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[ad_1] European shares pare gains as technology, consumer stocks weigh [ad_2] Source link

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[ad_1] Chinese stocks roar back as stimulus measures offset protest fears [ad_2] Source link

[ad_1] Economic reports over the Thanksgiving holiday paint a complicated picture of what’s happening, and where we are on recession watch. The big economic surprise was the strength of Black Friday sales, where consumers spent a record $9.12 billion online. Another surprise was the Atlanta Fed’s forecast of 4.3% GDP growth in the fourth quarter, since the Atlanta Fed data was used by many to say that the U.S. went into a recession earlier in the year. The jobs data, however wasn’t a surprise: the unemployment rate is now 3.7% and jobless claims are still very low historically. With all the data we now have in front of us, we can say that the U.S. did not go into a recession at the start of 2022. The question now is whether there is a way to avoid the job-loss recession we’re facing in 2023. The U.S. housing market went into recession in June of this year, which I talked about a few months ago on CNBC. A recession means that sales and production are down. New and existing home sales are falling, along with housing permits and starts, as we have too many new homes for the builders to issue new permits.  The job loss recession is already here in the housing market, and total incomes are falling with less volume in this sector. Although we don’t have this in the larger economy yet, housing traditionally gets weaker into a recession as it is a rate-sensitive sector of our economy. The Federal Reserve has forecast a 4.4% unemployment rate next year, which would mean an immediate 1% increase from the cycle lows in the unemployment rate, which again implies the job loss recession is something they’re looking for (I would even say want). Why do they want a job loss recession? Their main goal is to bring down inflation, and Americans losing their jobs is the fastest way to create more labor supply and weaker demand. Accordingly, I raised my sixth (and last) recession red flag on Aug. 5. It was apparent on Aug. 5 that the leading economic index was in a downtrend that is similar to every single recession we have seen for decades. The most recent leading economic index report has confirmed that the downtrend in the data is still intact. I discussed this with the Conference Board earlier this year as I presented my six recession red flag model to them. As always, with any index, you need to know the components and their weighting and understand how those components will look in the future. “The US LEI fell for an eighth consecutive month, suggesting the economy is possibly in a recession,” said Ataman Ozyildirim, senior director of economics, at The Conference Board in November. “The downturn in the LEI reflects consumers’ worsening outlook amid high inflation and rising interest rates, as well as declining prospects for housing construction and manufacturing. So with all these factors in place — housing already in a recession, the Fed’s recent actions and dealing with inflation — can we avoid this job loss recession? Yes, we can. It will be hard, and we will need a lot of help, but there is a pathway to this. Two things need to happen 1. Inflation growth rate and long bond yields need to go down together. The Fed is bent on driving us into a recession to make it easier to achieve their single mandate to bring down inflation. We have already seen some of the growth rates of inflation falling. The used and new car price growth rate is falling. As you all know, car production was terrible during the global pandemic, and we are working our way back to some sense of normal in auto production. Gasoline prices are also falling. We have a lot of variables here that are out of our control that make this sector a bit abnormal today, including the Russia wild card, releasing a lot of strategic reserves, and OPEC’s view of us. However, for now, gas prices are down. In addition, prices paid for transportation of products from China to the U.S. are falling from the COVID-19 peaks. China’s economy is in terrible shape with constant lockdowns. However, with less demand for goods from China, we are receiving less stuff and our port backlogs are resolving as we have become a bit more efficient at the ports. We used to have tons of boats in the waters of the Pacific waiting to be docked to take stuff to the stores. Now, this stressful aspect of transportation costs is gone and the fear of a downturn in the freight industry is taking hold. However, the biggest component of inflation isn’t the transportation cost of goods from China to the U.S., it’s rent shelter inflation, which makes up 42.2% of the consumer price index. Housing is the significant X factor in our economy; I believe the growth rate of shelter inflation is already cooling off, it just won’t get picked up on the CPI date until next year. In September, when the CPI inflation data was being reported on, I talked with CNBC about how this data line lags with the CPI data. In addition, we have a lot of two-unit construction built, which will bring more supply online. If we can get this to happen, the Fed can end their rate hikes once they get to their desired level over the next few months. If the bond market’s long end can fall, we can get mortgage rates back down to 5%. Why does 5% matter? Currently, rates have fallen from 7.375% to 6.62%, which has boosted the weekly demand data to be positive for three weeks. Last week we had a decline in the year-over-year negative data, which went from 46% year-over-year declines to 41%. Remember, a big talking point of mine is that we would have hard comps starting in October of this year on a year-over-year basis. Last year, purchase application data volume was

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[ad_1] Exclusive-Microsoft likely to offer EU concessions soon in Activision deal -sources [ad_2] Source link

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[ad_1] Oil falls to near year's lows on China demand worries [ad_2] Source link

