Morning Report: KB Home misses earnings

Vital Statistics:

Stocks are lower this morning on an increase in COVID cases in states like AZ and TX. Bonds and MBS are up.

Initial Jobless Claims were more or less flat at 1.5 million last week.

The third estimate for first quarter GDP came in at -5%, more or less in line with estimates. The price index (inflation) came in at 1.4%, which is lower than the Fed’s target.

The MBA is urging FHFA to expand access to the Federal Home Loan Banking network, by allowing REITs and independent mortgage banks to borrow from the FHLB. The FHLB provides longer-term financing at competitive rates. The collapse in the jumbo and non-QM market was directly related to mortgage REITs which funded their balance sheets with repurchase agreements and had to sell paper / stop buying when the margin calls came in March and April. It isn’t a panacea (some REITs with FHLB loans still were forced to deleverage) however it would have mitigated the collapse at least somewhat. Giving the independent mortgage banks access would make them more stable as well.

Homebuilder KB Home reported earnings yesterday. Earnings per share beat the Street, but revenues and orders disappointed the Street and sent the stock down 13% on the open. “The prolonged stay-at-home public health orders, resulting economic shutdown and our conservative approach to navigating the uncertain environment significantly impacted our orders during the quarter. However, following a low point in April, we are very encouraged by the resilience of housing market demand. We experienced steady and significant improvement in our order trends beginning in May, which was further fueled by welcoming walk-in traffic to our communities. This improvement has accelerated dramatically in the first three weeks of June during which time we have achieved a modestly positive year-over-year comparison, as orders have returned to more normalized levels,” concluded [KB Home CEO] Jeffrey Mezger. Orders fell 4% in March, 59% in April, and 42% in May. For the first 3 weeks of June, orders were up 4%. Still demand for housing remains robust.

Treasury is considering delaying Tax Day past July 15. “As of now, we’re not intending on doing that, but it is something that we may consider,” Treasury Secretary Steve Mnuchin said in a June 23 interview at the Bloomberg Invest Global 2020 virtual summit. He said he was considering another delay to Sept. 15.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray