Morning Report: Janet Yellen speaks at 10:00 am

Vital Statistics:

	Last	Change
S&P Futures	2173.0	0.0
Eurostoxx Index	342.0	0.0
Oil (WTI)	47.4	0.1
US dollar index	85.6	0.1
10 Year Govt Bond Yield	1.56%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

Markets are in a holding pattern ahead of Janet Yellen's speech in Jackson Hole today. Bonds and MBS are flat

Janet Yellen will give a speech today at 10:00 am, discussing the tools in the Fed's monetary policy toolkit. Speeches at Jackson Hole are generally not market-moving, however the markets have been adjusting ahead of this one. Expect to hear Yellen push for fiscal policy to improve the economy. 

The markets are now assigning a 33% chance of a rate hike in September. Somewhat hawkish Fed-speak out of different Fed heads largely accounts for the increase. The Fed Funds futures markets are also assigning a 58% chance of a hike through December.

GDP came in at 1.1% in the second quarter, which was a downward revision from the first estimate of 1.2%. The price index was up 2.3% on a year-over-year basis, which was a little hotter than expected. 

Corporate profits fell 2.2% in the second quarter. Tough to reconcile a near-record stock market with falling profits. Something has to give. 

For all the talk in Washington about the need for more infrastructure spending, states are beginning to take advantage of low interest rates to issue bonds to raise money for infrastructure spending. When municipalities can borrow money for 30 years at 2.23%, it is kind of a no-brainer. Both Donald Trump and Hillary Clinton are talking about increasing infrastructure spending, so it looks like we will probably have something out of DC next year as well. 

Morning Report: New Home sales rise, existing home sales fall

Vital Statistics:

	Last	Change
S&P Futures	2186.0	1.0
Eurostoxx Index	345.6	2.0
Oil (WTI)	46.8	-1.7
US dollar index	85.8	0.1
10 Year Govt Bond Yield	1.55%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

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

Bonds have been in a tight trading range over the past couple of weeks. On Friday, Janet Yellen will speak in Jackson Hole.

Existing home sales dropped 3% YOY in July as tight inventory remains an issue. The median home price increased 5.3% YOY to 244k. Unsold inventory is at 4.7 months, an uptick from June. The first time homebuyer accounted for 32% of sales compared to 28% last year. Appraisal-related issues are increasing as demand is overwhelming the already reduced supply of appraisers. 

New home sales increased over 12% in July to a 654,000 annual rate. The median home price fell 5.1% month-over-month to $294,600. The median home price is down about half a percent YOY. Softness in the luxury space might be driving this as well as a move to focus more on starter homes. Supply is still tight at about 4.3 month's worth so you can't say it is a glut. Regardless of what is going on in pricing, the number is an encouraging sign for the economy. 

You aren't seeing softness in pricing at Toll Brothers. Their ASPs rose 16% in the third quarter YOY. Toll has been emphasizing luxury urban condo construction, which may explain part of the huge increase. Revenues increased 24% and net income rose 54%. Yet what are they doing with their capital? Buying back stock, to the tune of $97 million worth in the third quarter. If business is that good, why?

Mortgage Applications fell 2.1% last week as purchases fell .3% and refis fell 3%. 

The FHFA House Price Index rose 0.2% MOM and is up 5.6% YOY. Home prices rose in every state except for Vermont. The Pacific Northwest and mountain states had the highest price appreciation, while the Northeast and Mid Atlantic continue to bring up the rear. In fact, the worst MSA was the Stamford-Bridgeport MSA which saw prices decline 3%. The FHFA index only looks at houses with a conforming mortgage, so it excludes jumbos and cash sales. 

McMansions are not holding their resale value the way they used to. This may help explain the drop in the median sales price for new homes. The premiums are lower for new houses.

There is an old saying that if you spend some time on a website and can't figure out what the product is, you are the product. This is especially true with Facebook. Ever wonder how facebook classifies you politically? You can find out here. This determines the political ads you see. 

