Morning Report: Bank earnings pour in

Vital Statistics:

			Last	Change
S&P futures			2797	-1
Eurostoxx index			385.18	0.81
Oil (WTI)			70.6	0.27
10 Year Government Bond Yield				2.84%
30 Year fixed rate mortgage				4.53%

Markets are flat as bank earnings come in. Bonds and MBS are up small. Slow news day.

The US government held a reasonably strong auction yesterday, where primary dealers took down their smallest positions ever. Meanwhile, speculative shorts in Treasuries (one of the biggest trades on the Street) are struggling as rates stay stubbornly low. Some continue to warn that the flattening yield curve is really telling us that a recession is around the corner. 

The prepared remarks for Jerome Powell's semiannual report to Congress should be out today. Probably won't be market-moving, but you never know. 

Import prices fell 0.4% in June as petroleum and food prices fell. For the year, they are up 4.3% however. 

Consumer sentiment fell according to the University of Michigan / Reuters survey. The current conditions index drove the fall, which is usually a function of gas prices. Trade fears also weighed on sentiment. 

Wells Fargo reported earnings this morning. Earnings were down due to a tax charge. Stripping out the tax charge, they were flat. They had a tough quarter for mortgages like everyone else. Origination for the quarter was $50 billion, which is up seasonally from Q1, but down 11% YOY. The current pipeline of $24 billion is down 26% YOY. Margins were 77 basis points, which is down 17 from the prior quarter and down 47 bps from a year ago. The stock is down 3% pre-open. 

JP Morgan had a similar story to Wells. They originated $23.7 billion in mortgages during Q2, which was higher seasonally and down about 10% from a year ago. Mortgage banking revenue (which includes servicing) was down 6% YOY. Margin compression again was the story, especially in correspondent lending. They marked up the MSR book. JPM is flat pre-open. 

A bunch of other banks reported this morning and the whole sector is getting hit, with the XLF down about a percent and a half. 

Federal Reserve Chairman Jerome Powell made positive comments about the economy, although he is concerned about trade and the effects of a long trade war with China. He is concerned about rising trade tensions, although he notes that Trump's goal is to get others to lower their tariffs. If he succeeds in that, then the trade tension would be a good thing, not a bad thing. It is important to remember that China's biggest weapon against the US is not imposing tariffs on US goods - it is ignoring US intellectual property laws. Those sorts of things will not really show up in the balance of trade numbers, but will have huge effects on IP firms, particularly media and software. 

Morning Report: Home ownership rate ticks up

Vital Statistics:

	Last	Change
S&P Futures	2588.5	-0.3
Eurostoxx Index	396.3	-0.3
Oil (WTI)	57.3	-0.1
US dollar index	87.9	0.0
10 Year Govt Bond Yield	2.32%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.95

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

Small business optimism slipped in September, according to the NFIB. The big driver was a drop in sales expectations, which may have been influenced by the hurricanes in Texas and Florida. The drop was not just concentrated in the affected areas, so it is hard to attribute the drop to simply that. Small business shed an average of .17 workers during the month, and again this was not simply a hurricane effect. Small business optimism is high by historical standards, however and the Atlanta Fed is forecasting a 4.5% jump in GDP growth the fourth quarter of 2017. 

Job openings were 6.1 million at the end of September. The quits rate edged up to 2.2%. The quits rate has historically been a leading indicator for wage growth, and a data point the Fed invariably references during their FOMC deliberations. 

Tax reform continues to work its way through the committee process. Partisan tensions are already beginning to show. One thing to note: the Senate bill maintains the mortgage interest deduction at $1 million versus the House's plan to cap it at $500,000. Corporations are digesting a surprise provision that levies an excise tax on payments made to overseas affiliates. Here is the state of play. 

Home prices rose 7% YOY, according to CoreLogic. They are up 0.9% MOM. Rental price inflation was about 3%, less than half the increase in the index, which reflects tight inventory conditions. They estimate that about a third of the major metropolitan areas are overvalued. Rental price inflation is lagging as the homeownership rate increases. It hit 63.9% in the third quarter, according to the Census Bureau.

The Bank of England plotted the real risk free rate of interest going back to 1311. It puts into perspective how depressed the current global economy is, when you consider the real rate has been around 4% historically. The blue shaded areas are real rate depressions, and the one starting in the early 1980s has been the second-longest and is most similar to the long depressions of the late 19th century. These periods have been historically associated with low productivity growth, populism, and protectionism. Note that the bounceback from these periods has been sharp: typically you have seen an increase of 315 basis points in the two years after the cycle ends. The late 19th century phase was associated with the birth of Marxism. Is it a coincidence that Millennials are embracing socialism and communism? 

JP Morgan estimates there will be 4 rate hikes in 2018. A tightening labor market will drive the increases, however we are seeing commodity price inflation as well, which will eventually flow through to overall inflation. Food and energy prices are increasing, and for the builders, lumber prices are at multi-year highs. 

Morning Report: Third quarter GDP comes in strong

Vital Statistics:

	Last	Change
S&P Futures	2567.3	5.8
Eurostoxx Index	392.7	1.4
Oil (WTI)	52.4	-0.3
US dollar index	88.2	0.4
10 Year Govt Bond Yield	2.46%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	4

Stocks are higher this morning on strong earnings and a good GDP report. Bonds and MBS are down.

Very slow news day. 

Third quarter GDP came in at 3%, much higher than the 2.5% the Street was looking for. This is the strongest back-to-back performance since 2014. It looks like the hurricanes had a negligible effect on growth, and the Commerce Department cannot measure the effect at any rate. Consumption increased 2.4%. Housing remained a weak spot, falling 6%, as builders struggle with labor shortages and a lack of buildable land. This is the worst stretch for housing since 2010. The core inflation rate rose at 1.3%, an increase from the 0.9% from Q2, but well below the Fed's 2% target. 

Paul Ryan is confident he can sweeten tax reform to bring some of the last GOP holdouts in line. The biggest hurdle will be Republican house members in blue states, who will be affected by any changes to the state and local tax deduction. Tax reform is scheduled to be unveiled November 1. 

The luxury end of the market is beginning to bifurcate, as the super high end ($5 MM plus) languishes while homes in the $1.5 million range are moving quickly. Demand for high-end homes is being driven by foreign demand as well as the stock market rally. That said, in the Northeast, particularly the pricey NYC suburbs, sellers are pulling their listings given weak demand. 

Janet Yellen is reportedly out of the running now for Fed Chairman. It will come down to John Taylor (the conservative choice) versus Jerome Powell (the Professional Economist's choice). Her term ends February 1. 

Ben Carson says that HUD will work with DOJ to pull back on fines for mortgage lending errors. Aggressive prosecution during the Obama Administration pushed J.P. Morgan to get out of the FHA business altogether. “Innocent errors should not create chaos and fear and make people less likely to get involved in the first place," he said.

Morning Report: JPM kicks off earnings season

Vital Statistics:

	Last	Change
S&P Futures	2549.3	-3.8
Eurostoxx Index	389.9	-0.3
Oil (WTI)	50.6	-0.7
US dollar index	86.5	0.1
10 Year Govt Bond Yield	2.35%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.9

Stocks are lower as third quarter earnings season begins with results from the banks. Bonds and MBS are flat. 

JP Morgan reported better than expected earnings this morning, posting a 7% increase in net income. Higher lending revenues offset lower trading revenues. Mortgage origination was flat YOY, but revenue dropped 17%, which means margins are falling. The stock is flat pre-open.

Initial Jobless Claims came in at 243k last week, historically a very low number. For those wondering about places like Puerto Rico, their number is estimated. 

Wholesale inflation remains close to the Fed's target rate of 2%, according to the Producer Price Index. The PPI rose 0.4% MOM and 2.6% YOY, however if you strip out food, energy, and trade services, it rose 0.2% MOM and 2.1% YOY. 

The FOMC minutes really didn't provide much in the way of additional information. There was some discussion that low inflation might not just be a temporary phenomenon, which was interpreted as dovish by some observers. The 10 year didn't react to the minutes, but the dollar sold off a tad. The December Fed Funds futures decreased the implied probability of a rate hike by a couple points.

