Morning Report: The Congressional Budget Office reverses its economic projections.

Vital Statistics:

S&P futures379733.3
Oil (WTI)55.021.44
10 year government bond yield 1.11%
30 year fixed rate mortgage 2.83%

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are down.

The number of loans in forbearance was unchanged at 5.38%, according to the MBA. “While new forbearance requests dropped slightly, the rate of exits from forbearance was at the slowest pace since MBA began tracking exit data last summer,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Overall, the forbearance numbers have been little changed over the past few months. Homeowners still in forbearance are likely facing ongoing challenges with lost jobs, lost income and other impacts from the pandemic.”

The CFPB is going after servicers who they claim gave borrowers “inaccurate and incomplete information” about forbearance. The agency alleges that some servicers continued to collect late fees and sent notices about the loan being past due.

Home prices increased 9.2% in December, according to CoreLogic. “Two record lows are fueling home price gains: for-sale inventory and mortgage rates. Prospective sellers with flexible timetables have opted to delay listing their home until the pandemic fades or they are vaccinated. We can expect more inventory to come available in the second half of the year, leading to slowing in price growth toward year-end.” Inventory is 24% lower on average compared to 2019.

The Congressional Budget Office sees a rapid economic recovery in 2021, with GDP growth around 3.7%. Unemployment is expected to fall to 5.3% this year and return to 4% between sometime in the 2024-2025 timeframe. This is a change from their expectation over the summer that the pandemic would lop about $7.9 trillion off of GDP over the next decade. The CBO attributes this change of heart to the vaccine, but I don’t think that is what is going on. There is a persistent partisan bias to Fed projections as well as CBO projections. The Fed consistently overshot GDP projections during the Obama admin and then consistently undershot GDP projections during Trump. The CBO’s change of heart is just more of the same. It is just partisan wishful thinking. The elephant in the room is still the government-engineered sovereign debt bubble, and nobody has a clue how that ends.

The manufacturing economy continued to recover in January, according to the ISM Survey. The persistent message in the survey is shortages. Every commodity is in short supply, while skilled labor is hard to find. We saw similar sentiments expressed by logistics REIT Prologis in its fourth quarter earnings call. It says that inventory to sales ratios are at record lows, and the COVID-19 pandemic highlighted the risks of operating with too little inventory. The big question regarding these shortages concerns inflation. I think most people are seeing inflation at the supermarket, and we will see what is happening with wage growth this Friday. Is this increase in inflationary pressures nothing more than a temporary COVID-19 related phenomenon or something more permanent?


Author: Brent Nyitray

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

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