Morning Report: Fannie says no hikes this year

Vital Statistics:

	Last	Change
S&P Futures	2179.0	-3.0
Eurostoxx Index	340.7	-0.1
Oil (WTI)	47.8	-1.0
US dollar index	85.7	0.2
10 Year Govt Bond Yield	1.56%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

Stocks are slightly lower this morning after Stanley Fischer said the US economy was close to hitting all of the Fed's targets. Bonds and MBS are down small.

Not a lot of market-moving data this week, aside form the second revision to GDP on Friday. Note central bankers will be out in Jackson Hole this week, so there is the possibility of comments moving the markets. Otherwise, it looks to be a dull week in late August. 

The Chicago Fed National Activity Index came in better than expected at .27, but the 3 month moving average is negative, indicating the economy is growing slightly below trend. 

Fannie Mae is forecasting the Fed will maintain rates throughout 2016, and they believe the economy will strengthen. “Second quarter growth was a disappointment, but consumer spending appears solid heading into Q3, and we expect inventory investment to balance out after a surprising drawdown in Q2,” said Fannie Mae Chief Economist Doug Duncan. “Credit expansion, combined with improving labor market conditions and strengthening household balance sheets, should continue to support consumers, who will likely be the primary driver of growth again in the second half of the year. The positive July jobs report may encourage some Federal Open Market Committee members to argue for a Fed rate hike at the September meeting. However, we remain convinced that the Fed will hold the target rate steady this year given global uncertainties and anemic output growth. Although much of the financial volatility from Brexit has subsided, long-term Treasury yields continue to face downward pressure and we expect them to remain low for some time.”

More from Fannie on the housing market: “Housing market fundamentals remain a mixed bag. During the second quarter of 2016, both new and existing home sales rose to expansion highs, while single-family starts pulled back, remaining historically low for an expansion,” said Duncan. “Tight housing inventory from a lack of new construction continues to create affordability challenges, particularly at the lower end of the market. Robust rental demand during the second quarter of the year has created the lowest rental vacancy rate in decades. In addition, the homeownership rate dropped to below 63 percent in the second quarter, but we are seeing some tentative signs of older Millennials moving toward homeownership. We expect homebuyers will benefit from improving job and wage growth, more favorable lending standards, and continued low mortgage rates through the rest of the year, with the 30-year fixed-rate mortgage rate projected to average 3.4 percent during the fourth quarter.”

Talk about bad timing: Donald Trump got into the mortgage business in 2006. He did make an interesting point about bubbles and the madness of crowds. “Are you the type of person who takes advantage of positive situations when they present themselves, riding them out as long as they last? Or do you heed every message of doom and gloom, avoiding risks that could be some remarkable opportunities?” If you sold stocks in 1996 when Alan Greenspan discussed "irrational exuberance" in the stock market, you missed out on the lion's share of the growth. Also, the most money is made right at the end of the move when it goes parabolic. 

Following on Donald Trump, many recognize we have a bubble in sovereign debt. Black Rock believes that supply-demand imbalances will keep the bubble inflated for the near term. Meanwhile, Paul Singer suggests that bonds come with a warning label: "Hold such instruments at your own risk; danger of serious injury or death to your capital!"

Note that the European Central Bank and the Bank of Japan are now buying private placements from corporate issuers.  I guess the big question is "what happens when these bond issues go bad?" The European Central Bank is supporting 3.3 trillion euros of assets on 100 billion euros of capital, or about a 32:1 leverage ratio. The Fed is even worse, supporting $4.5 trillion in assets on just $40 billion worth of capital for a 112:1 leverage ratio. It won't take much of a move in asset prices to wipe out the equity of either entity. 

Morning Report: FOMC minutes not as hawkish as feared

Vital Statistics:

	Last	Change
S&P Futures	2177.5	-2.0
Eurostoxx Index	342.0	1.5
Oil (WTI)	47.0	0.2
US dollar index	85.5	-0.1
10 Year Govt Bond Yield	1.55%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

Stocks are flattish after the FOMC minutes came in less hawkish than feared. Bonds and MBS are up.

Initial Jobless Claims came in at 262k last week. 

The Philly Fed Business Outlook Survey came in slightly positive, about in line with expectations. 

The FOMC minutes were not quite as hawkish as markets feared. The Fed noted that the two biggest fears at the June meeting (Brexit, which had just happened, and the terrible May jobs report) turned out to be non-events. That said, there is still some debate at the Fed over how much more work they have to do on the employment side of their dual mandate. Some at the Fed point to the unemployment rate and infer their job is largely done, while others point to the low labor force participation rate and say they have more work to do. The lack of language about the risks of the economy being more tilted toward the upside than the downside has been taken as a signal that the Fed isn't planning to move in September. Bonds rallied somewhat on the minutes, with the 10 year falling to 1.54% and the Fed Funds futures reducing the implied probability of a 2016 hike to a coin toss. 

The minutes did discuss housing a bit as well. In terms of housing construction, they noted that housing activity growth had slowed in recent months, which is a fair observation however housing starts have been in a 1.1 million to 1.2 million range for about a year. Not much improvement going on there at all, just steady state. Much of the growth is going to multi-fam construction, not single, however. 

In terms of credit, the Fed noted that mortgage credit became somewhat more easy between the June and July meetings. Apparently, a number of large banks said they had eased standards somewhat for GSE loans. Purchase and refi activity picked up as well. 

Speaking of GSE loans, everyone in DC realizes that the current state of affairs (with the GSEs as wards of the state) is unsustainable, however no one really knows what to do with them. The US taxpayer bears the credit risk of 90% of all new origination. Republicans would like the government less involved with the mortgage market, while Democrats would like to see them officially nationalized and made a government owned corporation. The point is moot, however in that there is nothing in the private sector capable of replacing them. 

Note that Fan and Fred used to be 100% owned by the government (Fannie Mae was a New Deal phenomenon), and LBJ made them a nominally private institution. The reason? Fannie Mae's debt was becoming a problem for the national balance sheet and was making it difficult to finance the Vietnam war. LBJ wanted Fannie Mae's debt off the official books of the US Government, so he spun off a piece to private investor. So, yes Virginia, the first user of off-balance sheet financing was Uncle Sam. 

Former Minneapolis Fed Head Narayana Kochlerakota compares the US recovery to that of Europe and Japan. People trumpeting the great performance of the US versus their peers (largely a partisan affair) are ignoring the fact that the US population has been increasing much faster than Europe, so comparing simple GDP growth isn't really all that meaningful. If you look at employment, the US looks worse. This has big implications for monetary policy. Perhaps QE hasn't been quite the elixir it has been held up to be. In Japan, banks are running out of JGBs to sell the Central Bank. To me, the glaring observation is that the 10 year bond yield where it was pre taper tantrum (Spring of 2013). It implies they could have achieved the same result doing nothing! As Art Cashin said, the Fed is beginning to resemble Casey Stengal's 1962 Mets. 

That said, it looks like fiscal policy might be ready to run with the ball. Hillary Clinton and Donald Trump both want to spend more money. Assuming Hillary wins and the GOP keeps the House, we will have to see if she can cut a deal with Republicans to allow for more spending. 

Morning Report: Probability of a 2016 rate hike back to pre-Brexit levels

Vital Statistics:

	Last	Change
S&P Futures	2176.0	0.0
Eurostoxx Index	341.5	-1.9
Oil (WTI)	46.4	-0.2
US dollar index	85.8	0.2
10 Year Govt Bond Yield	1.58%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

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

The FOMC minutes come out today at 2:00 pm EST. Be careful locking loans around then since we could see some volatility. 

Mortgage Applications fell 4% last week as both purchases and refis fell by 4%. 

Mohammed El Arian has a good piece on what to look for in the minutes. The main things to look for: labor (and what the Fed considers "full employment), productivity (and why we aren't seeing it), inflation (and why we don't see it), external threats (China slowdown, Brexit), and finally why ultra-low interest rates and QE aren't achieving the desired result (the elephant in the room). Expect the Fed to prod the government to use fiscal policy to help stimulate the economy. 

For those complaining that US fiscal policy has been in austerity mode, I would remind them that the biggest post WWII deficits as a percentage of GDP are (in order) 2009, 2010, 2011, 1983, 2012, 1946, 2013. 