Kevin Warsh is now the favorite of economists to run the Fed after Janet Yellen's term. He is a Wall Street type who worked for Morgan Stanley during the crisis and has been critical of monetary policy since then. He is generally regarded as more hawkish than Yellen, and will definitely be less of a regulatory hawk than she is. Paul Krugman (Dr. Cowbell) threw a little shade Warsh's way.

Donald Trump is re-thinking the state and local tax deduction after it turns out that about 30% of people making between 50k and 150k a year could be hit with a tax increase under the new plan. The state and local tax deduction (along with the mortgage interest deduction) are two immensely popular deductions which have managed to survive numerous assaults over the years. House Republicans in blue states, like Peter King of NY, will not support tax reform if it means giving many of their constituents a tax hike. If the state and local tax deduction remains, something else has to give, which will probably mean the estate tax (something loathed by the right) remains. 

Congress is preparing legislation to subject the credit bureaus to Federal cybersecurity inspections, and to end the use of social security numbers in credit reporting by 2020. The bill will also require the credit agencies to provide free credit freezes. 

How tight is the housing market? So tight that people will put up with living in haunted houses. 

Morning Report: Non-QM AAA rated securitization coming..

Vital Statistics:

	Last	Change
S&P Futures	2238.5	2.0
Eurostoxx Index	351.0	3.0
Oil (WTI)	50.2	0.4
US dollar index	91.3	0.0
10 Year Govt Bond Yield	2.37%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.08

Stocks are up after the European Central Bank extended its quantitative easing plan. Bonds and MBS are down as the ECB lowered the monthly stimulus amount unexpectedly. 

Initial Jobless Claims ticked up to 258k last week. We are still bumping around 40 year lows on initial jobless claims..

Nomura lays out 10 "black swan" events that could roil markets in 2017. Black swan events are things that are highly improbable, but not impossible. While most of these are overseas events (China floating the yuan, etc) there are a couple for the US. First would be a jump in US productivity, which would be good news for the economy as a whole, and the second would be a fight between Trump and the Fed, which would be bearish. Trump has been a critic of the Fed's low interest rate policies in the past, however he is now a politician, and politicians love low interest rates. I wouldn't be surprised to see a more hawkish nominee for the Fed when Yellen's term is up, however. 

I would add one more: that Donald Trump begins to douse the animal spirits by naming and shaming companies which do things he doesn't like. Granted, politicians have always intervened in potential plant movings, etc, but they did it quietly behind the scenes, not via Twitter. This could become an issue going forward and would be bearish for the economy and the stock market. Good for bonds, however.  

JP Morgan is out with a call saying the Fed will only hike interest rates twice next year - at the June and December meetings. They also are forecasting 1.9% GDP growth for 2017, which is slightly lower than the Fed's forecast of 2%. They also warn of protectionism and a possible trade war if Trump follows through on renegotiating NAFTA and other treaties, which will be a drag on the economy. They also believe Congress will be willing to pass only a portion of the stimulus that Trump is looking for. 

Is the private label securitization market returning? We are starting to see some green shoots, as securitizations of non-QM paper by Caliber and Sterling will get AAA ratings. Over half the loans are in California and the average FICO is 712. The big question is how overcollateralized these bonds are. 

Morning Report: Bank earnings

Vital Statistics:

	Last	Change
S&P Futures	2137.5	11.0
Eurostoxx Index	340.8	5.0
Oil (WTI)	50.7	0.3
US dollar index	88.3	0.2
10 Year Govt Bond Yield	1.78%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.58

Stocks are higher this morning on good overseas economic data. Bonds and MBS are down.

Inflation at the producer level is picking up, according to the Producer Price Index, which rose 0.3%, higher than expected. The core index is up 1.5% YOY. Inflation remains under the Fed's target, but we are seeing it creep up towards their preferred 2% range.

Retail sales increased 0.6% last month, in line with expectations. Retail Sales ex autos and gasoline rose 0.3%. Housing-related sales did particularly well, with furniture up 1% and building materials up 1.4%. I wouldn't be surprised to see some strategists take up their Q3 GDP estimates on this number. 

Consumer sentiment unexpectedly fell in early October, according to Reuters and the University of Michigan. 

Business inventories rose 0.2%, a little higher than expected. This will have the effect of goosing Q3 GDP growth at the expense of Q4. 

