Morning Report: Dow 20,000 1/25/17

Vital Statistics:

	Last	Change
S&P Futures	2284.3	10.0
Eurostoxx Index	366.3	4.4
Oil (WTI)	52.8	-0.4
US dollar index	91.1	0.0
10 Year Govt Bond Yield	2.49%
Current Coupon Fannie Mae TBA	102.1
Current Coupon Ginnie Mae TBA	103.2
30 Year Fixed Rate Mortgage	4.16

Global stocks are rallying on no real news. The Dow hit 20,000 this morning (CNBC is probably breaking out the champagne as we speak) Bonds and MBS are down on the “risk on” trade.

Mortgage applications increased 4% last week as purchases rose 6% and refis rose 0.2%. This is a 7 month high for purchases.

Home prices increased 0.5% in November, and are up 6.1% YOY, according to the FHFA House Price Index. Geographically, the Pacific and Mountain states continue to lead the way, while the East Coast lags, however prices are decelerating out West and accelerating in the East. Prices have more than recouped the losses from the bubble years and are hitting new highs.

Further slicing and dicing the home price data, the luxury end of the market continues to lag, while the lower price points are accelerating. Know where is getting killed in this segment? Washington DC. This shift makes sense as the Millennial generation is beginning to reach the family-forming stage and needs starter homes. Starter homes should be a fertile area for the builders over the next decade or so. We are even beginning to see a reduction in the NIMBY-ism in places like California, which face acute housing shortages.

Treasury Secretary Steve Mnuchin supports an independent central bank and is not a member of the “audit the Fed” crowd. Congressional Republicans have been pushing for more Congressional oversight of monetary policy, however independence from politicians is critical for the Fed to do its job. Politicizing the Fed is a recipe for inflation because no politician likes a recession and sometimes they are necessary to suppress inflation. In fact, the last time Congress got involved with monetary policy was the dual mandate, which requires the Fed to minimize unemployment while controlling inflation. Sounds like a reasonable policy, however in practice it has resulted in asset bubble after asset bubble.

House flipping is back to bubble-era levels. Home flippers accounted for 6.1% of sales in 2016, the highest level since 2006 when the number hit 7.3% of sales. Scarce inventory is making a good environment for house flipping, with strong home price appreciation. Eventually builders will begin to meet this demand, however for the moment, home price gambling is a big trade in places like Las Vegas.

Donald Trump met with automotive CEOs yesterday to talk about regulation and bringing jobs back to the US. He cited environmental regulations as a big disincentive to manufacture in the US. Note that there are currently about 300,000 regulations controlling manufacturing in the US. Separately, Trump allowed the permitting process for the Keystone XL and Dakota Access pipelines to begin again.

Morning Report: Home Prices Continue to rise 2/25/16

Stocks are flat this morning on no real news. Bonds and MBS are up.

Initial Jobless Claims came in at 272k, an increase of 10k from last week.

Durable Goods orders rebounded smartly after a terrible December. They were up 4.9%, way better than the Street expectations.

Capital Goods orders rose 3.9% as well. Capital Goods orders are a proxy for business capital investment, so whatever turmoil is happening in the financial markets doesn’t seem to be affecting Main Street, at least not yet.

House prices rose 1.4% in the fourth quarter, according to the FHFA House Price Index. Home prices have now surpassed their bubble peaks and are making new highs. Note that this index is a sub-index of the real estate market – it only looks at homes with conforming mortgages, so it excludes all cash distressed sales and the jumbo market.

In other economic data, the Bloomberg Consumer Comfort Index fell slightly last week to 44.2. Consumer comfort is crawling back to the bubble days, but still is lower than the Big 90s when the stock market bubble was raging.

One thing that is apparent in this election cycle is that it is hip to bash big business. Why won’t they fight back and tell their side of it? In essence, they dismiss the current populism as so much heated campaign rhetoric and believe that when the election is over, it is back to business as usual. FWIW, they have scored some big victories with the Ex-Im bank and the TPP trade deal. Wall Street, for some inexplicable reason, continues to be content with being a punching bag.

Realtor.com lays out the 20 hottest real estate markets in February. Cliff Note version: mainly California. The Northeast is deader than Elvis.

The Atlanta Fed lowered their Q1 GDP estimate to 2.5% from 2.6%.

Morning Report – Is China setting up for a 1929 moment? 3/5/15

Stocks are higher this morning after the ECB committed to buy 60 billion euros worth of bonds starting Monday. Bonds and MBS are up small.

Nonfarm productivity fell 2.2% in the fourth quarter, as output increased 2.6% and hours worked increased 4.9%. On a year-over-year basis, it fell .1%. Lower productivity means that wage inflation will become inflationary sooner than it otherwise would. Not sure what is driving the decline.

Unit labor costs rose 4.1%, which was a function of a 1.9% increase in compensation and a 2.2% decline in productivity. Unit Labor Costs are up 2.6% over the last year.

Initial Jobless Claims rose to 320k, and the Bloomberg Consumer Comfort Index rose to 43.5.

Is China setting up for a 1929 moment? Certainly the backdrop is there. This seems to be par for the course, as countries that go through a long secular growth spurt end up having bubbles. It happened to the US in 1929, it happened to Japan in 1989, and it has happened to China. Their government wants to deflate the bubble, as all governments who face this do, however that is easier said than done. The fallout will be felt in the luxury real estate markets in the US and Canada. Think the Bay Area, San Diego, Washington DC, NYC, Vancouver, Seattle. Do the Chinese banks puke Treasuries or do they buy them as a flight to safety? That is the most interesting question.

Morning Report – Global Bond Yields plummet 1/23/15

Global stocks and bonds are continuing their post ECB rally. It is truly stunning to see bond yields where they are. If you think the US 1.83% bond yield is rock bottom, consider this: It is higher than 3 out of the 5 PIIGS (only Greece and Portugal are higher) and is multiples higher than many G7 yields.

Some global 10 year yields:

France 10 Year Govt Bond Yield	0.54%
Germany 10 Year Govt Bond Yield	0.38%
Swiss 10 Year Govt Bond Yield	-0.22%
UK 10 Year Govt Bond Yield	1.49%
Japan 10 Year Govt Bond Yield	0.23%
Canada 10 Year Govt Bond Yield	1.52%

We live in truly extraordinary times. Yes, the German Bund is pushing towards Japanese yields. Rates are negative through 7 years in Germany right now, and you’ll pay 22 basis points per year to lend to the Swiss government for 10 years.That’s not an interest rate – it is a storage fee.

With the ECB out of the way, attention turns to the Greek elections and the possibility (again) of Grexit.

King Abdullah of Saudi Arabia passed away last night. Oil markets are taking the news in stride, as it probably will not affect OPEC policy.

Existing Home Sales rose to a seasonally adjusted 5.04 million in December, from a downward revised 4.92 million in November. The median home price rose 5.3% year-over-year to $208,500.

In economic news, the Chicago Fed National Activity Index fell by a lot in December to -,05 from .73 in November. Production indicators drove the decline, however employment is still positive. It is looking more and more like we took a bit of a swoon in December economically, given what we have seen with the ISM numbers and the Industrial Production numbers.

The Index of Leading Economic Indicators rose from a downward-revised +0.4% to +0.5% in December.