of letter from an investment bank (not even a "highly confident" letter). </div>
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<br /></div>
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<a href="https://www.reuters.com/article/us-wells-fargo-layoffs/wells-fargo-lays-off-more-than-600-mortgage-workers-idUSKCN1L922Y?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29">Layoffs continue in the mortgage biz</a>. Wells let go 600 people, mainly in servicing and retail fulfillment. Lower volumes and margins contributed to a 33% drop in mortgage banking income for Wells in the second quarter. </div>
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Economic activity decelerated in July, <a href="https://www.chicagofed.org/publications/cfnai/index">according to the Chicago Fed National Activity Index</a>, which is a meta-index of 85 economic indicators. Production-related indicators decelerated, while employment-related indicators improved. The 3 month moving average fell as well. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-53570025062943455292018-08-24T10:31:00.000-04:002018-08-24T12:00:45.413-04:00Morning Report: Jerome Powell speaks in Jackson HoleVital Statistic:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2865</td>
<td align="right" class="xl65">6.75</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">383.72</td>
<td align="right" class="xl65">0.32</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">68.91</td>
<td align="right" class="xl65">1.08</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.85%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are higher this morning on no real news. Bonds and MBS are down.</div>
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Another slow news day. Low level talks between China and the US over trade didn't really go anywhere. </div>
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<br /></div>
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<a href="https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf">Durable Goods orders fell 1.7% in July</a> on weak aircraft orders, but the core capital goods rate jumped 1.4%, which shows another month of <a href="https://www.cnbc.com/2018/08/24/durable-goods-orders-july-2018.html">strong business investment</a>, particularly business equipment. Many economists had been skeptical that cutting corporate taxes would increase capital expenditures, but it looks like it has. Theory certainly predicted it would. </div>
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Jerome Powell is speaking in Jackson Hole this morning. There probably won't be anything market moving, but just be aware. The conference will focus on a academic papers for the most part. The agenda is <a href="https://www.calculatedriskblog.com/2018/08/2018-jackson-hole-economic-policy.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+CalculatedRisk+(Calculated+Risk)">here</a>. One of the papers argues that the Fed should continue to hike rates, even in the absence of current indications of inflation, if the unemployment rate is below the long-term sustainable rate. Since monetary policy acts with a lag, a low unemployment rate can increase inflationary pressures before monetary policy takes effect. </div>
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<br /></div>
The Fed faces two major risks of “moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating,” said Mr. Powell. “I see the current path of gradually raising interest rates as the [Federal Open Market Committee’s] approach to taking seriously both of these risks. In other words, expect maybe 2 more hikes this year, and maybe one or two more next year.<br />
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<br /></div>
<div>
The Fed funds futures increased their handicapping of a Dec hike slightly, to 68% (Sep is a given). Longer term, the September 2019 futures predictions look like this:</div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-rCxncfsMRaE/W4AWIVpXdeI/AAAAAAAADwA/h8eMGjq3agIa8pPkNK21vNXiAFKiesjkwCLcBGAs/s1600/fed%2Bfunds%2Bfutures.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="709" data-original-width="854" height="265" src="https://3.bp.blogspot.com/-rCxncfsMRaE/W4AWIVpXdeI/AAAAAAAADwA/h8eMGjq3agIa8pPkNK21vNXiAFKiesjkwCLcBGAs/s320/fed%2Bfunds%2Bfutures.PNG" width="320" /></a></div>
<div>
<br /></div>
<div>
The central tendency seems to be 2 more hikes this year, one more next year, and then the Fed takes a break. Slightly more people think the Fed stops after 2 hikes than those who think the Fed does 4 or more.<br />
<div>
<br />
<div>
St. Louis Fed President James Bullard would vote to maintain the current Fed Funds rate through the end of the year. “If it was just me, I’d stand pat where we are and I’d try to react to data as it comes in,” he said Friday in an interview with CNBC’s <a href="https://www.cnbc.com/2018/08/24/feds-james-bullard-says-economy-will-slow-next-year-2020.html#">Steve Liesman</a>. “I just don’t see much inflation pressure. ... I’m an inflation hawk, but I just don’t see that developing. ... I just don’t think this is a situation where we have to be pre-emptive.” He also sees the economy slowing next year, and in 2020. </div>
<div>
<br /></div>
<div>
<a href="https://www.nationalmortgagenews.com/news/senate-banking-advances-cfpbs-kraninger-over-dem-objections?utm_campaign=bx%20lead%20gen-aug%2024%202018&utm_medium=email&utm_source=newsletter&eid=bfce545651125fc5cd918b9646471f7b">The Senate Banking Committee voted</a> 13-12 along party lines to advance the nomination of Kathy Kraninger to run the CFPB. Remember if Kraninger is rejected, Mick Mulvaney continues to run the agency, which was probably the plan all along. </div>
</div>
</div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-84239422741145803442018-08-23T10:38:00.001-04:002018-08-23T10:48:34.769-04:00Morning Report: No surprises in the FOMC minutesVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2858</td>