Wells Fargo reported earnings this morning. Origination was up 11% QOQ to $70 billion. Purchase activity accounted for 58% of originations. The stock is unchanged in early trading. 

JP Morgan reported earnings this morning as well. Mortgage origination was up 8.4% QOQ to $27.1 billion. On an annualized basis, it is down 9.4%. 

The typical homeowner's perception of the value of their home is about 1.25% lower than where the appraised value has been coming in. Appraised values are up almost 8% YOY, which is a faster rate of appreciation than we have been seeing in the real estate indices like FHFA or Case-Shiller. 

Morning Report: Banks fail the living will test

Vital Statistics:

	Last	Change	Percent
S&P Futures	2064.8	9.1	0.44%
Eurostoxx Index	3018.3	76.2	2.59%
Oil (WTI)	41.6	-0.6	-1.35%
LIBOR	0.63	-0.001	-0.15%
US Dollar Index (DXY)	94.54	0.581	0.62%
10 Year Govt Bond Yield	1.78%	0.00%
Current Coupon Ginnie Mae TBA	105.7
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.6

Markets are higher this morning after equities rallied overnight. Bonds and MBS are down on the "risk-on" trade. 

Mortgage applications increased 10% last week as purchases rose 8.4% and refis rose 11.3%. The average 30 year fixed rate mortgage rate fell from 3.86% to 3.82%. Refis dipped to 54.9% of all loans. 

Retail Sales fell 0.3% in March which was lower than expected. The control group, which excludes autos, gas and building products rose 0.1%, which again was lower than expected. January and February were revised higher, however. 

Inflation remains muted at the wholesale level, with the Producer Price Index falling 0.1% in March, again below estimates. On a year over year basis, the core rate is up 0.9%, well below the Fed's inflation target of 2%. 

Business inventories fell 0.1% in February, in line with expectations. January was revised downward as well. 

JP Morgan reported better than expected earnings this morning. Mortgage Banking revenues increased 7.3% YOY, and charge-offs fell. It appears that units fell while average loan sizes increased. 

Regulators have rejected the living wills submitted by 5 of the largest banks, which could ultimately force them to raise more capital and could subject them to being broken up. In spite of all of these TBTF banks, we do have the least concentrated banking system in the world. Most countries are dominated by 3 or 4 massive banks. 

Confirming everyone's suspicions, the government knew that Fannie and Fred were about to become profitable when they changed the rules and began to take everything the GSEs made. The government's cover story was that the two GSEs were too weak and therefore all profits needed to be swept to protect taxpayers. Fannie stock rallied from 1.33 to 2.05 on the news. 

Morning Report: Housing starts fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	1844.8	-28.1	-1.50%
Eurostoxx Index	2902.8	-77.7	-2.61%
Oil (WTI)	27.77	-0.7	-2.42%
LIBOR	0.624	0.004	0.68%
US Dollar Index (DXY)	99.01	0.019	0.02%
10 Year Govt Bond Yield	1.99%	-0.06%
Current Coupon Ginnie Mae TBA	104.9
Current Coupon Fannie Mae TBA	104.2
BankRate 30 Year Fixed Rate Mortgage	3.74

Another down day in stocks as global indices hit bear market levels. Yes, Virginia that is a 1-handle on the 10 year...

Housing starts fell in December from 1.17 million to 1.15 million, missing the 1.2 million Street estimate. Building permits fell from 1.28 million to 1.23 million, topping the 1.2 million estimate. Single-fam permits hit the highest level in 8 years. I sound like a broken record, but the economy isn't going to hit the next level until housing construction returns to normalcy, about 1.5 million units per year. The plus side of this is that the housing deficit continues to grow, which means the rebound (when it happens) will be stronger and longer. Confidence and credit remain the issues at the moment.

Mortgage Applications rose 9% last week as refis rose 18.7% and purchases fell 1.6%. With the 10 year trading below 2% again, there should be refinance opportunities. With the 10 year yield falling and the Fed Fund rate increasing, the strategy to pitch is to swap out of an ARM (which is pegged to short term rates) and into a 30 year fixed. 

Inflation remains under control, as the consumer price index fell 0.1% in December. Ex-food and energy it increased 0.1%.  