[ad_1] Last week the Wall Street Journal published a story by Andrew Ackerman stating that the Biden administration wants to target nonbanks for tougher oversight and additional regulation. The story states, “the Biden administration is laying the ground­work to target nonbank firms with stricter federal over­sight as regulators grow concerned about financial threats from companies operating outside of the tightly supervised banking system.” The article was striking to me because it was not long ago that members of a previous administration proposed defining nonbank mortgage lenders as a systemically important financial institution (SIFI) risk as a sector. The assumption was that if any were threatened with failure during a major credit event, that all would be equally susceptible to failure and thus labeling the collective entities in total as SIFI risks it would open up the ability to layer on significant regulation on all of them. In fact, former FHFA Director Mark Calabria spoke of this in early 2020 stating, “Instead of focusing on specific entities, FSOC will shift to an activities-based approach, looking instead to the overall threats to financial stability. In other words, even if no particular nonbank is systemically important, FSOC could determine that an activity, such as nonbank servicing, is.“ The concern about nonbanks began following the Great Recession of 2008 and became exacerbated in the Obama administration as policymakers saw the rapid rise in market domination of the IMB (independent mortgage banker) and the similar de-emphasis of lending from the banking sector, especially in the Ginnie Mae programs. The recent Wall Street Journal article only seems to reinforce the view that Calabria had in 2020 stating, “the aim would be to make it easier to label nonbank firms as systemically important financial institutions, or SIFIs, a designation that currently applies only to the nation’s largest banks and imposes extensive oversight in an effort to rein in risks to financial stability.” This entire discussion should be extremely concerning to all in the mortgage industry, especially the IMBs. With the recent implosion of FTX, the Bitcoin exchange company, the focus on nonbanks has only increased and unfortunately the contagion of risk for increased regulation could threaten the entire nonbank sector. But we need to focus on the truths about IMBs versus all the other crypto, fintech, and new nonbanks in the market. The fact is that the invaluable role that IMBs play is deserving of a counterattack to push back against the “throwing the baby out with the bath water” mentality that could be overtaking Washington. The Mortgage Bankers Association authored a valuable piece on IMBs that should be required reading for all policymakers as they consider trying to fix something that is simply not broken. So here are a few key points: IMBs are not at all related to the FTX collapse. As a recent NPR article highlights, the FTX problem was perhaps more similar to what a run on a bank might produce stating, “FTX couldn’t meet the demand for withdrawals, and lawyers said that, in that moment of crisis, it became evident there were serious issues with FTX’s management.” Which highlights the second point. IMBs are not risk-taking entities. They do not have “balance sheets” that retain credit or interest rate risk in any meaningful way. IMBs generally serve as pass through entities that originate mortgages to be sold to any number of investors including Fannie and Freddie, bank portfolios, or sold into Ginnie Mae securities. Once that transaction is completed, nonbanks retain primarily two risks. Originators retain representation and warranty risk against fraud or misrepresentation, as well as processing errors that can result in a loan defect worthy of repurchase. This is a real risk but far more limited in the QM lending world of today. The other risk is only one that impacts nonbank servicers who could be stuck with making advances to Ginne Mae MBS holders if the borrower defaults until such time as the loan is pulled out of a pool. But even in this case, the risk is short-term liquidity. The servicer gets made whole by the FHA mortgage insurance once eligible to file a claim. Banks, on the other hand, are risk-taking institutions. They buy and hold a variety of assets representing multiple classes from residential mortgages, second mortgages, commercial loans, auto, credit card, student, lines of credit and more. In a credit event they pose far greater risk should the regulators fail in their oversight and this is why the OCC and other prudential regulators focus so much on this sector. In fact, if you think of major failures following the 2008 recession, aside from Lehman Brothers, you think of WAMU, Wachovia, Indy Mac, Bear Stearns, etc. In fact this list highlights the hundreds of bank failures post 2008. The differences in risk, particularly systemic risk (SIFI) is stark between risk-taking institutions versus pass through IMBs. IMBs, more importantly, are regulated. In fact some might argue that they are faced with more regulation than most other financial institutions. They have to pass the reviews and meet the capital, compliance, and safety standards of their investors, warehouse lenders, the GSEs, FHA, VA, USDA, and Ginnie Mae. They get audited by the CFPB. They are audited, generally annually, by every single state in which they operate. And on top of it all, multiple federal regulators play a role in overseeing them from the CFPB, to HUD, to FHFA. And finally, there is this: IMBs are the entities insuring access to credit for millions of first-time homebuyers. As the Urban Institute points out in their quarterly chartbook, nonbank lending institutions are the ones offering lower credit scores to borrowers. And with the FHA providing a significant majority of the mortgages made to African Americans and Hispanic homebuyers, the dependency on the IMB to fulfill HUD’s mission to serve these segments is simply critical. While the banking sector generally backed away from the FHA program, IMBs not only fill that void, they have actually expanded the credit box from where

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