Fedspeak

Vital Statistics:

	Last	Change	Percent
S&P Futures	1787.7	-1.0	-0.06%
Eurostoxx Index	3059.2	-22.1	-0.72%
Oil (WTI)	92.83	-0.2	-0.21%
LIBOR	0.239	0.002	0.74%
US Dollar Index (DXY)	80.73	-0.098	-0.12%
10 Year Govt Bond Yield	2.69%	0.03%
Current Coupon Ginnie Mae TBA	106.1	0.0
Current Coupon Fannie Mae TBA	105	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.33

Markets are lower this morning on no real news. The employment cost index rose .4% in the third quarter, lower than expected. Bonds and MBS are down small.

Yesterday we had some Fed-speak with Philly Fed Head Charles Plosser urging the Fed to stop playing "this bond buying game by ear" and to tell the markets how much the Fed intends to buy and then to stop once it gets to that level. Plosser also claimed that the recent low inflation numbers were transitory due to lower government spending on things like Medicare. Separately, New York Federal Reserve Chairman William Dudley said he is becoming more optimistic that 2014 and 2015 will be much stronger than 2013. He said the "fiscal drag" of the sequester is abating. Pet peeve - the Fed goes out of its way to say that reducing tapering is not "tightening," yet refers to a tiny reduction in unprecedented postwar fiscal stimulus as "fiscal drag." Even with the sequester, fiscal policy is still highly, highly accommodative and looks miserly only if you compare it to 2009 or 2010.

Good story out of Bloomberg on the pickle the Fed is in with respect to QE.  How to reduce tapering without increasing interest rates. The Fed would really, really like to avoid a repeat of last summer where the 10 year bond increased by 100 basis points. Yellen said in her testimony that the answer was better communication, however as everyone has acknowledged, we are in uncharted territory here. Separately, the Senate Banking Committee is scheduled to vote on Yellen Thursday, which will set the stage for a full Senate vote later this year.

Tomorrow starts the big data dump for the week with a slew of economic reports. We will get the minutes from the October FOMC meeting, existing home sales, retail sales and the consumer price index.

Speaking of retail sales, the holiday shopping season is shaping up to be on the weak side. We have already seen two warnings out of Wal Mart this year, and now Best Buy is saying that promotional activity is going to hurt margins. I keep hearing anecdotal evidence that the retailers are getting promotional already, which is a bad sign ahead of Thanksgiving. On the other hand, the Despot reported better than expected 3rd quarter earnings as people are taking advantage of the increase in house prices to do some remodeling. 

Remember the 2012 jobs report ahead of the election where Jack Welch tweeted: "Unbelievable jobs numbers…these Chicago guys will do anything…can't debate so change numbers," He was fired from Fortune over that. Well, it turns out that he may have been correct. Census may have been doing some monkey business with the report.

Small banks asked for some temporary relief from some of the new edicts coming out of CFPB and were given the Heisman. CFPB has said that they will take into account good faith efforts to comply with the rules, but as Rob Chrisman points out, the plaintiffs' attorneys definitely will not.

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)

The Future of Fannie and Freddie Still TBD

Vital Statistics:

	Last	Change	Percent
S&P Futures	1796.1	2.6	0.14%
Eurostoxx Index	3082.4	27.9	0.91%
Oil (WTI)	93.46	-0.4	-0.40%
LIBOR	0.237	-0.001	-0.31%
US Dollar Index (DXY)	80.67	-0.176	-0.22%
10 Year Govt Bond Yield	2.70%	-0.01%
Current Coupon Ginnie Mae TBA	105.9	0.0
Current Coupon Fannie Mae TBA	104.8	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.3

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

We don't have a tremendous amount of economic data this week, although we will get the minutes from the October FOMC meeting. Analysts will be looking for clues regarding December. Remember the state of play from the Sep meeting - the Fed didn't think the economic data warranted reducing asset purchases, but some felt like they had to do it anyway, just to maintain credibility. I don't think the credibility argument really applies anymore, although the Fed may do a token move just to say they did it. Also the market seems pretty convinced that any changes will be on the Treasury side, not the MBS side. (That doesn't mean mortgage rates won't go up, they will)

Earnings season is largely over, except for the retailers. I think the consensus is that this year's holiday season will be nothing to get all excited about. We will hear from the Despot tomorrow and Lowe's on Wednesday. Wal Mart is watching closely to see if the obamacare insurance mandates hurt sales.