<td align="right" class="xl65">-2.75</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">384.09</td>
<td align="right" class="xl65">0.07</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">67.46</td>
<td align="right" class="xl65">-0.4</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.81%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are flattish this morning on no real news. Bonds and MBS are flat.</div>
<div>
<br /></div>
<div>
The <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20180801.pdf">FOMC minutes</a> didn't offer anything too surprising. Most participants said it would be appropriate to raise rates soon, which wasn't a surprise - the Fed Funds futures have a Sep hike as pretty much a sure thing. They worried about how trade could be a downside risk to the economy, especially if it affects business sentiment, investment and employment. They mentioned that in the "not too distant future" monetary policy will no longer be viewed as accomodative. This statement seems to hint that rate hikes should wind up next year, provided inflation remains around these levels. Note that the head of the Dallas Fed suggested that the tightening cycle might be done once we get 75 - 100 basis points higher on the Fed Funds rate. Bonds didn't react to the minutes at all, and the Fed Funds futures didn't budge either. </div>
<div>
<br /></div>
<div>
There wasn't much talk about reducing the size of the balance sheet, which is more or less on autopilot right now. As the yield curve flattens, you would think the Fed would consider getting more aggressive on the balance sheet unwind. Maybe not on the mortgage backed securities side, but on the Treasury side. If credit is still widely available and the demand is there, why not? If the ducks are quacking, feed 'em. </div>
<div>
<br /></div>
<div>
Central Bankers are meeting in Jackson Hole today. There usually isn't much in the way of market-moving statements out of these things, but just be aware. </div>
<div>
<br /></div>
<div>
Initial Jobless Claims fell to 210,000 last week. We are bumping around levels not seen since 1969. When you consider the fact that the US population was only 200 MM back then (compared to 325 MM today), it is even more impressive. It certainly has economists scratching their heads. </div>
<div>
<br /></div>
<div>
Home prices rose 0.2% in June and 1.1% for the second quarter, <a href="https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2018Q2_HPI.pdf">according to the FHFA House Price Index</a>. The second quarter's pace was the slowest increase in 4 years, which shows that higher interest rates are beginning to have an effect on prices. Prices did rise in all 50 states and 99 out of 100 MSAs. 5 states (NV, ID, DC, UT, and WA) had double digit increases. The Las Vegas MSA had the biggest increase - almost 19%. The laggards were CT, AK, ND, LA, and WV. </div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-kVxzyInosyA/W368FgkS1qI/AAAAAAAADv0/01T0Ozc8t_Uufqr2uuDzj8sUcAO9GmEfQCLcBGAs/s1600/FHFA%2Bby%2Bstate.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="750" data-original-width="1050" height="228" src="https://1.bp.blogspot.com/-kVxzyInosyA/W368FgkS1qI/AAAAAAAADv0/01T0Ozc8t_Uufqr2uuDzj8sUcAO9GmEfQCLcBGAs/s320/FHFA%2Bby%2Bstate.PNG" width="320" /></a></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: left;">
Heidi Heitkamp, a moderate Democrat from North Dakota says <a href="https://www.americanbanker.com/news/moderate-dem-says-she-will-oppose-cfpb-nominee-in-committee-vote">she will not support</a> Kathy Kraninger to run the CFPB. She said she was inclined to vote yes, however she is concerned about Kraninger's experience in consumer protection and also felt she "lacked empathy" for consumers and didn't believe in the Bureau's mission. Heitkamp has been supportive of regulatory relief, which means she was a gettable vote. Kraninger's nomination looks largely to fall along partisan lines now. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
<a href="https://www.census.gov/construction/nrs/pdf/newressales.pdf">New Home Sales fell 1.7% MOM</a> to 627,000, which was below the Street estimate of 649,000. It is up 12.8% on a YOY basis however. The new home inventory situation is getting more balanced, with 5.9 month's worth of supply. As always, the question is whether that inventory represents the oversupplied luxury market or the undersupplied starter market. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-87788616514963176372018-08-22T10:39:00.001-04:002018-08-22T12:10:36.531-04:00Morning Report: Existing home sales fall againVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64">Last</td>
<td class="xl63" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">2856</td>
<td align="right" class="xl63">-5.75</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl63"></td>
<td align="right" class="xl63">383.91</td>
<td align="right" class="xl63">-0.25</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">67.32</td>
<td align="right" class="xl63">0.89</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl63"></td>
<td align="right" class="xl64">2.82%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl63"></td>
<td align="right" class="xl64">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are modestly lower this morning after Paul Manafort was found guilty and Michael Cohen copped a plea. Bonds and MBS are flat.</div>
<div>
<br /></div>
<div>
Paul Manafort was found guilty of fraud and tax charges and there was a mistrial on the other charges. Nothing was found on the Russian front. Ex Trump lawyer Michael Cohen pled guilty to FEC violations, which relates to the Stormy Daniels case. Whether this ends up getting legs remains to be seen. FWIW, the markets are saying it is no big deal. </div>
<div>
<br /></div>
<div>
We will get the FOMC minutes today at 2:00 pm. Given the lack of liquidity in the markets, we could see some market movement in what should otherwise be a non-event. </div>
<div>
<br /></div>
<div>