Yesterday, William Dudley suggested that a September rate hike is still on the table and the markets may be underestimating the chance of one. The Fed Funds futures market have now back to pre-Brexit levels in terms of predicting the probability of a rate hike this year. 

The lack of inventory is going to get worse, as we aren't building enough homes to keep up with population growth, let alone obsolescence. I keep saying this, but we should be hitting 2 million starts a year given the shortage and the need to house Millennials. This is the difference between 2% GDP and 3% GDP. Unfortunately, Washington seems to think the biggest problem is that we aren't slugging the banks hard enough. 

Morning Report: Freddie thinks 2016 could see $2 trillion in origination

Vital Statistics:

	Last	Change
S&P Futures	2182.0	-4.0
Eurostoxx Index	343.7	-2.0
Oil (WTI)	45.9	0.2
US dollar index	85.6	-0.6
10 Year Govt Bond Yield	1.54%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.45

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

Inflation at the consumer level continues to be well-contained. The consumer price index was flat month-over-month and is up 0.8% year-over year. Ex-food and energy it was up 0.1% MOM and 2.2% YOY. The biggest contributors to inflation were health care costs (up 4% YOY) and housing (up 2.4% YOY).

Housing starts were 1.211 million annualized in July, coming in higher than expected. The driver was multi-fam, which can be extremely volatile. Single fam continues to plug along. Building permits were more subdued, coming in at 1.15 million. Same situation in permits: multi-fam permits rose while single fam declined. 

Industrial production increased 0.7% in July versus expectations of a 0.3% increase. Manufacturing production increased 0.5%. Capacity utilization increased to 75.9%. So some signs of life in the manufacturing sector after a dismal Spring and early summer.

An idea that is percolating at the Federal Reserve is the idea that this low productivity / low growth economy is a new normal, which implies a lower neutral interest rate. This in part explains why the Fed has been so reluctant to raise rates despite unemployment being at levels historically associated with full employment. One idea is that the Fed should either raise its inflation target or begin targeting nominal GDP. The big question is whether the PhD standard, which has pushed interest rates to the floor, is part of the reason why productivity and growth are so low. By creating a bubble in sovereign debt, you have a misallocation of resources (by definition - that is what bubbles are) and that could account for our disappointing growth and productivity. Certainly business capital expenditures remain low and focused on saving labor costs. 

Meanwhile, William Dudley thinks the market may be too complacent about a September rate hike. The market has been calling the Fed's bluff for over a year now.

Freddie Mac thinks 2016 could be the best year for mortgage origination since 2012, with total origination topping $2 trillion. The unexpected gift of lower rates is the reason why. For 2017, they are forecasting a drop back to $1.7 trillion as home price appreciation falters and interest rates rise, although rising rates shouldn't be too bad given they are forecasting 2017 GDP growth to be below 2%. They anticipate the mortgage rate to increase 10 basis points to 3.7%. 

Morning Report: foreigners are investing in MBS again

Vital Statistics:

	Last	Change
S&P Futures	2185.0	5.0
Eurostoxx Index	346.5	0.4
Oil (WTI)	44.8	0.3
US dollar index	86.3	-0.2
10 Year Govt Bond Yield	1.54%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

Markets are higher this morning as emerging markets rally. Bonds and MBS are down

We will get a lot of data this week with housing starts and the FOMC minutes on Wednesday. The minutes are probably the most likely event to affect bonds. Earnings season is largely over except for the retailers.

The Empire State Manufacturing Survey fell in August, according to the NY Fed. New orders were flat. Employment contracted.The 6 month outlook dimmed as well. 

Foreign investors are beginning to wade into TBAs again as sovereign debt yields continue to offer nothing. Ginnie Mae TBAs stand to benefit the most, which means FHA and VA pricing should improve relative to Fannie Mae pricing. The next event to watch from the Fed will be their own TBA purchasing. The Fed is still re-investing maturing proceeds of their MBS portfolio back into the market. Part of policy normalization will involve ending this practice. 

