|10 year government bond yield||1.08%|
|30 year fixed rate mortgage||2.83%|
Stocks are higher this morning on no real news. Bonds and MBS are flat.
The upcoming week will have some important economic data at the back end, with the jobs report, the ISM numbers, and productivity. We will also have a lot of Fed-speak.
Mortgage Servicers are going to be a target for the CFPB. In an email to staff, the new acting director laid out the priorities for the CFPB and intends to reverse the changes that Mick Mulvaney made. The email laid out the various issues that it found last year
- Mortgage servicers gave consumers incomplete and inaccurate information about CARES Act forbearances, failed to process forbearance requests, and collected and assessed late fees despite having approved forbearances.
- Servicers withdrew money even though consumers were in deferment.
- One student loan servicer denied thousands of forbearance extensions because the loan holder never responded.
- Companies across markets misreported accounts to credit bureaus and violated CARES Act amendments that added protections to the Fair Credit Reporting Act.
- Some banks set off stimulus payments and unemployment insurance benefits in order to cover bank fees and other debts.
- Examiners found that the widely used policy of banks only taking PPP applications from pre-existing customers may have a disproportionate negative impact on minority-owned businesses.
There will be a big focus on fair lending as well. The agency is going to rescind the letters put out by Mick Mulvaney and reverse all the changes me made. The CFPB is going to return to the bad old days of regulation by enforcement action. Be prepared.
I expect the net result of this will be a decrease in mortgage credit at the low end of the FICO curve. VA IRRRLs are going to decrease, and I think banks will continue to avoid FHA like the plague. Bottom line, the regulators will look at the amount of money the industry made last year and they want a cut. Keep your heads down.
The G-Stonk (Gamestop, for those not familiar) saga seems to be winding up, although I think they aren’t squeezing hedge funds any more. While Robinhood is no longer accepting buy orders, this only mirrors what the institutions have done. Prime Brokers are demanding 100% margin on the long side and 300% margin on the short side. Margin calls are rough sledding on the long side, but on the short side they are 1000% worse. When you are short, your position size increases the more wrong you are, and the amount of margin your prime broker requires increases exponentially. And since the prime broker has to cover the losses if the hedge fund defaults, they aren’t going to let the position get out of hand. I suspect the hedgies are long gone, and this is nothing more than a game of greater fool with a bunch of Redditors. Why Gamestop has not taken advantage of this to do a secondary share offering and retire debt is beyond me.
Supposedly, the next target is silver. I think these folks are about to find out that the futures exchanges have a completely different set of rules than stock exchanges, with position limits, trading limits, and variance margin. Not only that, the silver market has seen this movie before.
What to make of all of this? IMO, this is nothing more than “fin de bull market” behavior. When bull markets get long in the tooth, they get harder and harder to trade, as the crappiest stocks tend to rally the most, while pockets of value are ignored.
For those that are old enough to remember, in the late 1990s, you would find ads for stock split beepers in the back of Barron’s. These were pagers which would send an alert that a stock split had been announced, and to get in the name. Stock splits are not value-enhancing events; they increase the shares outstanding, and the stock price generally falls in proportion. Instead of owning 100 shares of a $20 stock, you now own 200 shares of a $10 stock. Does it make the company worth more? Of course not. But, in the late 90s, a stock split, or a company changing its name from Zapata to Zap.com could get a stock moving.
I remember monitoring the IRC chatrooms to see if the daytraders were moving a name I was involved in. Most of the time it was garbage names that did a moon-shot and then fell back to earth. This is no different. This feels like late nineties silliness, when CNBC replaced ESPN in the barber shops, and retail investors poured money into garbage names like CMGI and Ask Jeeves.
This is end result of “too much money chasing too few investments” courtesy of the Fed. The drop-dead date is when the Fed takes the punch bowl away, which is probably a year away at least. That said, it could easily end sooner. One of the best investors of all time is George Soros, and he made the most money in these situations, not fading the crowd, but riding along with it. If you are a buy-and hold investor, don’t try and time it; just keep doing what you are doing.