The dramatic sell-off in the markets has taken down rate hike expectations out of the Fed. You can see this in the 2 year bond yield, which has fallen 25 basis points since late December. This forecast was borne out in the latest Bank of America survey on the economic outlook. A month ago, 40% of fund managers expected no more than 2 rate hikes in 2016. Now that number is closer to 50%. 

Earnings season is upon us, and the first companies to report are out of the banking sector. The main theme: a withdrawal from mortgage banking. The only big bank to report an increase in mortgage banking? Wells. Jamie Dimon said on JP Morgan's conference call that the banks remain under assault. And politicians in DC continue to scratch their heads and wonder why the economy remains tepid.  Refer to housing starts above. 

Morning Report: Mortgage banking earnings fall at JP Morgan

Vital Statistics:

	Last	Change	Percent
S&P Futures	1883	4.7	0.27%
Eurostoxx Index	3101.4	16.7	0.54%
Oil (WTI)	31.36	0.6	2.07%
LIBOR	0.62	0.003	0.49%
US Dollar Index (DXY)	98.93	0.709	0.72%
10 Year Govt Bond Yield	2.06%	-0.03%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.7
BankRate 30 Year Fixed Rate Mortgage	3.83

Markets are up this morning after yesterday's bloodbath. Bonds and MBS are up.

Initial Jobless Claims ticked up to 284k last week. Import prices fell 1.2% as the dollar rallied, and consumer comfort ticked up a tiny bit last week. 

JP Morgan reported good numbers this morning. Mortgage Banking net income fell 21% as revenues fell 10%. 

The bursting of the China bubble is going to dominate the markets for the foreseeable future. This will be an epic battle of Mr. Market versus Big Communist Government. With debt at 282% of GDP, China's economy is more fragile than it appears. This is another reason why long term interest rates are probably not headed much higher for the foreseeable future. 

Note that the Chinese stock market is dominated by retail investors, not institutions. This makes their market more volatile. They are pouring money into Chinese government debt (probably a good call), the dollar (another good call) and gold. 

Note that in the President's State of the Union address, housing was basically ignored. The country has an acute shortage of affordable housing, and housing starts are still mired well below historical averages. Getting housing back on track is the difference between 2% GDP and 3% GDP. Unfortunately, the only mention political candidates have regarding housing is that Wall Street is evil, the banks are too big, and there needs to be more government control. Which is most definitely not the way to increase credit or confidence.

Morning Report - A historical examination of the last 3 tightening cycles

Vital Statistics:

	Last	Change	Percent
S&P Futures	1992.4	-1.5	-0.08%
Eurostoxx Index	3206.2	-15.1	-0.47%
Oil (WTI)	46.29	-0.4	-0.79%
LIBOR	0.321	0.000	0.05%
US Dollar Index (DXY)	94.28	-0.481	-0.51%
10 Year Govt Bond Yield	2.01%	-0.04%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	104.4
BankRate 30 Year Fixed Rate Mortgage	3.88

Markets are flattish as earnings season begins in earnest. Bonds and MBS are up.

Last night JP Morgan reported weaker than expected earnings. Mortgage originations are up 41% year-over-year and up 2% on a quarter-on-quarter basis. Charge-offs fell dramaticallyl.

Bank of America reported better than expected earnings. Originations for them were up 17%. 

Mortgage Applications fell 27.6% last week as the "beat the TRID deadline" effect was unwound. Purchases were down 34% and refis were down 22.5%.

Retail Sales rose 0.1% in September, while the control group, which ignores gasoline, autos, and building supplies, fell 0.1%. Where are consumers spending their money? Cars, furniture, apparel, and entertainment. 

The Producer Price Index fell 0.5% in September as the strong dollar depressed commodity prices. Ex- food, energy and trade the index is up 0.5% year-over-year. We have yet to see any sort of meaningful inflation at the producer level. 

Business inventories were flat in August. Commodity prices could be playing a role in this number. 