<a href="https://www.mba.org/2018-press-releases/august/mortgage-applications-increase-in-latest-mba-weekly-survey">Mortgage applications rose</a> for the first time in 6 weeks as purchases rose 3% and refis rose 6%. Overall they rose 4.2%. Mortgage rates were unchanged, so that is a surprising jump in refi activity. Given that the index is sitting at lows not seen since the turn of the century, it doesn't take much of a bump in activity to move the index. </div>
<div>
<br /></div>
<div>
<a href="https://www.nar.realtor/newsroom/existing-home-sales-slip-07-percent-in-july">Existing home sales fell again</a> for the fourth month in a row. They fell 0.7% on a MOM basis and are down 1.5% on a YOY basis. This is the fifth straight month of YOY declines. It looks like much of the decline was attributable to weakness in the Northeast. The median house price rose 4.5% to 269,600. Current estimates of median income are around 61,500, so that puts the median house to median income ratio around 4.4x. While other measures of housing affordability remain decent, this one is flashing red for valuations overall. The MP / MI ratio ignores interest rates, which are the biggest determinant of affordability, but over time house prices correlate with incomes, and it wouldn't be a surprise to see home prices begin to take a breather. </div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-LP5uILr73RQ/W31y_s7CssI/AAAAAAAADvo/UqR4C3wyRQkAcZkyYBOBjM8I6AP6mqCTACLcBGAs/s1600/Median%2BHouse%2BPrice%2Bto%2BMedian%2BIncome%2BRatio.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="581" data-original-width="788" height="235" src="https://3.bp.blogspot.com/-LP5uILr73RQ/W31y_s7CssI/AAAAAAAADvo/UqR4C3wyRQkAcZkyYBOBjM8I6AP6mqCTACLcBGAs/s320/Median%2BHouse%2BPrice%2Bto%2BMedian%2BIncome%2BRatio.PNG" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div>
Fed Chairman Jerome Powell <a href="http://0.0.0.18/08/22/fed-chairman-powell-assured-senator-hes-not-swayed-by-trumps-criticism.html?__source=mnd%7Cnews%7C&par=mnd">assured</a> Senator Tim Scott that the Fed remains independent despite the jawboning from Trump. Powell said in a radio interview: “We do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently, and we don’t ... take political considerations into account,” Powell told the radio show. “I would add though that no one in the administration has said anything to me that really gives me concern on this front.” Separately, Dallas Fed Chairman Robert Kaplan <a href="https://www.cnbc.com/2018/08/21/dallas-fed-president-says-fed-only-needs-three-or-four-more-rate-hikes.html?__source=mnd%7Cnews%7C&par=mnd">said</a> that the Fed only needs to hike 3 or 4 more times to get to neutral. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-53363813172926142072018-08-21T10:25:00.002-04:002018-08-21T10:56:42.248-04:00Morning Report: Housing inventory is still falling, albeit at a slower rateVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2862</td>
<td align="right" class="xl65">4</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">384.93</td>
<td align="right" class="xl65">1.7</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">67.47</td>
<td align="right" class="xl65">1.04</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.83%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are higher this morning as earnings season winds down. Bonds and MBS are down. </div>
<div>
<br /></div>
<div>
Same store sales rose 4.7% last week, which is indicative of a strong back-to-school shopping season. BTS is a good predictor of the holiday shopping season, which would support strong GDP growth for the rest of the year. Consumption is about 70% of US GDP. Current projections are looking at north of 3% growth for the year.</div>
<div style="text-align: center;">
<br /></div>
<div>
The Fed Funds futures are now handicapping a 96% chance of a Sep hike and a 63% chance of a Sep and Dec hike. Meanwhile, the yield curve continues to flatten. </div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div style="text-align: left;">
Trump <a href="https://www.bloomberg.com/news/articles/2018-08-20/trump-said-to-complain-powell-hasn-t-been-cheap-money-fed-chair?cmpid=BBD082118_MKT&utm_medium=email&utm_source=newsletter&utm_term=180821&utm_campaign=markets">made some comments</a> about Fed Chairman Jerome Powell at a fundraiser, saying that he expected him to be a "cheap money guy" and didn't expect him to raise interest rates. He also tweeted that he is "getting no help" from the Fed. While publicly discussing monetary policy is not a normal thing for the President to do, wishing rates were lower is. The only politicians who want higher rates are the ones not in power. He also called the Europeans and the Chinese currency manipulators. Under any other President this would be big, but the dollar and the bond market largely ignored it. It shows that markets are largely dismissing "Donald being Donald" communiques from the WH. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The YOY declines in inventory that have bedeviled the industry are beginning to moderate, at least <a href="https://www.redfin.com/blog/2018/08/market-tracker-july-2018.html?utm_source=Iterable&utm_medium=email&utm_campaign=1011565&inquirySource=367">according to Redfin</a>. Inventory was down 5.8% in July, which is lower than the double-digit decreases we had been seeing. The median sales price rose 5.3%. Homes went under contract in 35 days, which is 3 days faster than a year ago. Activity is slowing in some of the hotter markets however, especially Washington DC. The inventory issue won't be fixed until we get housing starts back to some semblance of normalcy, which means a few years of 2MM units before returning to historical averages of around 1.5MM. </div>
<div style="text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-3z63pZE2UQc/W3wWbnlcvkI/AAAAAAAADvQ/5b68KlIMFG8TfeQp5E0CwWEpf0chpXmSwCLcBGAs/s1600/inventory.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="470" data-original-width="790" height="190" src="https://3.bp.blogspot.com/-3z63pZE2UQc/W3wWbnlcvkI/AAAAAAAADvQ/5b68KlIMFG8TfeQp5E0CwWEpf0chpXmSwCLcBGAs/s320/inventory.PNG" width="320" /></a></div>