Friday's weak retail sales data caused some strategists to take down their Q3 GDP numbers from the mid 2% to the low 2% range. 

Homebuilder sentiment improved in August to 60 from 58. We are entering the seasonal slowdown for the builders, which coincides with football season. 

Morning Report: Delinquencies are at a 10 year low

Vital Statistics:

	Last	Change
S&P Futures	2180.0	10.0
Eurostoxx Index	346.0	-1.2
Oil (WTI)	43.7	0.1
US dollar index	86.1	-0.2
10 Year Govt Bond Yield	1.49%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

Stocks are higher this morning on strong economic news out of Europe. Bonds and MBS are up.

Retail Sales were flat in July. Ex-autos and gas they were down. Basically autos and ecommerce did okay, and everything else was lousy. Speaking of lousy, we are getting retailer earnings and for the most part they are disappointing. 

Inflation at the wholesale level is nowhere to be found, with the producer price index falling .4% in July versus expectations of a .1% increase. The core PPI was up .8% YOY. 

Business inventories barely moved in July, increasing by 0.2%.

Consumer sentiment came in lower than expected as well. 

The National Association of Federal Credit Unions blames high prices and tight regulation for the lack of housing that people in the middle class can afford. 

Delinquency rates hit a 10 year low in the second quarter according to the MBA. The number of homes in foreclosure hit 1.64%, down 10 basis points from the first quarter and 40 basis points from a year ago. VA loans are performing the best, while FHA are performing the worst.

Partisan conflict is the highest since 1984, according to the Philly Fed. This conflict supposedly suppresses economic growth. 

Morning Report: Bond trading is now like trading commodities

Vital Statistics:

	Last	Change
S&P Futures	2177.0	58.0
Eurostoxx Index	345.0	4.0
Oil (WTI)	41.6	-0.2
US dollar index	86.0	-0.2
10 Year Govt Bond Yield	1.51%
Current Coupon Fannie Mae TBA	103.8
Current Coupon Ginnie Mae TBA	105.2
30 Year Fixed Rate Mortgage	3.52

Markets are flattish this morning on no real news. Bonds and MBS are flat as well.

Slow news day (again)

Initial Jobless claims dipped ever so slightly to 266k last week. 

Import prices rose 0.1% month-over-month, but are down 3.7% on an annual basis. Inflation remains in a deep freeze. 

Housing has historically been the vehicle people use to build wealth. For most people, it is their biggest assets. Home prices have been rising since bottoming in 2012, but aspiring homeowners have been shut out as the homeownership rate hits levels not seen since the 1970s. For young Millennials with student loan debt and difficult job prospects, home price increases have made the dream of homeownership further out of reach. Meanwhile, rental inflation (driven by the same scarcity issues that are driving home price appreciation) mean that rent accounts for a bigger and bigger percentage of disposable income. 

The homeownership rate fell to 62.9% in the second quarter, which is a 51 year low. You can see the big jump in homeownership that started in the mid 90s has been reversed. That jump in homeownership was a function of Bill Clinton's social engineering via the housing market and the development of a securitization market. Tight credit post-financial crisis remains an issue as well, as the US taxpayer bears the credit risk for 90% of all origination. If a loan doesn't fit into the government / conforming box, it likely isn't getting done. 

That said, this does represent pent-up demand that will be unleashed at some point, and with housing starts still well below historical averages, could provide a massive boost to the economy once it turns around. Don't forget the Millennial generation is bigger than the baby boomers. Amidst the gloom however, is evidence that the Millennials are finally buying. 

Interesting observation, and spot-on: Negative interest rates have made bond investing similar to commodity investing. As Warren Buffett would say that with commodities you are simply betting on what someone else might pay for them at some future moment. Commodities cost money to hold (because storage isn't free) and now bonds with negative yields exhibit the same characteristics. The only way to make money in bonds has been to find a greater fool to sell to. If this causes volatility to spike (which in theory it should), then that will have major effects on mortgage rates and pipeline hedging.

Morning Report: Job openings flat

Vital Statistics:

	Last	Change
S&P Futures	2180.0	3.0
Eurostoxx Index	344.3	4.0
Oil (WTI)	42.6	-0.2
US dollar index	86.0	-0.2
10 Year Govt Bond Yield	1.51%
Current Coupon Fannie Mae TBA	103.8
Current Coupon Ginnie Mae TBA	105.2
30 Year Fixed Rate Mortgage	3.52

Markets are up this morning on no real news. Bonds and MBS are rallying

Bond markets worldwide are rallying after the Bank of England tried to buy Gilts as part of its QE program and had a tough time finding sellers. 

Mortgage applications rose 7% last week as purchases rose 3% and refis rose 10%. 

Job openings were unchanged in June, at 5.6 million. The quits rate at 2% was more or less unchanged. This number is the tell for a strengthening labor market. 

The bond market has given back the losses from the strong payrolls report last Friday. The Fed Funds futures markets are pricing in a 45% chance of another rate hike this year. Meanwhile, global bond yields continue to fall, with the German Bund at -9 basis points. 

Affordable starter homes are becoming scarce in many parts of the country. We are seeing bidding wars in the hotter markets. Low housing starts are playing a factor here, and government regulation is a big driver of that. Mandates that increase the cost of construction make starter homes too expensive for an entry-level income. 

Technology is helping drive down realtor commissions, according to Redfin. Of course Redfin is talking its own book, however many sellers are foregoing the use of an agent, especially at the higher price points, which makes sense. 

Morning Report: Productivity drops again

Vital Statistics:

	Last	Change
S&P Futures	2177.0	1.0
Eurostoxx Index	342.8	1.0
Oil (WTI)	42.9	-0.2
US dollar index	86.9	-0.2
10 Year Govt Bond Yield	1.58%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

Markets are flattish this morning on no real news. Bonds and MBS are flat

Small Business Optimism ticked up last month according to the NFIB. Sentiment remains well below its historical average. The interesting thing is that the inability to find quality workers rose to the #3 problem facing small business after taxes and government regulation. While small business is interested in hiring, they still have very little appetite for capital expenditures. Inflation at the small business level remains nowhere to be found, as small business cut prices on average last month. 

The lack of capital investment ties into another economic number this morning: productivity (or lack thereof). Nonfarm productivity fell .5% in the second quarter, making it the third negative quarter in a row. The Street was looking for a positive .5% reading so the number was a big miss. Productivity is also negative on a year-over-year basis.

Unit Labor costs rose 2% which was a little higher than expected. Comp costs were up 1.5% and productivity losses added another 50 bps. 

Productivity growth is what increases standards of living, which is why a lack of it makes people feel like the recovery is so weak. Part of the explanation is found in the NFIB report - no capital expenditures. Productivity is tough to measure these days, with so much free technology. You know GoToMeeting increases productivity, yet it won't show up in the output numbers because no one pays for it. Same thing with Skype, LinkedIn, etc. While academia suspects there is a problem with the way we measure productivity, no one has found a good way to correct for it.

Completed foreclosures came in at 38,000 in June, a 4% increase from May and a 5% drop year over year. The national foreclosures inventory stands at 375k homes, which is down 26% from a year ago. The number of mortgages seriously delinquent fell 21% YOY to 2.8%, or about 1.1 million homes. The big judicial states like New York and New Jersey lead the pack in foreclosure inventory. 

FHFA says that Fannie Mae and Freddie Mac could require as much as $126 billion in the next housing crisis. Separately, Fannie's home purchase sentiment index hit a new high, albeit it is a relatively new index. 

Wells is saying that the expiration of HARP at the end of the year. Does this mean a dramatic drop in prepay speeds? Not necessarily, in that HARP will probably be replaced with a high LTV refi program. 

Morning Report: US Treasuries negative for foreign investors

Vital Statistics:

	Last	Change
S&P Futures	2179.0	3.0
Eurostoxx Index	351.5	0.5
Oil (WTI)	42.6	0.8
US dollar index	87.0	-0.2
10 Year Govt Bond Yield	1.60%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

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

There isn't much in the way of economic data this week - the week after the jobs report is invariably data-light. There will be no Fed-speak either.

