Morning Report: Jobs day

Vital Statistics:

 LastChange
S&P futures3311-53.6
Oil (WTI)37.05-1.19
10 year government bond yield 0.66%
30 year fixed rate mortgage 2.91%

Stocks are lower this morning after Trump tests positive for COVID. Bonds and MBS are up.

President Trump and Melania have tested positive for Coronavirus. Vice President Pence has tested negative. Trump will be in quarantine for the next several weeks. I guess this means the next debate (if we even get one) will be via Zoom.

The economy created 661,000 jobs in September, according to the jobs report. The unemployment rate fell 0.5% to 7.9% while the labor force participation rate fell 0.3%. The job gains were primarily in leisure and hospitality, which means restaurants. Retail was next in job gains. The labor economy is still improving, but the elevated initial jobless claims as well as the declining labor force participation rate are worrisome. About 23% or workers telecommuted.

Wells put 1,600 lenders in forbearance without the borrower’s consent, according to a report from NBC. About 900 of the borrowers were going through personal bankruptcy at the time. Wells has changed its practices, although the last thing the bank needs is another regulatory or political headache.

Caliber is planning to go public, according to a report by the Wall Street Journal. That would make 4 actual or rumored mortgage banking IPOs this year: Quicken, United Wholesale, Loan Depot and Caliber.

The interesting thing about the mortgage banking IPOs is that the multiples are downright lousy. Rocket is trading at 21.87 expected to earn $3.36 this year, which means it is trading with a P/E ratio of 6.5. PennyMac is expected to earn $15.87 this year and is trading at $57. That is a P/E under 4. The winner of the low multiple derby has to go to Mr. Cooper, who is expected to earn $8.12 and is trading at $22.64, which means it has a P/E of 2.8. I understand mortgage banking is highly cyclical and all, but the Street is treating these stocks as if prepayment burnout will begin in January. Given the Black Knight estimate of the refinanceable universe, it will take years to work through that backlog.

Construction spending rose 2.5% YOY in August, according to the Census Bureau. Residential construction was up 7%.

Author: Brent Nyitray

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

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