Morning Report: Forbearance curve is flattening

Vital Statistics:

 

Last Change
S&P futures 2940 -7.1
Oil (WTI) 33.54 1.19
10 year government bond yield 0.73%
30 year fixed rate mortgage 3.28%

 

Stocks are flattish this morning on no real news. Bonds and MBS are down.

 

Fed Chairman Jerome Powell and Treasury Secretary Steve Mnuchin head to Capitol Hill to testify in front of the Senate today.  In his prepared remarks, Jerome Powell basically laid out everything the Fed has done so far, so it doesn’t look like anything new is going to come out of this.

 

Social distancing took a bite out of housing starts in April, falling 30% to 891 thousand. Building Permits also fell 19% from March. Separately, the NAHB Housing Market index increased in May to 37 from 30.

 

CNBC explains why this isn’t the Great Depression, even though the unemployment numbers are up there. The simplest explanation – there was no economic rot that caused the drop in the economy. No asset bubbles, no bad investments, no bank failures – it isn’t comparable. This was a healthy economy that was put in a deep freeze in response to a pandemic. Recessions generally exist because bad debt needs to be written off, excess inventory needs to be sold, and bad businesses liquidated. There isn’t any of that this time around. Just like the predictions of millions of deaths in the US from COVID turned out to be overly pessimistic, I think many of the predictions of a long, drawn out recovery will be too.

 

The Despot missed earnings expectations this morning, but maintained its dividend. It also withdrew its guidance for the rest of the year. The company took some actions to help its employees including paid time off, bonuses, and healthcare expense help which hit earnings by 60 cents a share. Meanwhile, WalMart reported strong numbers this morning as shoppers stockpile necessities.

 

It looks like the “forbearance curve” is flattening. “The pace of forbearance requests continued to slow in the second week of May, but the share of loans in forbearance increased,” said Mike Fratantoni, MBA’s chief economist. “There has been a pronounced flattening in loans put into forbearance – despite April’s uniformly negative economic data, remarkably high unemployment, and it now being past May payment due dates.”

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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