We know the Fed is going to start hiking rates soon. But does that necessarily mean that mortgage rates are going up? If you look at the historical record, at least over the past 3 tightening cycles. the Fed Funds rate increased, but the long term rate moved up much less, or not at all. If you look at the spread between long term and short term rates, the yield curve flattened dramatically and ended up inverting. The vertical blue lines are the 1994, 1999, and 2004 tightening cycles. The red line is the yield on the 10 year, which will most approximate mortgage rates, while the blue line is the Fed Funds rate. The green line is the difference between the two. The lower the green line, the more flatter the yield curve. 

What are the takeaways from this? 1) Don't necessarily fear a tightening in December - it might not affect mortgage rates at all, and 2) When the Fed starts tightening, that is the time to get people out of ARMS and into a 30 year fixed rate mortgage. LIBOR will increase with the Fed funds rate, resetting ARM rates, but if the 30 year fixed doesn't move (or barely moves), then that switch is a great trade for the borrower. 

Morning Report - Bank earnings and Iran

Vital Statistics:

	Last	Change	Percent
S&P Futures	2091.8	-2.6	-0.12%
Eurostoxx Index	3577.9	-12.6	-0.35%
Oil (WTI)	52.15	-0.1	-0.10%
LIBOR	0.286	0.000	-0.07%
US Dollar Index (DXY)	96.33	-0.532	-0.55%
10 Year Govt Bond Yield	2.40%	-0.06%
Current Coupon Ginnie Mae TBA	103.3	-0.1
Current Coupon Fannie Mae TBA	102.3	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.22

Stocks are lower this morning after retail sales came in weaker than expected. Bonds and MBS are up. 

Looks like we have a deal with Iran. Sanctions are lifted, but snap back if Iran violates any of the terms of the agreement. The immediate effect will to bring another 3 MM barrels of oil per day onto the market. Congress will have a vote on the deal. 

Retail sales disappointed in June, with the headline number falling .3% versus expectations of a positive .3%. Ex autos and gas, they fell .2%, versus the .4% expectation. May strong numbers were revised down slightly. There appears to be some seasonal effects going on here (early Memorial Day "borrowed" sales from June) so don't read too much into this number. 

The NFIB Small Business Optimism Survey fell in June to 94.1 from 98.3. Weak sales and the political environment accounted for the decrease. Looks like hiring stopped in June. 

Import prices fell .1% in June and are down 10% on a year-over-year basis. 

Now that Tsipras has accepted the EU's terms, he has to sell the idea back at home. Not going to be an easy task, but it will probably pass. 

Hillary Clinton gave a speech yesterday on the economy, and it is more or less a grab-bag of assorted liberal ideas: increase the minimum wage, more aggressive enforcement of discrimination laws, paid family leave, free childcare, the usual.. She even went after Uber (who cheekily did a senior citizen promotion that day). It is clear she is feeling the #Bern and is worried about her left flank. 

JP Morgan reported this morning that mortgage banking net income fell 20% in the quarter. Not a lot of color on mortgage banking in particular, however they are paying close attention to China (I'll bet). The stock is up about 1 percent on the open. 

Wells also reported this morning. Mortgage banking revenues fell 1% in spite of the fact that originations rose to $62 billion from $47 billion. Well's market share fell to 13% from 28% three years ago. 

Morning Report - Bank earnings pile in

Vital Statistics:

	Last	Change	Percent
S&P Futures	2081.3	-5.2	-0.25%
Eurostoxx Index	3787.3	-41.4	-1.08%
Oil (WTI)	52.62	0.7	1.37%
LIBOR	0.277	0.001	0.40%
US Dollar Index (DXY)	98.75	-0.737	-0.74%
10 Year Govt Bond Yield	1.86%	-0.06%
Current Coupon Ginnie Mae TBA	103.4	0.0
Current Coupon Fannie Mae TBA	102.6	0.3
BankRate 30 Year Fixed Rate Mortgage	3.76

Markets are lower this morning as bank earnings pile in. Bonds and MBS are up on the back of a strong bond market rally in Europe.

Retail Sales came in weaker than expected, although some of that is due to falling commodity prices (especially gasoline). The headline number was +0.9% versus +1.1% expected. The control group, which strips out some of the more volatile components increased .3%.