<div style="text-align: center;">
<br /></div>
<div>
Toll Brothers <a href="https://www.tollbrothers.com/investor-relations/press-release?pr=http%3A%2F%2Fglobenewswire.com%2Fnewsroom%2Fnitfitem%2F1554320%2Fen%3Ff%3D22%26fvtc%3D10%26fvtv%3D1363">reporte</a><a href="https://www.tollbrothers.com/investor-relations/press-release?pr=http%3A%2F%2Fglobenewswire.com%2Fnewsroom%2Fnitfitem%2F1554320%2Fen%3Ff%3D22%26fvtc%3D10%26fvtv%3D1363">d</a> strong numbers this morning, which has sent the stock up 11%. Revenues were up 27% and deliveries were up 18%. Backlog rose 22% in dollars and 13% in units. They also bought back about $137 million worth of stock, which accounts for about 70% of earnings. Robert I. Toll, executive chairman, stated: “We believe there is room for continued growth in the new home market in the coming years. Household formations have been increasing and in many regions the aging housing stock may not satisfy the lifestyles of today’s buyers. Yet new home production has not kept pace with the growth in population and households. On the single-family side, housing starts, other than during the anemic years of this recovery, are at their lowest level since 1970. In addition, existing home values have increased, providing potential move-up and empty nester customers with more equity that they can put toward a new home purchase. We believe these two groups, along with the growing number of millennials starting to buy homes, are all sources of potential new demand in the coming years.” </div>
<div>
<br /></div>
<div>
I find it interesting that he talks about the low level of housing starts, while at the same time spending 70% of Toll's net income on buybacks. Certainly the actions don't seem to match the words. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-77843071052904035012018-08-20T10:36:00.002-04:002018-08-20T11:21:05.932-04:00Morning Report: Fannie Mae cuts housing forecast.Vital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64">Last</td>
<td class="xl63" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">2855.5</td>
<td align="right" class="xl63">3.8</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl63"></td>
<td align="right" class="xl63">383.49</td>
<td align="right" class="xl63">2.43</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">65.92</td>
<td align="right" class="xl63">0.02</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl63"></td>
<td align="right" class="xl64">2.84%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl63"></td>
<td align="right" class="xl64">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are higher this morning on optimism of a deal with China. Bonds and MBS are up small. </div>
<div>
<br /></div>
<div>
Late August is a generally dull time to begin with, and this week promises more of the same. We will get some housing data (Existing home sales, new home sales, FHFA price index) and one possible market-moving report (durable goods) but that is about it. We will get the FOMC minutes on Wednesday as well. </div>
<div>
<br /></div>
<div>
Liquidity is drying up in the bond market as it usually does this time of year. Note that the short bond position is one of the biggest on the Street, so we could see some quick rallies in the 10 year. </div>
<div>
<br /></div>
<div>
Flagstar <a href="https://www.nationalmortgagenews.com/news/fed-frees-flagstar-from-crisis-era-regulatory-order?utm_campaign=bx%20lead%20gen-aug%2020%202018&utm_medium=email&utm_source=newsletter&eid=bfce545651125fc5cd918b9646471f7b">has been released</a> from special oversight that limited its corporate options to pay dividends, make acquisitions, etc. </div>
<div>
<br /></div>
<div>
<a href="https://www.wsj.com/articles/luxury-apartment-sales-plummet-in-new-york-city-1534770001?mod=hp_lista_pos2">Luxury apartments in NYC are falling in price</a>, after years of torrid growth. Some are blaming the new tax laws, however some could be from falling foreign demand. We are seeing the same thing in London. Note that luxury properties in the suburbs of NYC are doing the same thing. You can't give away properties priced at $1MM + </div>
<div>
<br /></div>
<div>
Fannie Mae <a href="http://www.fanniemae.com/resources/file/research/emma/pdf/Housing_Forecast_081618.pdf">cut their housing forecast</a> for 2018 for the 4th time this year. They are looking for $1.67T in originations this year and $1.7T next year. The 30 year fixed rate mortgage is expected to average 4.5% this year and 4.7% next year. They are also forecasting a major slowdown in GDP growth, from 3% this year to 2.3% next year. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-68365005810663392902018-08-16T10:35:00.001-04:002018-08-16T12:30:36.481-04:00Morning Report: Housing starts disappointVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2832</td>
<td align="right" class="xl65">11</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">380.51</td>
<td align="right" class="xl65">0.81</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">65.03</td>
<td align="right" class="xl65">0.02</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.87%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are higher this morning on a potential that in trade tensions. Bonds and MBS are flat.</div>
<div>
<br /></div>
<div>
Initial Jobless Claims fell to 212k from 215k last week. </div>
<div>
<br /></div>
<div>
<a href="https://www.census.gov/construction/nrc/pdf/newresconst.pdf">Housing starts</a> came in below forecasts for June - rising an anemic 0.9% to 1.17 million. They are down 1.4% on a YOY basis. Most areas showed modest increases, except for the West, which fell substantially. Permits were a little better, rising 1.5% MOM and 4.2% YOY. These numbers echo the <a href="https://www.nationalmortgagenews.com/articles/homebuilder-sentiment-edges-down-to-lowest-since-september?utm_campaign=bx%20lead%20gen-aug%2016%202018&utm_medium=email&utm_source=newsletter&eid=bfce545651125fc5cd918b9646471f7b">drop in homebuilder sentiment</a>, which is being driven by rising construction costs and labor shortages. "The solid economic expansion and firm job market should spur demand for new single-family homes in the months ahead," NAHB Chief Economist Robert Dietz said in a statement. "Meanwhile, builders continue to monitor how tariffs and the growing threat of a trade war are affecting key building material prices, including lumber. These cost increases, coupled with rising interest rates, are putting upward pressure on home prices and contributing to growing affordability challenges."</div>
<div>
<br /></div>
<div>
In the wake of the residential real estate bubble, the government has focused on regulatory solutions to fraud in the single family market. However, multifam was largely left alone, and it looks like the government <a href="https://www.wsj.com/articles/u-s-pursues-one-of-the-biggest-mortgage-fraud-probes-since-the-financial-crisis-1534357872?mod=hp_listb_pos1">is in the process of investigating</a> an upstate NY developer which has about $1.5 billion in loans backed by the GSEs which may have been made under fraudulent circumstances. Apparently things like tenant income go unverified on these sorts of loans, and it is a systemic problem. </div>
<div>
<br /></div>
<div>
Here are <a href="https://www.cnbc.com/2018/08/15/3-myths-about-what-affects-your-credit-score-fico-wants-to-clear-up.html?__source=mnd%7Cnews%7C&par=mnd">3 misconceptions</a> about credit scores: First, carrying a balance on revolving credit does not increase your score. Second incomes do not factor in a credit score (they aren't even tracked) and finally, your spouse's credit score and your own are completely independent. </div>
<div>
<br /></div>
<div>
The Trump Administration <a href="https://www.wsj.com/articles/banks-say-no-thanks-to-volcker-rule-changes-1534353932">is looking to tweak the Volcker rule</a> in order to give banks a brighter line on what constitutes proprietary trading. The banks are not interested, surprisingly. Currently, the rule says banks need to hold a security for longer than 60 days in order to prove they aren't proprietary trading. The proposal would track the "available for sale" securities account and test it that way. From the bank's standpoint, brighter lines are better, but having spent a lot on internal controls to ensure compliance with the new rules, they don't seem anxious to re-do it. </div>
<div>
<br /></div>
<div>
At the end of the day, market-making is largely dead, having been done in by declining bid-ask spreads, electronic trading, regulations, and declining brokerage fees. It simply is a money-losing business any more. The next crash is going to be an eye-opener when large swaths of the markets simply go no-bid. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-63795627105303771062018-08-15T10:37:00.001-04:002018-08-15T10:52:18.649-04:00Morning Report: Mortgage delinquencies continue to fallVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64"></td>
<td class="xl63" style="width: 48pt;" width="64">Last</td>
<td class="xl63" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">2824</td>
<td align="right" class="xl63">-16.5</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl63"></td>
<td align="right" class="xl63">380.78</td>
<td align="right" class="xl63">-4.14</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl63"></td>
<td class="xl63"></td>
<td align="right" class="xl63">66.49</td>
<td align="right" class="xl63">-0.55</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl63"></td>
<td align="right" class="xl64">2.86%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl63" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl63"></td>
<td align="right" class="xl64">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are lower this morning on overseas weakness. Bonds and MBS are up.</div>
<div>
<br /></div>
<div>
Kind of a mixed bag with economic data this morning. </div>
<div>
<br /></div>
<div>
<a href="https://www.census.gov/retail/marts/www/marts_current.pdf">Retail Sales</a> came in well above expectations in July, with the headline number rising 0.5%. The control group, which excludes autos, gas, and building materials was up the same amount. While July's numbers were strong, June's estimate was revised downward, so expect to see a downward revision on Q2 GDP from the first estimate of 4.1%.</div>
<div>
<br /></div>
<div>
<a href="https://www.mba.org/2018-press-releases/august/mortgage-applications-decrease-in-latest-mba-weekly-survey-x237765">Mortgage Applications fell 2% last week</a> as purchases fell 3% and refis were flat. The typical mortgage rate fell 3 basis points, which helped push refis up to 37.6% of all mortgages. </div>
<div>
<br /></div>
<div>
<a href="https://www.bls.gov/news.release/pdf/prod2.pdf">Productivity increased 2.9% as output increased 4.8% and hours worked increased 1.9%</a>. Compensation costs increased 2%, so with the productivity gain, unit labor costs fell 0.9%. This will certainly make the Fed happy, as higher productivity leads to higher non-inflationary wage growth and higher standards of living. This is the preliminary estimate for the second quarter and will be subject to revision. </div>
<div>
<br /></div>
<div>
Industrial production only managed a 0.1% gain in July, and manufacturing production was up 0.3%. June numbers were revised sharply higher, so that offset the weakness. Capacity Utilization was flat at 78.1%. </div>
<div>
<br /></div>
<div>
<a href="https://www.cnbc.com/2018/08/15/homebuilder-sentiment-falls-to-lowest-point-in-almost-a-year.html?__source=mnd%7Cnews%7C&par=mnd">Homebuilder confidence slipped last month</a> to the lowest in a year as labor shortages and higher material prices dampen sentiment. “The good news is that builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations,” said NAHB Chairman Randy Noel, a homebuilder from LaPlace, La. “However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots.”</div>
<div>
<br /></div>
<div>
Despite the strong economic news, <a href="https://www.nationalmortgagenews.com/articles/bank-of-america-says-pump-the-brakes-on-structured-credit-risk?utm_campaign=bx%20lead%20gen-aug%2015%202018&utm_medium=email&utm_source=newsletter&eid=bfce545651125fc5cd918b9646471f7b">we are starting to see a bit of a risk-off trade in the structured credit market</a>. Bank of America has gone negative on structured products and agency MBS. This means that mortgage spreads are widening which will either lead to higher mortgage rates or lower profit margins (probably a bit of both). That said, B of A is calling for a flattening of the yield curve, which will offset the wider spreads at least somewhat. </div>
<div>
<br /></div>
<div>
The strong economy is lowering delinquencies, <a href="https://www.corelogic.com/insights-download/loan-performance-insights-report.aspx">according to CoreLogic</a>. The 30 day + DQ rate fell from 4.5% to 4.2% in May. Seriously delinquent rates are lower overall, except for the hurricane hit states of Florida and Texas. The California wildfires have the potential to goose up DQ rates in the coming months. </div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-5Lfy6jw7w-Q/W3Q0sjgw-yI/AAAAAAAADuw/oOrTaBTxuNIbxphSs6WH5UMxs-R4J9nnQCLcBGAs/s1600/Corelogic%2BDQ.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="429" data-original-width="841" height="163" src="https://4.bp.blogspot.com/-5Lfy6jw7w-Q/W3Q0sjgw-yI/AAAAAAAADuw/oOrTaBTxuNIbxphSs6WH5UMxs-R4J9nnQCLcBGAs/s320/Corelogic%2BDQ.PNG" width="320" /></a></div>
<div style="text-align: center;">
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-21565192654464441532018-08-14T10:37:00.001-04:002018-08-14T10:56:03.070-04:00Morning Report: Small business confidence soarsVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2833</td>
<td align="right" class="xl65">7.5</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">385.12</td>
<td align="right" class="xl65">0.21</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">67.99</td>
<td align="right" class="xl65">0.79</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.88%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are higher this morning after the Turkish Lira rallied 6%. Bonds and MBS are flat. </div>
<div>
<br /></div>
<div>
Import prices were flat in July but were up just under 5% on a YOY basis. This was pretty much all driven by oil prices which are inherently volatile and self-correcting. </div>
<div>
<br /></div>
<div>
Small business optimism is near record highs <a href="https://www.nfib.com/surveys/small-business-economic-trends/">according to the NFIB</a>. Availability of workers remains a big concern, and we are seeing record levels of compensation increases. Note that many of these comp increases are planned, so there will be a 9 month lag before it shows up in the government data. Credit availability is a non-problem. The biggest headache for small business is availability / quality of labor, not the cost of labor. I don't know that we have cost-push labor inflation quite yet, but if that is the case, then it won't be good for mortgage rates as it will primarily affect the long end of the curve. </div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-gLO2HwCMFY4/W3LamlSnd6I/AAAAAAAADuk/JH4U0QyXe1kvZqEonIoRci0i8T6EJLNVQCLcBGAs/s1600/NFIB.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="478" data-original-width="795" height="192" src="https://3.bp.blogspot.com/-gLO2HwCMFY4/W3LamlSnd6I/AAAAAAAADuk/JH4U0QyXe1kvZqEonIoRci0i8T6EJLNVQCLcBGAs/s320/NFIB.PNG" width="320" /></a></div>
<div style="text-align: center;">
<br /></div>
<div>
<br /></div>
<div>
HUD is <a href="https://www.npr.org/2018/08/13/638285344/ben-carson-moves-forward-with-push-to-change-fair-housing-rule?utm_medium=RSS&utm_campaign=news">electing to discontinue</a> the Obama Administration's controversial interpretation of the AFFH rule from the 60s, which means it no longer will be suing towns to force them to change their zoning codes to allow multi-family housing. HUD will focus on eliminating regulatory impediments to building more housing, and will tie grants to measures which increase building. In other words, The Obama Admin used a stick approach, while the Trump Admin will use a carrot approach. </div>
<div>
<br /></div>
<div>
Home prices rose 0.7% MOM and 6.8% YOY in June <a href="https://www.corelogic.com/insights-download/corelogic-home-price-insights.aspx">according to CoreLogic</a>. They are forecast to rise 5% over the next year. Sales in the red-hot markets are down double digits as affordability issues and lack of inventory crimp activity. </div>
<div>
<br /></div>
<div>
The Despot <a href="https://www.reuters.com/article/us-home-depot-results/home-depots-second-quarter-sales-rebound-shares-rise-idUSKBN1KZ12E?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29">reported better than expected earnings</a> as homeowners choose to fix up their existing place instead of trying to move in a tight real estate market. Better weather helped the company rebound from their sales miss in the first quarter. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-61788820233599265682018-08-13T10:33:00.001-04:002018-08-13T10:54:18.613-04:00Morning Report: Turkish situation continues to degenerateVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2836</td>
<td align="right" class="xl65">-0.55</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">384.89</td>
<td align="right" class="xl65">-0.96</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">67.37</td>
<td align="right" class="xl65">-0.26</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.88%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
<br />
<div>
Stocks are lower as the Turkey situation snowballs to other emerging markets. Bonds and MBS are up on the flight to quality trade. </div>
<div>
<br /></div>
<div>
Financial markets are being driven by the situation in Turkey, with the Turkish Lira continuing to depreciate. This has spread to other emerging markets currencies like the South African Rand. The Chinese currency has hit the lowest level in a year, which is bound to increase trade tensions with the US. There is the potential for this to affect the balance sheets of some European banks, however the US will be pretty much insulated from it. The most likely effect is that it will cause a flight to quality to the US dollar which will keep a lid on interest rates.</div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-FY9_sDHMO0A/W3GFHHaMViI/AAAAAAAADuM/qvuScMKf9u8RZoysb3427el8bPVxearowCLcBGAs/s1600/10%2Byear%2Byield.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="671" data-original-width="1104" height="194" src="https://3.bp.blogspot.com/-FY9_sDHMO0A/W3GFHHaMViI/AAAAAAAADuM/qvuScMKf9u8RZoysb3427el8bPVxearowCLcBGAs/s320/10%2Byear%2Byield.PNG" width="320" /></a></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: left;">
The Turkish crisis hasn't affected the Sep Fed Funds futures, which are handicapping a 94% of a hike, but they have tempered the probability of a follow-on hike in December. It isn't a dramatic move, but we have slipped from 66% to 61%. </div>
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<a href="https://2.bp.blogspot.com/-t1R1YnzR5go/W3GGe4yZS1I/AAAAAAAADuY/VwwMvga_8BEIrM5CkTJSJB5cOgrjuuxXwCLcBGAs/s1600/fed%2Bfunds%2Bprobability%2B2.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="680" data-original-width="863" height="252" src="https://2.bp.blogspot.com/-t1R1YnzR5go/W3GGe4yZS1I/AAAAAAAADuY/VwwMvga_8BEIrM5CkTJSJB5cOgrjuuxXwCLcBGAs/s320/fed%2Bfunds%2Bprobability%2B2.PNG" width="320" /></a></div>
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We won't have much in the way of market-moving data this week - retail sales on Wednesday will be the only one that matters. We will also get housing starts on Thursday. Other than that, it should be a dull week. </div>
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Ben Carson is <a href="https://www.wsj.com/articles/hud-moves-to-shake-up-fair-housing-enforcement-1534161601?mod=hp_listc_pos3">changing the way</a> HUD encourages multifamily real estate development. The Obama HUD used the stick approach - suing local governments to force them to change their zoning rules, based on demographic analysis. The Carson HUD will use the carrot approach - tying grants to changes in zoning restrictions. </div>
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Conventional financing <a href="http://eyeonhousing.org/2018/08/fha-backed-loans-accounted-for-the-majority-of-all-non-conventional-financing-in-2017/">accounted for 69%</a> of all financing last year. Of the non-conventional types of financing, FHA loans led with 12%, followed by cash with 10% and VA with 4%. </div>
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Elon Musk <a href="https://www.thestreet.com/markets/musk-clarifies-take-private-tweet-some-questions-still-unanswered-14681289">clarified his tweet</a> regarding taking Tesla private. He decided to use Twitter in order to notify the public of his intention to take the company private. Most companies file an 8-K with the SEC and do a press release, but Elon decided to use Twitter. Second, his "funding secured" comment was based on a conversation with the Saudi Sovereign Wealth Fund who asked if Tesla was interested in selling to the fund. Musk then looked at the assets of the fund, concluded they had the money, and then tweeted that funding was secured. One thing is for sure, if this deal ever happens, the background section of the proxy statement is going to make for some entertaining reading. </div>
Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-77427438123730722092018-08-10T10:19:00.000-04:002018-08-10T10:56:20.721-04:00Morning Report: Median home ages climbVital Statistics:<br />
<br />
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2842</td>
<td align="right" class="xl65">-11.5</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">386.37</td>
<td align="right" class="xl65">-3.68</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">67.28</td>
<td align="right" class="xl65">0.48</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.90%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
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<div>
Stocks are lower this morning on overseas weakness. Bonds and MBS are up on the risk-off trade. </div>
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Inflation at the consumer level remains under control, with the <a href="https://www.bls.gov/news.release/cpi.nr0.htm">Consumer Price Index rising 0.2%</a> MOM and 2.9% YOY. Stripping out food and energy, it rose 0.2% / 2.4%. A big driver of the increase was shelter, adding 0.3%. Food rose slightly while energy declined.</div>
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The EU and the US are <a href="https://www.cnbc.com/2018/08/09/us-eu-begin-laying-groundwork-on-trade-agreement.html?__source=mnd%7Cnews%7C&par=mnd">scheduled to meet</a> to discuss ways to bring down tariffs. The US would like to see more soybean and energy exports to the Continent, and is hoping to derail a potential pipeline of natural gas from Russia to Germany. </div>
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<div>
The Turkish Lira is in freefall, and there is discussion of <a href="https://www.ft.com/content/f50594a8-9c96-11e8-ab77-f854c65a4465">how that will affect Euro banks</a>, specifically BBVA, BNP Paribas, and Unicredito. Yields on the Turkish 10 year bond have hit 20%. This is causing a flight to quality which is benefiting US bonds. While Turkey is probably not big enough to cause any sort of contagion, it could cause the ECB to go a little slower on policy normalization. Note Trump is stirring the pot, threatening to double tariffs. </div>
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Fannie Mae has also announced forbearance policies for borrowers affected by the California wildfires. Borrowers can get up to 12 months forbearance without penalty if they live in FEMA-designated disaster areas. </div>
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<div>
The <a href="http://eyeonhousing.org/2018/08/half-of-us-homes-built-before-1980/">average age of a home is 37 years old</a>, according to the American Communities Survey. This really speaks to how weak housing starts have been since the real estate bubble burst. Pre-bubble they averaged 1.5 million a year. </div>
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<a href="https://4.bp.blogspot.com/-jt3YsEfvO58/W22WodseR7I/AAAAAAAADt0/uRoJEiDzpakjsOg8SzEbc1QQw7E6SjfGQCLcBGAs/s1600/age%2Bof%2Bhomes.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="520" data-original-width="711" height="234" src="https://4.bp.blogspot.com/-jt3YsEfvO58/W22WodseR7I/AAAAAAAADt0/uRoJEiDzpakjsOg8SzEbc1QQw7E6SjfGQCLcBGAs/s320/age%2Bof%2Bhomes.PNG" width="320" /></a></div>
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Slower delivery times <a href="https://www.wsj.com/articles/parts-shortages-crimp-u-s-factories-1533893408?mod=hp_lead_pos7">are beginning to affect manufacturers</a> (and their earnings reports). Ultimately, bottlenecks are usually inflationary. This is also the downside of making supply chains elongated and lean - capacity is maxed so meeting incremental demand requires investment that many firms are reluctant to make. The good news is that demand is strong, but the downside is that this is yet one more inflationary issue. The odd thing is that capacity utilization is sitting at 78%, which is about the historical average. </div>
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<a href="https://2.bp.blogspot.com/-f6stPTWpn58/W22cIhX7DSI/AAAAAAAADuA/7nZhsp2wS3EkZhIFEtUAAobWDxI0i2p9gCLcBGAs/s1600/capacity%2Butilization.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="771" data-original-width="1248" height="197" src="https://2.bp.blogspot.com/-f6stPTWpn58/W22cIhX7DSI/AAAAAAAADuA/7nZhsp2wS3EkZhIFEtUAAobWDxI0i2p9gCLcBGAs/s320/capacity%2Butilization.PNG" width="320" /></a></div>
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0tag:blogger.com,1999:blog-8446039131453007850.post-25479059307355822622018-08-09T10:09:00.002-04:002018-08-09T10:29:33.540-04:00Morning Report: Despite good labor news, more people worried about their jobsVital Statistics:<br />
<div>
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<div>
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 343px;">
<colgroup><col style="mso-width-alt: 3181; mso-width-source: userset; width: 65pt;" width="87"></col>
<col span="4" style="width: 48pt;" width="64"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt; width: 65pt;" width="87"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64"></td>
<td class="xl65" style="width: 48pt;" width="64">Last</td>
<td class="xl65" style="width: 48pt;" width="64">Change</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">S&P futures</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">2859</td>
<td align="right" class="xl65">3.5</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">Eurostoxx
index</td>
<td class="xl65"></td>
<td align="right" class="xl65">389.41</td>
<td align="right" class="xl65">-0.28</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Oil (WTI)</td>
<td class="xl65"></td>
<td class="xl65"></td>
<td align="right" class="xl65">67.29</td>
<td align="right" class="xl65">0.35</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">10
Year Government Bond Yield</td>
<td class="xl65"></td>
<td align="right" class="xl66">2.94%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" colspan="3" height="20" style="height: 15.0pt; mso-ignore: colspan;">30
Year fixed rate mortgage</td>
<td class="xl65"></td>
<td align="right" class="xl66">4.58%</td>
</tr>
</tbody></table>
</div>
<div>
Stocks are higher this morning on decent earnings. Bonds and MBS are up.</div>
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Very slow news day. </div>
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Initial Jobless Claims fell to 213,000 last week, an exceptionally low level. The 4 week average is sitting at 45 year lows. </div>
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Inflation at the wholesale level was surprisingly weak in the first of two inflation readings this week. The Producer Price Index was flat MOM and rose 3.3% YOY. Ex-food and energy, it rose 0.1% MOM / 2.7% YOY. Tariffs explain some of it, but freight and packaging costs pushing prices higher too. </div>
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<div>
<a href="https://www.housingwire.com/articles/46404-fannie-freddie-extend-forbearance-to-california-wildfire-victims">Freddie Mac has extended mortgage forbearance measures</a> due to the wildfires in California. Borrowers in FEMA-declared disaster areas may be allowed to suspend mortgage payments without penalty for up to a year. Fannie Mae is expected to do something similar. </div>
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<div>
Fannie Mae's Home Purchase Sentiment Index <a href="http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/nhs-monthly-data-080718.pdf">fell</a> in July for the second consecutive month as inventory and affordability issues weighed on homebuyer moods. The net number of respondents who think it is a good time to buy fell by 4 percentage points and the number who think it is a good time to sell fell by 6. Most respondents think mortgage rates and home prices will rise over the next year. One interesting data point: a big jump in the number of people who are worried about their job. The net number of people (% who are concerned less the % who are not concerned) fell by 11 percentage points. This certainly flies in the face of the data out there, and sentiment surveys are usually not very predictive, but it is a surprise. </div>
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Anonymoushttp://www.blogger.com/profile/06444231819634489839noreply@blogger.com0