The future of Fannie and Fredie is still being worked out. The Senate has to balance the demand from liberals that the mortgage market serve all markets equitably and from conservatives that the taxpayer has to be protected. The goal is to wind down F&F and replace them with a re-insurer which will cover losses over 10%. Will Ackman and Fairholme play a role in this? That will be up to the courts.

Eminent Domain:  The bad idea that won't die. Now Irvington, N.J. is considering. How many of these loans were CRA-driven in the first place? I wonder...

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)

The Fannie - Freddie Showdown

Vital Statistics:

	Last	Change	Percent
S&P Futures	1791.2	3.5	0.20%
Eurostoxx Index	3057.4	3.7	0.12%
Oil (WTI)	93.88	0.1	0.13%
LIBOR	0.238	0.000	-0.15%
US Dollar Index (DXY)	80.88	-0.141	-0.17%
10 Year Govt Bond Yield	2.70%	0.01%
Current Coupon Ginnie Mae TBA	105.7	-0.2
Current Coupon Fannie Mae TBA	104.6	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.34

Markets are higher on no real news. Bonds and MBS are down small. 

The Empire Manufacturing Survey came in lower than expected and import prices fell. Industrial Production and Capacity Utilization fell.

Bill Ackman has taken a 10% stake in Fannie Mae and Freddie Mac and may seek talks. This comes on the back of Fairholme's bid to buy the insurance units of Fan and Fred. Fairholme's bid would probably be denied by the government. Many in the financial community view the government's changing the terms of the bailout just as Fannie and Fred became profitable as dirty pool. The government owns 80% of Fannie Mae and Freddie Mac's stock and doesn't have to do anything it doesn't want to, but it certainly cannot relish the thought of dueling in the press with guys like Ackman, Pauson, and Berkowitz. 

Housing affordability fell in the third quarter as prices rose and interest rates increased, according to the NAHB.

Janet Yellen's testimony was pretty much as predicted. She is a dove. Reading the tea leaves, however it appears she is in no rush to begin tapering. Punch line:  I don't know how you could have come out of that meeting thinking "I gotta short some bonds, right here." Here is my longer take on it from yesterday:  http://thenadtearsheet.blogspot.com/2013/11/janet-yellen-data-dump_14.html 

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)

QE Not Going Anywhere for a While

Janet Yellen testified in front of the Senate Banking Committee today and overall, there were few surprises. It is becoming clear that she intends to continue most of the Bernanke Fed's policies, and to be honest I couldn't find anything she would do differently. Her reception was generally good, and the Senators were respectful. Most of the questioning had to do with banking regulation, income inequality, the existence of asset bubbles and the size of the Fed's balance sheet. 

Here are some of the discussion points:

On current monetary policy: The Fed is seeking a strong and robust recovery, and must not jeopardize it by removing accomodation too early. She does not want to remove support while recovery is fragile. It is costly to withdraw accomodation or fail to provide adequate accomodation, and the Fed has the tools and the will to withdraw accomodation at the right time.

On asset bubbles: The Fed should attempt to detect asset bubbles when they are forming, however the first line of defense should be regulatory. Monetary policy is a blunt instrument and should be used if other measures aren't working. She won't rule out using monetary policy to address bubbles, but prefers that we use regulatory measures (such as increased capital requirements, higher risk retention requirements, etc) to prevent bubbles from occurring.  Separately, she sees little evidence that there are bubbles currently forming in the real estate market. 

On banking regulation: Too Big To Fail imposes costs on the economy and should be avoided if possible. The government is making progress in handling too big to fail. They will raise capital standards further and the Fed is looking at requiring banks to issue additional unsecured debt at the holding company level to raise capital. She wants to ensure that the system isn't set up to advantage the larger banks at the expense of the smaller banks. 

On communication: In a nod to the volatility of the bond market over the summer, she said that she wants the Fed to communicate as clearly as possible with the markets and will redouble efforts to reduce volatility. This follows Bernanke, and is a departure from the Fed of the past, where they wanted to be as opaque as possible, lest the market anticipate what they were going to do, which would limit the effectiveness.