Wells reported that originations increased to $49 billion in Q1 versus $44 billion in Q4. Margins expanded, with gain on sale margins increasing from 1.80% to 2.06%. Given that mortgage banking is so seasonal, it is surprising Wells reports quarter over quarter comparisons. J.P. Morgan reported first quarter originations were up 7% QOQ and up 45% YOY. MSR valuations got hit - their MSR book is valued at 2.53x versus 2.8x at the end of the year and 2.86x last year. 

Inflation remains muted at the wholesale level, with the Producer Price Index coming in at .2% month-over-month and falling 0.8% year over year. While the Fed prefers to look at Personal Consumption Expenditure Inflation instead of CPI / PPI, markets still pay attention. This is the other reason why bond yields are so much lower this morning.

Things are still somewhat "meh" for small business, according to the National Federation of Independent Business. The NFIB attributes some of the weakness to the weather. 

We haven't talked about European bond yields in a while, but they continue to fall, which is keeping a bid under Treasuries. The German Bund (their 10 year bond) yields 13.7 basis points. The Swiss 10 year yields negative 12.4 basis points. Yes, it will cost you money to lend to the Swiss government for 10 years. How about the PIIGS (remember them? Portugal, Ireland, Italy, Greece, and Spain) The Irish 10 year yields 68.3 basis points. The US 10 year yield is higher than all but one of the erstwhile PIIGS - Greece. 

Bubbles, bubbles everywhere, but especially in Asia. where the Chinese real estate bubble is beginning to deflate, and the Chinese economy begins to slow. Asian stocks are ignoring this however - the Nikkei 225 is up 43% over the past year, while the Hang Seng is up almost 11% in the first two weeks of April. While these markets are still well below their all-time highs, and no one is suggesting stock market bubbles, the Asian markets look frothy. China's real estate bubble is epic and as it bursts, China will export deflation around the world. Yet another reason for the Fed to sit on their hands. 

But we don't have any bubbles in the US, right? Well, according to Bill Ackman, we do. The student loan debt market is about $1.3 trillion all in, and about 9% is in default. As he points out, there is almost no way that gets repaid. He sees some administration doing a mass debt forgiveness. 

Morning Report - CT Hoarders Tax - Really?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1504.0	-9.3	-0.61%
Eurostoxx Index	2590.3	-43.3	-1.64%
Oil (WTI)	90.78	-1.3	-1.38%
LIBOR	0.284	-0.003	-1.04%
US Dollar Index (DXY)	82.3	0.349	0.43%
10 Year Govt Bond Yield	1.84%	-0.03%
RPX Composite Real Estate Index	194.7	0.5

Stock markets are weaker this morning after disappointing economic data out of Asia and Europe. Consumer spending grew .2% in January, the first post tax-hike reading on consumption. Bonds continue to rally, and MBS are flat.

Today is sequester day. For mortgage originators, that means cuts at HUD could affect you. FWIW, I met with several HUD people last week who told me that the sequester will not affect them at all.  They have increased their headcount by something like 30% over the past couple of years and are slotted to grow that number another 20%.  They aren't worried.

That said, Shaun Donovan is warning that the sequestration cuts could lower the availability of FHA loans. Given that the refi boom is probably over, FHA mortgages will probably drop anyway, which means that even if capacity drops a little, demand is probably going to drop more, which will offset the effects of the sequester.

It turns out that JP Morgan's announcement of 13000 layoffs in the mortgage division is not concentrated in origination, it is in workouts.  As the number of delinquencies decline, less resources are needed to handle mods and defaults.

Richard Cordray spoke to the Credit Union National Association regarding the Qualified Mortgage Rule and other issues. He urged lenders to extend more credit, saying that they are "leaving money on the table" by not lending to "low risk borrowers who want to refinance."  He also urged banks not to concentrate solely on lending to QM borrowers.  Of course QM doesn't really provide all that much protection, and the banks know that the CFPB is also working hard to elongate foreclosure timelines. Such is the cognitive dissonance of the CFPB - they want the banks to lend, while at the same time raising their costs if the loan goes bad.