TIAA agreed to buy EverBank Financial for about $2.5 billion. 

3 month LIBOR hit 81 basis points this morning, which is the highest since May 2009. This will affect ARM pricing. 

While US Treasuries have some of the highest yields in the world, foreign investors who want to hedge their currency risk are buying them for a negative yield. New money market rules will go into effect this fall, which will change the landscape for banks. Expect tightened credit conditions. 

Donald Trump will lay out his vision for financial regulation today with a speech in Detroit. He proposes a moratorium on new financial regulations, a repeal of Dodd-Frank, eliminating the estate tax, dropping the corporate income tax to 15%, creating 3 tax brackets for individuals, and making bureaucrats in DC more focused on creating jobs. 

The CFPB updated their mortgage servicing regulations. 

The July Fed Labor Market Conditions index rose by a point in July.

Morning Report: Strong jobs report

Vital Statistics:

	Last	Change
S&P Futures	2179.0	14.0
Eurostoxx Index	341.0	3.0
Oil (WTI)	41.3	-0.6
US dollar index	87.0	-0.2
10 Year Govt Bond Yield	1.56%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

Markets are higher after a stronger than expected jobs report. Bonds and MBS are down.

Jobs report data dump:

• Nonfarm payrolls +255,000
• Unemployment rate 4.9%
• Labor Force Participation rate 62.8%
• Average hourly earnings +0.3% (2.6% YOY)

Overall, a good report. Not sure it moves the needle with the Fed in September, but it looks like May's super-weak report was an aberration. The underemployment rate increased however, which suggests that the long-term unemployed may be coming back to the market, but they have to settle for part time jobs.

Bonds sold off on the report, with the 10 year yield up about 4 basis points, and the 2 year up 6.

Morning Report: The Bank of England cuts rates, pushing Treasuries higher

Vital Statistics:

	Last	Change
S&P Futures	2160.0	3.0
Eurostoxx Index	336.9	1.0
Oil (WTI)	40.8	0.0
US dollar index	86.5	-0.5
10 Year Govt Bond Yield	1.51%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

Stocks are higher this morning after the Bank of England cut rates and instituted QE. Bonds and MBS are up. 

In response to Brexit, the Bank of England cut rates and introduced a bond-buying program for corporate and sovereign debt. This is causing global sovereigns to rally, and the German Bund is now trading at -7 basis points again. The US 10-year seems to correlate the most with the German Bund lately, so if it continues to rally, look for lower rates in the US. 

Job cuts increased in July to 45,346, which is up 19% from last month, but is down 57% from a year ago. Military discharges and continued cuts in the energy sector drove the increase. Texas and California bore the brunt of the job cuts. 

Initial Jobless Claims ticked up to 269k last week, however we have been below 300k for months, which is a very low level. 

The Bloomberg Consumer Comfort index ticked up slightly last week to 43 from 42.9. 

Factory Orders fell 1.5% from a downward-revised -1.2% in May. The manufacturing sector continues to exhibit a slowdown. 

The ISM Services Index ticked down to 55.5 from 56.5 last month. The ISM Services index has been much stronger than the manufacturing index. 

Nationstar reported better than expected earnings in the second quarter, although they took a big hit on their servicing portfolio. That said, while others are running from the servicing business, Nationstar is doubling down, and looks to build their business, with the addition of Seneca and USAA as clients. USAA had used Dovenmuhle in the past. Originations were up 24% QOQ and consumer direct accounted for 60% of the volume. Nationstar was up 12% for the day and is the highest in 9 months. 

Mortgage REIT Annaly Capital reported a drop in book value per share as volatility hurt results. Given the widening of MBS spreads at the end of the second quarter, this is to be expected, although peer American Capital Agency did report a small increase. Annaly just completed its acquisition of Hatteras. Aside from the Fed, mortgage REITs are some of the biggest purchasers of mortgage backed securities, and can move around TBAs which influences mortgage rates, so it pays to keep tabs on how they are doing. 

Separately, Fannie Mae reported a drop in net income. 