On QE and the balance sheet: Yellen was asked repeatedly about the effects of QE. She stressed that QE is being done to help the economy, not to help the government finance its deficit. When pressed about the size of the Fed's balance sheet, she was forced to admit it is unprecedented for the US Central bank, but it was not unprecedented compared to other central banks. She acknowledged there are costs and risks to such a large balance sheet, and opposes any sort of Congressional audit of the Fed lest it reduce the Fed's independence. 

On income inequality: The Democratic Senators pretty much focused on income inequality, and what could be done about it. Yellen acknowledged that asset prices are rising, and that primarily benefits the rich, however the point of QE is to help the economy recover, and the best thing we can do for the middle class is to have a robust economy. She also acknowledged that QE is doing a number on seniors who rely on interest from safe assets to supplement social security. She views income inequality as a serious problem.

On the dual mandate: She stressed that the Fed must prevent inflation that is too low, and that deflation is a terrible thing. She refused to say what she thought "full employment" was, other than to give a range that it is probably in the 5% to 6% range. She also said that fiscal policy was working at cross purposes with what the Fed is trying to do. She also acknowledged that the reported unemployment rate understates the severity of the problem.

Key Takeaways:

While not admitting it, she seems to indicate the Fed goofed when it talked about withdrawing accomodation last June and causing the subsequent bond market sell-off. Expect the Fed under Yellen to be more communicative and she will probably try and clear up the confusion over tapering QE. It certainly seems she intends to err on the side of caution, provided there is no evidence of asset bubbles and inflation is at or below its 2% target rate.

The comment about full employment being in the 5% to 6% range was interesting as well. We spent many years over the past couple of decades with unemployment under 5% (it actually got below 4% in 2000). Does that mean the Fed will begin to start tightening before it ever gets to that level? Perhaps. 

On asset bubbles, she does not hold the view that the Fed had a role in inflating the real estate bubble or the stock market bubble. Those bubbles were due to regulatory failure. It is ironic that the Fed has a problem with "too much money chasing too few goods" - in other words "inflation", but is ok with "too much money chasing too few assets" - in other words a bubble. This is unsurprising; and suggests that the punch bowl might hang around a little longer than expected.

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)

Here's Janet!

Vital Statistics:

	Last	Change	Percent
S&P Futures	1782.4	3.7	0.21%
Eurostoxx Index	3041.1	20.0	0.66%
Oil (WTI)	93.35	-0.5	-0.56%
LIBOR	0.238	-0.002	-0.89%
US Dollar Index (DXY)	81.08	0.156	0.19%
10 Year Govt Bond Yield	2.71%	0.01%
Current Coupon Ginnie Mae TBA	105.4	0.4
Current Coupon Fannie Mae TBA	104.5	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.38

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

Wal-Mart cut its profit forecast due to the weaker economy at the lower end of the income spectrum and increased competition from dollar stores.

Finally, some economic data, although nothing market-moving. Initial Jobless Claims came in at 339k, a touch higher than the 330k forecast. Productivity was 1.9% vs Street expectaions of 2.2% and unit labor costs fell .6%. Later on today, we will get the Bloomberg Consumer Comfort index. Philly Fed President Charles Plosser will be speaking momentarily - he is a hawk so bonds could sell off on his comments.

Janet Yellen is scheduled to appear in front of the Senate Banking Committee today. Here are her prepared remarks. First thing off the bat, no mention of QE or tapering. For the most part nothing in the statement suggests any sort of change in direction from the Bernanke Fed. She intends to continue with the policy of keeping the markets informed of the Fed's thinking, and believes that the dual mandate requires her to boost inflation if it is too low. She is committed to making sure the too big to fail banks are regulated, while at the same time she wants to lower the regulatory burden on small community banks. These sort of hearings are more or less dog and pony shows for the benefit of politicians, not public consumption. They don't ask questions, they make statements. I don't expect anything market-moving to come out of this, but just be aware. While there are a few people who want to use her nomination as leverage to advance other items, she should be confirmed easily. 

Abby Joseph Cohen loves stocks right here..

Bidding wars on the West Coast are beginning to wane as inventory builds. Expect to see this reflected in the home price indices going forward. This could be a welcome development for the mortgage industry as professionals exit and real buyers (the ones who will need a mortgage) enter. 

