Morning Report: Hard data vs. soft data

Vital Statistics:

	Last	Change
S&P Futures	2340.3	6.5
Eurostoxx Index	377.6	0.3
Oil (WTI)	50.6	0.1
US dollar index	89.7
10 Year Govt Bond Yield	2.23%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104.04
30 Year Fixed Rate Mortgage	3.95

Stocks are up this morning as earnings continue to roll in and oil rebounds. Bonds and MBS are down small. 

Initial Jobless Claims ticked up slightly to 244k last week, while the Philadelphia Fed Business Outlook survey cooled from its earlier torrid pace. 

The Index of Leading Economic Indicators came in better than expected at 0.4%, but is a drop from February. 

Since the election, we have seen a disconnect between the hard data and the soft data. Hard data includes things like the Philly Fed survey, which are often sentiment-heavy indices. These have been exceptionally strong over the past few months, while the actual hard data releases (manufacturing production, retail sales, etc) have been tepid. Stock market bulls have been betting that the hard data would eventually catch up (in other words the optimism would begin to manifest itself into real spending). Instead, it looks like the the opposite is happening - the actual hard data is remaining more or less where it has been for the past 8 years and the sentiment indicators are coming back down to Earth. It is still early days, and regulatory relief will take some time to manifest itself in the numbers, but optimists hoping for a quantum leap in economic activity look like they are going to be disappointed. 

Fed Vice Chairman Stanley Fischer doesn't foresee another 2013-esque "taper tantrum" when the Fed begins to wind down its balance sheet. His view is that the current pace of policy normalization is appropriate and is designed to balance risks to the US and global economy. "A gradual and ongoing removal of accommodation seems likely both to maximize the prospects of a continued expansion in the U.S. economy and to mitigate the risk of undesirable spillovers abroad," 

Refis fell to 37% of all originations in March, according to the Ellie Mae Origination Insight Report. Time to close fell as well, to 43 days, which is the shortest time in 2 years. Interestingly, closing rates fell in March to 68%. Closing rates were 73% at the end of last year, so it is unclear what changed. The average FICO score ticked up a point to 721. 

Want an idea of how hot real estate is in the Bay Area? A two bedroom, 988 square foot teardown bungalow in Oakland went on the market at 495k and ended up selling for over $750k. 

Morning Report: Trump's election causes jump in Fannie stock

Vital Statistics:

	Last	Change
S&P Futures	2186.8	6.0
Eurostoxx Index	340.0	0.7
Oil (WTI)	47.0	1.3
US dollar index	91.1	-0.5
10 Year Govt Bond Yield	2.31%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	3.99

Stocks are higher this morning on no major news. Bonds and MBS are up small.

Should be an uneventful week with the Thanksgiving holiday. Markets will be closed on Thursday, and SIFMA is recommending an early close on Friday. 

Donald Trump continued to interview candidates for cabinet posts over the weekend. For Secretary of the Treasury, he talked to famed investor Wilbur Ross, Blackstone head of real estate Jonathon Gray, and David McCormick of Bridgewater. The “in-depth” discussion with Gray “included the economy, global capital markets and the world financial situation as well as “future legislation regarding the tax code and long-term debt. The Ross meeting covered “negotiating the best foreign deals, American manufacturing and job creation,” as well as “engaging Ambassadors to participate in creating more economic opportunities for America,” Trump’s office said. With McCormick, Trump and Pence talked “global financial markets, currency and the American economy,” and “special emphasis was placed on restoring long-term economic growth rates on an annual basis of four to five percent.” Trump insider Steve Mnuchin and Congressman Jeb Hensarling are considered to be the front-runners, however. 

Mitt Romney is under active consideration for Secretary of State. 

The Chicago Fed National Activity Index improved to -.08 from a downward-revised -.23. Overall economic activity remains slightly below trend. 

Traders are now pricing in a 100% chance the Fed hikes next month. 

Ever since Trump won, shares in Fannie Mae and Freddie Mac have been soaring. Hedge fund giant John Paulsen has a huge position in the shares and investors are betting that a Trump administration may be more shareholder-friendly than Obama was. Just as Fannie Mae was beginning to turn a profit, the Obama administration re-wrote the rules of the bailout and has taken all of Fannie's cash flows for the government. The bailout money has now been paid back and shareholders are in litigation with the government over what to do now. Just some numbers: Market cap: 18 billion. 2015 earnings 11 billion. P/E: 1.6.

AIG is looking to boost its investment in residential mortgages. They intend to make "direct investments" into the sector, which may mean buying whole loans instead of MBS. 

The CFPB is appealing a Federal Appeals Court ruling that says the agency's structure is unconstitutional. Regardless of the outcome, the agency is probably going to have at least some changes. 

Quick, what has been the best-performing IPO of the tech sector since the Great Recession? It isn't the names you would think of like Facebook or Tesla. It is Ellie Mae, who makes software that helps automate the mortgage process. Bears are beginning to bet that a Trump administration will be more friendly to the big banks, who will get back into the mortgage business, which is bad news for Ellie Mae's clients, who are smaller independent lenders. 

Morning Report: Don't fear the Fed Funds hike

Vital Statistics:

	Last	Change	Percent
S&P Futures	2062.5	13.7	0.67%
Eurostoxx Index	3309.6	53.1	1.63%
Oil (WTI)	37.54	0.7	1.98%
LIBOR	0.603	0.000	0.00%
US Dollar Index (DXY)	98.28	0.356	0.36%
10 Year Govt Bond Yield	2.25%	0.02%
Current Coupon Ginnie Mae TBA	104
Current Coupon Fannie Mae TBA	103.1
BankRate 30 Year Fixed Rate Mortgage	3.9

Markets are higher this morning as commodities gain. Bonds and MBS are down. 

Home Prices rose 0.84% in October and are up 5.5% YOY, according to the Case-Shiller Home Price Index. Portland, San Francisco, and Denver led the charge. For those worrying about how the increase in the Fed Funds rate will affect mortgage rates, don't worry about a 1-for-1 increase in mortgage rates as the Fed hikes rates. Note that in the 2004-2005 tightening cycle, the Fed Funds rate went from 1% to 5.25% while the average 30 year fixed rate mortgage went from 6% to 6.75%. 

One thing to keep in mind, however: ARMS that are pegged to shorter-term rates like LIBOR, Fed Funds or Prime will increase as the Fed hikes short term rates. Might be a good time to pitch a switch from an ARM to a 30 year fixed. 

Ever since the bubble burst, homebuilders have largely focused on the luxury end of the market and the move-up buyer. Fun fact: the average size of a new home has increased by 150 square feet since 2008. Entry-level homebuyers had been priced out of the market. Now that is beginning to change, as builders are focusing on starter homes. High land prices remain an issue.

Consumer Confidence rose from 92.6 to 96.5 in December. 

Retailers had a decent holiday shopping season, with sales between Black Friday and Christmas up almost 8%. 

Average days to close a loan increased by 3 in November, according to Ellie Mae. Blame TRID. Average FICO slipped a point to 721.

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.