Morning Report: Buy real estate, sell stocks and bonds

Vital Statistics:

	Last	Change
S&P Futures	2149.0	-4.0
Eurostoxx Index	334.7	-1.0
Oil (WTI)	39.9	0.4
US dollar index	86.3	-0.5
10 Year Govt Bond Yield	1.54%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.51

Stocks are lower this morning as oil and emerging markets move lower. Bonds and MBS are down.

Mortgage Applications fell 3.5% last week as purchases fell 2% and refis fell 4%. Rates fell a lot last week, but the biggest move was on Friday, so perhaps we'll catch up this week. 

The ADP payrolls report shows 179k jobs were created in July. Friday's jobs report is looking for an increase of 185k. The number to watch on Friday isn't so much payrolls, it is the increase in average hourly earnings. 

Shades of the bubble years: Over 50% of all listings in San Francisco and Seattle end up selling for over the listing price. In Washington state, there is 2 month's worth of inventory for sale and in California it is 2.5 months. A balanced market is 6.5 months. 

Once bitten, twice shy. 2010 marks the peak of the foreclosures from the bubble years, and next year, the foreclosure black mark drops off their credit reports. So far, we are only seeing a gradual return to the real estate market.   Many borrowers are unaware that FHA is more forgiving than other programs - you can apply for a loan after 3.5 years with only 3.5% down and a 580 FICO.

Bill Gross is on the "buy real assets" versus financial assets bandwagon. He dislikes stocks and bonds here, and prefers real estate and gold. With sovereign debt, you are making the bet that inflation is never, ever coming back. Governments seem to be coming to a consensus that more fiscal stimulus is needed, and that should be bond bearish. Theoretically, companies should be investing in property, plant and equipment instead of buying back their own stock. This isn't good for stock prices short term (and will drive the activists batty), but it is good long-term, provided these investments cover their cost of capital and aren't just empire-building exercises. You want stock prices supported by a future earnings stream, not artificially low interest rates. Problem is, capacity utilization is already pretty low, so there isn’t much need for additional PP&E, at least at the moment.

While the chart below is complicated, it does suggest that real assets will outperform financial assets going forward. For most people, the biggest "real asset" is their home. With rental inflation still high, having your mortgage payment set for 30 years isn't a bad deal at all. 

Note both Donald Trump and Hillary Clinton are advocating fiscal stimulus packages. Post-Brexit UK is looking at taking that route as well. FWIW, the bond market is betting nothing comes of it. 

Morning Report: The refinanceable population grows

Vital Statistics:

	Last	Change
S&P Futures	2160.8	-4.0
Eurostoxx Index	337.1	-3.0
Oil (WTI)	40.5	0.5
US dollar index	86.3	-0.5
10 Year Govt Bond Yield	1.56%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.51

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

Construction spending fell 0.6% last month as both private and public spending fell. Homebuilding was down 0.1% MOM and is up 2.4% YOY. The prior 3 months were revised downward as well. This at least partially explains why the Q2 GDP print was so low. 

Personal Incomes rose 0.2% in June while personal spending rose 0.4%. Just more evidence that the consumer is holding this economy together. The core PCE rate (the inflation measure preferred by the Fed) rose 1.6% YOY. 

The Fed Funds futures have been slowly taking down the probability of a September rate hike - it is now below 20%. Between the weak GDP numbers, the weakness in manufacturing, etc it is hard to make a case that the Fed needs to move in September. 

Governments worldwide are looking at policies intended to inflict capital punishment on investor portfolios. Whether the result is protectionism, Keynsian spending, or expropriation, look to own real assets (like real estate) versus financial assets. In terms of relative value, real assets are at their lowest ever. The world's central banks are on a mission to create inflation, and eventually they will succeed. Note that policies that attack corporate profitability are also inflationary - in fact that is the end the line for socialist economies like Venezuela: everyone has money in their pockets, but there is nothing to buy. 

Brexit has created a massive opportunity for lenders. According to Black Knight Financial Services, the refinanceable population is the highest since 2012. Below are charts of the number of candidates that are refinanceable, and the other is a histogram of mortgage rates.