The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Another interesting pair of chart from Ron Griess of The Chart Store. These two look at NYSE and NASDAQ relative to nominal GDP.

>

>

Yesterday President Obama said a second stimulus package is not needed, for now. Do you think Ben Bernanke and the Fed will refute the president’s claim in its communiqué today? Not bloody likely!

Obama’s ‘not yet’ on a second stimulus package is intended to assuage China and Japan’s concern over the US budget and the diminishing value of Treasuries.

This suggests that the FOMC Communiqué will be close to the consensus view, which is: no rate change but the Fed will broach the subject of exit strategies because it will aver that the financial system is more stable and there are signs of recovery [Ben’s green shoots] in the economy.

The Fed cannot deviate more than a tad from the consensus view because it could harm bonds, the dollar or stocks. However, the Fed is likely to err on the side of helping bonds and the dollar. This would be consistent with the ‘things are improving’ theme of the solons.

More importantly, if bonds keep tanking, the higher rates will crush any recovery hopes. And the Treasury, after issuing $40B of 2s yesterday, must issue $37B of 5s today and $27B of 7s tomorrow.

If the communiqué is as benign as expected stocks should rally. However the rally should not last more than a day or two because unpleasant fundamentals are reasserting their negative force on the market.

Tuesday’s econ news was mostly negative. Boeing tanked on its delay of its 787 Dreamliner; Rambus tanked on a reduced revenue forecast. Existing Home Sales increased (2.4%) less than expected (3%).

In a Bloomberg TV interview, Edmund Phelps, Columbia professor and Noble Laureate for Economics in 2006, said it will take 15 years for the US to recapture the wealth that it has lost in this crisis.

The dollar sank and most commodities, save gold, jumped on the realization that the Fed is highly unlikely to indicate that is will soon remove the Super Bowl of liquidity.

However, barring increased quantitative easing, the Fed is spent. So bonds rallied and stocks stagnated.

Yesterday’s missive noted that bonds are close to a buy technically. Apparently Goldie sees the setup.

BN: “Long-dated bonds still have a decent rally ahead of them,” Dominic Wilson, senior global economist at Goldman Sachs in New York, wrote in a note yesterday. “Although stabilizing economic news will inevitably prompt talk of exit strategies, we think many policy makers will be at pains to emphasize that they are a long way from tightening.”

Goldman went “long” 10-year Treasury futures, betting yields will fall by between 30 and 40 basis points, Wilson said.

~~~

Today – There will be a flurry after the early impact economic data and then the markets will wait for the Fed FOMC at 14:15 ET. Then there will be the usual post-communiqué wild gyrations/manipulations. If one can force a desired outcome the financial media and most pundits will provide a rationalization for the move that others will ape, no matter how erroneous the justification might be.

Expected economic data: Durables Goods -0.9%, ex-transports -0.5%; New Home Sales (contracts not closings) 360k, +2.3%

Doe Inventories: Crude oil -950k, gasoline 1.0m, distillates 850k, refinery utilization 0.05%

Once again down the rabbit hole:

No, we do not know what the monthly sales were for New Homes. The data point for sales of new one-family houses in May 2009 was 0.6%, but the margin of error was ±17.8%. That means the number is statistical noise.

And as expected, April’s data was revised downwards.

Year over year, sales fell 32.8% — a valid number relative to the error (±10.9%) below the May 2008 estimate of

The median sales price of new houses sold in May 2009 was $221,600; the average sales price was $274,300. The supply of new houses for sale was 10.2 months at the current sales rate.

>

New Home Sales, May 2009

Via Barron’s Econoday

>

Source:
NEW RESIDENTIAL SALES IN MAY 2009
U.S. Census Bureau and the Department of Housing and Urban Development.
JUNE 24, 2009

http://www.census.gov/const/newressales.pdf

New orders for May Durable Goods unexpectedly rose both headline and ex transports. Headline rose 1.8% vs a forecasted drop of .9% while ex transports rose 1.1% vs an expected fall of .5%. The prior month was revised lower by a touch. Non defense capital goods ex aircraft, the pure cap ex component, rose a solid 4.8% but after drops in the two prior months and is still down 23.1% y/o/y. The headline # was boosted by a 68.1% rise in non defense aircraft orders which is a highly volatile category. Vehicle and parts orders fell 8.1% and are down 32% y/o/y and it’s the main group where a 2nd half inventory rebuild is expected to come from. The main support to the ex transport # was a 7.7% gain in machinery orders and a 2.2% rise in computers/electronics. Primary metals were little changed and electrical equipment orders fell 1.1%. One caveat, the inventory to shipments ratio rose to 1.90, the highest since ’92.

The MBA said weekly mortgage applications rose 6.6% as refi’s rose 5.9% and purchases gained 7.3% as the average 30 year mortgage rate fell to 5.44%, down 13 bps from two weeks before. The gain in refi’s though comes on the heels of an almost 50% drop over the past month. The purchase component rose to the highest since April 10th, likely still being helped out by the $8,000 home buying tax credit and an additional $10,000 credit in CA. ABC weekly confidence fell 4 points to -53 and is just within 1 point of matching its all time record low dating back to 1985. The Personal Finance component did in fact fall to a record low, dropping a sharp 8 points on the week as ABC said “spiking gas prices have added insult to recessionary injury.”
Peter Boockvar

I am beginning to suspect that the Realtor’s association and the Mortgage Broker’s association are pro-fraud.

Yesterday, I noted the bizarre (and potentially corrupt) statement from NAR economists Lawrence Yun calling for appraisers “familiar” with local neighborhoods:

“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals.

I did some more digging, and I quickly discovered what this contemptible suggestion was all about: It is part of a broader lobbying effort by the The National Association of Mortgage Brokers (NAMB) and The National Association of Realtors (NAR) against honest appraisals.

For more proof of this lobbying effort, see the letters to mortgage brokers and real estate agents from their trade associations to mobilize against mandating honest appraisals ( Mortgage Broker’s Anti-Appraisal Reform Lobbying and Effort and this NAR Lobbying letter).

Why is this significant?

Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period. Many (but not all) mortgage brokers and realtors referred buyers to appraisers that ALWAYS hit the number of the home purchase price.

A Bernie Madoff-like 100% success rate is often cause for suspicion, but we have much harder evidence than a statistical fluke. For that, let’s go to the big book of real estate fraud, Bailout Nation:

Fraud in Real Estate, Mortgages, and Home Building
Minor amounts of real estate–related fraud have always existed. During the housing boom years of 2002 to 2007, it became a pandemic. These various fraudulent actions helped make the housing boom much bigger—and the bust that much more painful:

Appraisal fraud: Historically, there was no incentive to inflate appraisals. But with the rise of the mortgage brokers—many working closely with real estate agents—the business of steering appraisals to the most generous rose rapidly. By inflating appraisals, many appraisers found they could attract more referral business; some even managed to always hit the target prices given by real estate agents, which contributed significantly to the huge run-up in home prices. In 2005, more than 8,000 appraisers—roughly 10 percent of the industry—petitioned the federal government to take action against such abuses. But both Congress and the White House did nothing, allowing this rampant fraud to continue unabated.

So the very people who were enormous contributors to the credit bubble (mortgage brokers), and their colleagues who helped feed the housing boom and bust via friendly (i.e., corrupt) appraisals (RE Brokers, appraisers), are now mobilizing to make sure that honest appraisal reform is thwarted.

The NAR and NAMB apparently have no ethics to speak of. Their shameless self-interest, regardless of the damage it may cause, disgusts me . . .

>

Previously:
Fraud in Real Estate, Mortgages & Homebuilders (August 17th, 2008)

http://www.ritholtz.com/blog/2008/08/fraud-in-real-estate-mortgages-homebuilders/

Nonfeasance in Financial Oversight (August 18th, 2008)

http://www.ritholtz.com/blog/tag/an-appraiser-from-new-york-who-sits-on-the-appraisal-foundation-board-that-writes-qualification-guidelines/

Lobbying Letters

NAR Urges 18 Month Moratorium on Appraisal Reform

Mortgage Broker’s Anti-Appraisal Reform Lobbying Effort

Realtor’s Anti Appraisal Reform Lobbying Effort

Read the rest of this entry »

When the history books are written on the great credit bubble and its crash, how will they depict the visual of the fate of the $14 trillion US economy and its 300mm citizens being largely influenced by about 20 men and women sitting around a large mahogany table in a building on Constitution Ave in DC? It will certainly be a best seller at the University of Central Planning. The first part of the FOMC statement today should be similar to the April meeting, acknowledging that while the economy is still contracting, it is doing so at a slower pace. Their comments in the 2nd paragraph on inflation will be more unknown considering the change in commodity prices and market psychology since the April. The highlight of the day though will be the 3rd part where we hopefully will get some more color on their QE policy, the answers of which will directly influence the short term action in the reflation trade. Durables and New Home Sales are also key today.

Peter Boockvar
Managing Director
Equity Strategist
Miller Tabak + Co.

Call to Action _June 4,2009

TO: State Association Executive Officers
State Association Presidents
FROM: NAR Government Affairs
DATE: 19 June 2009
RE: Fly-In Head’s Up

Please note this notice is going to all state executive officers and state presidents. We will be sending Fly-In details on Monday June 22, 2009 to the states who have Members of Congress and/or United States Senators on the House Financial Services Committee or Senate Banking Committee. (list of states at end of memo)

There is growing concern in the real estate industry over the implementation of the Home Valuation Code of Conduct (HVCC) and its effect on the use of appraisal management companies (AMCs) by lenders.

NAR is taking the following actions: (Target dates in bold)

1. NAR is scheduling meetings with the Director of Federal Housing Finance Agency, Jim Lockhart to raise concerns about implementation of the HVCC and problems with AMCs and ask for an immediate 18 month moratorium. Director Lockhart is the conservator over Fannie and Freddie who entered the consent order with the NY Attorney General. ( June 22, 23, 24, or 25th)

2. Government Affairs will conduct a fly in the week of June 22. Two members from each Association (State AE/State President or FPC as appropriate) to meet with members/staff of the House and Senate Banking/Financial Services Committee. The ask will be to cosponsor the bill (item 3) and to support an 18 month moratorium.

3. Our legislative team will work on getting a bill introduced in Congress asking for a 18 month moratorium. (week of June 22)

4. We will ask the Chair and Ranking Members of the House and Senate Banking [ Reps Frank and Bachus/ Senators Dodd and Shelby] Committees to write Director Lockhart asking him to grant a 18 month moratorium (week of June 22)

5. We will try and get an 18 month moratorium attached to an immediate pending appropriation bill or other similar fast track bill. (June)

6. Staff will talk to the American Bankers Association who heretofore is fine with the AMC system to see if we can negotiate support.(June 19)

NAR will engage a coalition of Appraisal Institute, MBA, Home Builders and other appropriate trade groups.

7. NAR Research is conducting a survey so we have concrete data information to bring to the regulators and the NY Attorney General’s office . The survey will also be run through the State Association. EHS will be released next week and the appraisal issue will be mentioned front and center in NAR’s release. Survey release June 22

8. NAR is scheduling a meeting with NYS Attorney General Andrew Cuomo and representatives of NYSAR. (June 29. 30)

9. NAR will conduct a Call For Action if we do not get a moratorium in the next week to 10 days

NAR is aware of multiple petitions calling for an end to the HVCC. NAR is taking a more tempered and thoughtful approach of asking for a moratorium during this trouble housing economy.

States with Members of Congress and/or United States Senators on the House Financial Services Committee or Senate Banking Committee: AL, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, KS, KY, LA, MA, MI, MN, MO, MS, MT, NC, NE, NH, NJ, NY, OH, OK,OR
PA, RI, SC, SD, TN,TX, UT, VA, WI, WV

Letter from Charles McMillan, 2009 President, National Association of REALTORS urging an 18 month moratorium on the Home Valuation Code of Conduct (HVCC) to Andrew Cuomo, NY Attorney General and James B. Lockhart III, Federal Housing Finance Agency:

HVCC Moratorium Lockheart