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)

Higher Rates Easing Credit in Mortgage Market

Vital Statistics:

	Last	Change	Percent
S&P Futures	1755.5	-9.6	-0.54%
Eurostoxx Index	3006.0	-28.7	-0.95%
Oil (WTI)	93.31	0.3	0.29%
LIBOR	0.241	0.001	0.56%
US Dollar Index (DXY)	81.15	-0.041	-0.05%
10 Year Govt Bond Yield	2.73%	-0.04%
Current Coupon Ginnie Mae TBA	105.2	0.2
Current Coupon Fannie Mae TBA	104.2	0.3
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.51

Markets are lower after Atlanta Fed President Dennis Lockhart said a paring of U.S. bond purchases could very well take place next month. Bonds and MBS are up; however.

Mortgage Applications fell 1.8% last week, with purchases down .5% and refis down 2.3%. We had a huge move in rates last week, but it took place on Friday. This week's numbers will probably be horrendous.

Mortgage Credit Availability increased slightly in October, according to the Mortgage Bankers Association. On one hand, some lenders increased lowered their FICO floor, but others restricted cash-out refis. The net effect was a slight increase in credit availability. FWIW, given the end of the refi boom, it looks like bankers realize they have to go our further on the credit curve. Redwood Trust announced on its conference call that it is diversifying away from strictly high quality jumbos and will look at the non-QM space. 

Tri-Pointe Homes reported better than expected sales and earnings, and took up full year guidance. They are buying Weyerhaeuser's home building unit as well. We are starting to see more M&A in the homebuilding space.

Transunion reported that the national average for 60 day delinquencies is 4.09%. The worst states are the judicial states, while the best are the northern mountain / midwest states. They have a cool interactive map where you can see DQ rates by state.

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)

5.4% Mortgage Rates by the End of 2014?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1763.2	-4.4	-0.25%
Eurostoxx Index	3039.5	-13.3	-0.44%
Oil (WTI)	95.06	-0.1	-0.08%
LIBOR	0.239	0.000	0.00%
US Dollar Index (DXY)	81.12	0.028	0.03%
10 Year Govt Bond Yield	2.77%	0.02%
Current Coupon Ginnie Mae TBA	105.2	-0.8
Current Coupon Fannie Mae TBA	103.9	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.39

Talk about it here: http://thenadtearsheet.blogspot.com/

Happy 11/12/13

Markets are lower as bond traders come back from a long weekend. Bonds and MBS continue their post jobs report sell-off.

The Chicago Fed National Activity Index ticked up a bit in September, while the 4 month moving average remained negative. 

The NFIB Small Business Optimism Report fell from 93.9 to 91.6. He points out that small business is still struggling. That is an important point to remember - the S&P 500 is not a representative sample of U.S. business. Most of the big S&P names have exposure to fast-growing overseas markets and benefit from all the liquidity being pumped into the system by the world's central banks. Small business is more affected by weak demand domestically. The government shutdown weighed on sentiment as well. 

With not a lot of economic data, Fed-speak becomes more important. Dallas Fed President Richard Fisher told CNBC that the markets should bear in mind that QE cannot last forever. The balance sheet is $4 trillion and there are limits to what the Federal Reserve can do. Minneapolis Fed President Kocherlakota will talk about monetary strategy at 1:00 pm EST and Atlanta Fed President Dennis Lockhart will discuss the economy at 1:50 EST.

Homebuilder D.R. Horton reported earnings in line with estimates. Average selling prices climbed 15% as a combination of tight supply and low inventory allows the builders to hike prices at will. The stock is up in the pre-market. 

NAR's Chief Economist Lawrence Yun is making predictions about 2014. Exiting Home Sales will be flat at about 5.1 million units, prices will rise by 6% and the the 30 year fixed rate mortgage will end the year at 5.4%. New Home construction will increase to meet demand (at some point the builders will stop seeing price increases and will have to pump up volume to achieve growth). Lending standards will continue to ease and an improving job market will increase activity. If cash sales drop as a percentage of total sales, the purchase business should improve, but probably not enough to offset the end of the refi boom.

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)

http://thenadtearsheet.blogspot.com

Jobs Day - December Tapering Back on the Table?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1741.8	-3.4	-0.19%
Eurostoxx Index	3009.5	-33.4	-1.10%
Oil (WTI)	94.24	0.0	0.04%
LIBOR	0.239	0.001	0.21%
US Dollar Index (DXY)	81.22	0.373	0.46%
10 Year Govt Bond Yield	2.72%	0.12%
Current Coupon Ginnie Mae TBA	105.3	-0.7
Current Coupon Fannie Mae TBA	104.5	-0.7
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.27

Stocks are down in spite of a jobs report that showed a better-than-expected increase in payrolls. Bonds are getting slammed on the number, with the 10-year down 12 basis points.

The economy added 204,000 jobs in the month of October, well in excess of the 120k street expectation. September was revised upward. The government shutdown was expected to depress job growth and it looks like that didn't happen. The unemployment rate ticked up to 7.3% and the labor force participation rate nosedived to 62.8%, the lowest since January of 1978. Average hourly earnings ticked up a tenth of a percent and average weekly hours fell. Overall, the report was a mixed bag, but it does bring back the possibility of a December tapering. Separately, personal Income rose .5% and personal spending rose .2%. 

The chart below shows the labor force participation rate since the days of Ward and June Cleaver. The big increase was due to women entering the workforce, which shows how dramatic the decline has been. Roughly half the gains have been taken away.

Twitter's IPO went swimmingly. It priced at $26 and traded as high as $50. It now sports a 25 billion market cap which works out to 48 times trailing 12 month sales. 

Freddie Mac is doing another risk sharing deal as the GSEs try to lower their footprint in the mortgage market.

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

European Effect - Markets Higher on ECB Rate Cut

Vital Statistics:

	Last	Change	Percent
S&P Futures	1771.3	5.7	0.32%
Eurostoxx Index	3097.5	41.1	1.34%
Oil (WTI)	94.12	-0.7	-0.72%
LIBOR	0.239	0.000	0.10%
US Dollar Index (DXY)	81.39	0.903	1.12%
10 Year Govt Bond Yield	2.64%	-0.01%
Current Coupon Ginnie Mae TBA	106.1	-0.1
Current Coupon Fannie Mae TBA	105.1	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.28

Markets are higher after the European Central Bank cut rates and we got a surprisingly strong 3Q GDP report. Initial Jobless Claims fell and came in slightly below expectations. Bonds and MBS are down small.

#Twittergoespublicat26.  Symbol is TWTR for those who want to watch at home. This is a punchy valuation at 12.4 time sales. The offering price was increased from $17 to $26, lets see if they got too greedy on the IPO the way Facebook did.

The advance estimate of 3Q GDP came in at 2.8%, well above the Street expectations of 2.0%. Remember, this is the advance estimate and it will be revised twice. Lately, we have seen the advance estimates come in too high, only to be revised downward - for example the first estimate for Q113 GDP was 2.5% and by the third revision it ended up being 1.1%. Given the differential between the Street and the government, I suspect the number will be revised downward.

There had been chatter in the marketplace that Nationstar (NSM)'s pricing had gotten worse and they were backing out of the market. Well, today, we saw that there was indeed something wrong; as the company missed its earnings estimate in a big way. Pro-forma EPS were $1.08 vs the Street at $1.27. They took down guidance for full year 2013 and 2014. They also announced they are selling their wholesale channel to Stonegate (SGM). Some retail The stock is down 8 bucks (about 16%) pre-open. 

The mortgage REITs have been announcing earnings and for the most part, they were flat on the quarter with regard to book value per share. They have de-leveraged a lot over the past quarter, and I would almost go as far as to say that their MBS (and TBA) selling is probably close to finished. Many are lowering duration by switching to hybrid ARMs and increasing credit risk while lowering interest rate risk. REIT selling has been one of the reasons why secondary margins have been getting hit across the board. 

Fannie Mae reported good earnings per share and will pay Treasury $8.6 billion in the third quarter. The stock is up 6% or so pre-market

Merger mania in the home-builder space. Earlier this week, Tri Pointe Homes (TPH) announced it is buying Weyerhaeuser's home building unit for $2.7 billion.  Now Toll Brothers (TOL) is in a deal to buy Shapell for $1.6 billion to increase its California exposure. As we have seen, financing availability has been a case of the haves and the have-nots. If you are big enough, you can get amazing financing terms.

Brent Nyitray, CFA

Director of Capital Markets

iDirect Home Loans

National Asset Direct

Dellacamera Capital Management

1010 Washington Blvd, 6th Floor

Stamford, CT 06901

203-817-3614 (w)

917-841-4938 (c)