One of FDR's worst ideas was the undistributed profits tax, which taxed retained earnings in an effort to get businesses to hire and pay dividends.  This was controversial even in FDRs administration and certainly played a big role in the 1937 "depression within a depression."  Well guess what, it is back, at least in the state of Connecticut, which is considering a bill (called a "hoarders tax") that would try and force CT-based corporations to use their retained earnings to hire people or pay a tax. Of course the details haven't been filled in and it is one of those bills that is meant to make a point, but still... If I am a new business considering where to locate, I would think hard about scratching CT off my list.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1319.6	-2.8	-0.21%
Eurostoxx Index	2140.4	-35.0	-1.61%
Oil (WTI)	93.04	0.2	0.25%
LIBOR	0.467	0.000	0.00%
US Dollar Index (DXY)	81.59	0.218	0.27%
10 Year Govt Bond Yield	1.76%	0.00%
RPX Composite Real Estate Index	175.6	0.1

Markets are lower this morning on a report in the Spanish press that Moody's will downgrade the Spanish banks today and the continuing stand-off between the ECB and the Greek banks. The Spanish IBEX stock exchange is down 24% for the year and is at 9 year lows. Despite the headlines, Euro sovereign yields are flat / lower.

Initial Jobless claims came it at 370k, in line with expectations and we have good earnings from Wal-Mart and Sears. Later today, we will get Philly Fed. Bonds and MBS are up slightly.

Facebook prices tonight and should start trading tomorrow. Barry Ritholtz weighs in. David Einhorn took aim at AMZN at the Ira Sohn conference. His comments could have come from a Alan Abelson column in 1999. I expect to hear a lot of the same "you don't get it" arguments on FB that we heard on AMZN back then.

The minutes of the April FOMC meeting were released yesterday afternoon. They note the possibility of "taxmageddon" - the expiration of the Bush tax cuts - as a sizeable risk to the economy. While they note the size of the shadow inventory and tight lending standards, they believe real estate prices have stabilized. Overall, there seem to be no major changes in this statement - the Fed remains open to QEIII should economic conditions warrant.

Ellie Mae released their latest Origination Insight Report. Ellie Mae provides loan processing software and handles about 20% of US mortgage loan origination. Typical profile of a denied loan?  702 FICO / 87 LTV / DTI 28/43.  Talk about a tight mortgage market.

The problem with having a London Whale is that you have thousands of Ahabs shooting harpoons at you once you disclose you are in trouble with an oversized position. Dealbook is estimating that JP Morgan's trading losses have increased from $2 billion to $3 billion in the last 4 days as every wise-guy hedge fund manager that missed the initial trade puts it on.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1340.2	-9.8	-0.73%
Eurostoxx Index	2199.2	-55.4	-2.46%
Oil (WTI)	94.47	-1.7	-1.73%
LIBOR	0.466	-0.001	-0.21%
US Dollar Index (DXY)	80.51	0.248	0.31%
10 Year Govt Bond Yield	1.78%	-0.05%
RPX Composite Real Estate Index	175.3	0.0

A sloppy start to the week as sovereign spreads widen in Europe. Greek sovereign debt is now trading at a 27.4% yield, which is the same level as last Nov. Don't forget, this is the post-reorg debt - for those keeping score at home, Greek sovereigns were at 15% last year at this time, rose to over 40%, did a restructuring two months ago which pushed yields down to 17%, and now they are 27%. Spanish yields are rising, and it is time to start paying attention to the credit default swaps on the big European banks - Dexia is considered one of the worst cases, and is trading at the 17.75% level.

All of the stress in Europe is pushing down Treasury yields which sit about 10 basis points above September's lows. MBS are higher as well, with the Fannie and Ginnie 3.5s up 6 ticks. This is putting pressure on oil and the Euro. The S&P futures are suggesting that the 200 day moving average is going to get broken on the open.

It is official - Ally's Residential Capital has filed for bankruptcy protection. This move separates the auto loan and banking business, and should pave the way for the government to divest its 74% stake. Ally is providing the $150MM DIP and is kicking in $750MM.

It looks like 3 executives from JP Morgan will walk the plank over the $2 billion "hedging" loss in their Chief Investment Office unit. Jamie Dimon is not resigning, at least not yet. It is surprising that JP Morgan disclosed the loss before it fully exited the position - if disclosure rules forced his hand, that is a big unintended consequence. This episode will undoubtedly elicit calls for more regulation, and strengthens the view in Washington that there is no alpha in banking, just beta.

Chart: Greek 10 year bond yield: