Endgame?!? Tales of a Green Hulk Smash


With all these leaks coming from the highly anticipated Marvel movie Avengers Endgame camp, I thought it might make sense to do a tie with that for today’s blog post.  So what are we talking about?

What’s the Fed’s endgame?

Is this the endgame for hikes and 3% yields?

How about an economic endgame?

Maybe all of the above.

Yesterday’s Fed meeting brought with it a pretty significant rate rally.  A great big green Hulk smash on screens if you will.  What did they say that flooded money into bonds?

For me, I didn’t care much about what they said, but rather that they said it at all.  You see, this is a Fed that has been hellbent on raising rates.  For those of you that have followed my posts, you know that I believe they’ve been offsides quite a bit.  They’ve seemingly doubled down on good data and tried to brush off the bad numbers for years now.  Make no mistake, we did see some lift in the economy in the last year, but that’s evaporated in a Flash (yeah I know DC).   I guess my ‘Spidey senses’ were right in the end though.  That statement yesterday dropped like Thor’s hammer and we saw the mighty Fed capitulate a bit by signaling that the economy is softening.

That alone was enough to send bonds running, but the tweaking that they made in their balance sheet approach was the cherry on top.  Any hint and an endgame to the Fed’s assault on rates is huge.  For those that have been calling for a recession in the somewhat near term, and by now that’s just about everyone, what yesterday does is provide a back stop of sorts.  The Fed’s march to higher rates has been about as hard to stop as a Juggernaut rampage and bond buyers have been apprehensive to run on bond friendly data.  We rally and hang, pull back, move forward, hang.  Since that quick drop from 3.2x, we’ve been in a holding pattern for most of Q1 and that’s why despite some lackluster data, we were hung up at 2.62 for so long.  Yes the bond vigilantes have the good ’ole inversion trick in their bat utility belt (I know DC again), but if the Fed is giving in to the data, there’s really nothing holding us back other than the data itself.

What does this mean for Mortgage Loan Originators or even the average borrower?  It will be no surprise to hear that I’m about as bullish on yields as I’ve ever been.   If you push out to a multi-year chart, the next stop is way out there for most coupons, so I see a lot of room to run.  The flip side of that is with so much room, we need some reasons to run that much farther and I’m not sure that’s coming tomorrow.  But alas, with great power comes great responsibility.  So I’d be day to day right now, with a float bias for sure.  Believe me, if you lock in at these rates and we test 2% in the next 12-18 months, your friendly neighborhood loan officer will be happy to refinance you, here at Equity Prime Mortgage we do ‘whatever it takes’ to help you realize your dreams of homeownership…

As the late, great Stan Lee would say, ‘Excelsior!’

-Philip Mancuso

Are we caught in an economic Groundhog Day?


Headline beat, big revisions, muted wages, repeat.  Things are great, oh wait maybe not, repeat.  Fed threatens to or does raise rates, economy brakes either immediately or somewhat shortly thereafter, repeat.

While tomorrow is the real Groundhog Day, frankly I feel like I’ve been in an economic groundhog day since roughly 2000.  For those of you that have followed me, you know I keep repeating my thoughts about the disconnect between the reality of our new economy and how traditional economists fail to understand the nuance between broken and different.  We talk about a jobless recovery.  Then we talk about an inflation-less recovery.  Now that jobs are moving gain, we talk about the lack of wage growth.  We want to read these numbers as great.  Let’s face it, the headline number today was great!  So then isn’t all this tightness in the labor market not pushing through to wages and therefore perplexing the Fed?

The disconnect is economists at large are dismissing the underlying reality which is that consumers and businesses have changed forever.  The consumer experience has changed forever.  What used to be a process of want, buy, enjoy, repeat, has become, need, shop, wait, shop, wait until I get the best price, buy, repeat.  Hold one though, this isn’t just on the consumer.  Let’s push up the chain a bit  because this doesn’t make complete sense.  We want to be happy right?  Shiny new things make us happy right?  So why has QE infinity generally failed?  I’d argue it’s gone something like; company borrows cheap,  keeps the savings because sales are slow, holds wages, no disposable income, people still not euphoric, muted buying, bigger sales to trigger buying, consumer conditioned to not want/need as much, made sales at little to no profit, can’t increase wages, automate processes to find margin, repeat.   It’s this huge economic black hole.  We’ve seen it before, after the Great Depression.  Folks stocking up cans even 40 years after we were long out of it.

The catch 22 is how can companies push wages without price elasticity and how can prices grow if people don’t have disposable income to spend or the desire to spend it??  OK, OK, so then why has there been a measurable recovery in certain segments of the country/economy.  Well I’ve covered that ad nauseam as well.  From my perspective, all the money that has gone to creating some of these mini-booms over the last two decades has been driven by everything except earned income: inheritance, market growth, real estate appreciation, low rates, tax cuts.  And when any or all of those things go away or a family doesn’t experience any of those events, we’re left with wages suck in the late 90’s and therefore no real ability to spend at the level and pace needed for a real, widespread recovery.  Need proof?  Household income in 2017 was negligibly higher (like 2%) than it was in the late 90’s.  The late 90’s!!!!  Make no mistake though, we also have an altered sense or doing well.  5 TVs, 3 iPhones and 4 cars wasn’t exactly the family norm in 1955 when things were “great.”   We consume more and that is no doubt a huge factor is our spending patterns.  One could certainly argue that our heightened level of consumption has a ton to do with our heightened persistence to focus on price and value.

So what does this all mean?  Well at the risk of repeating myself for about the millionth time, until we figure out that automation and information isn’t going away, in my humble opinion; we’re doomed to repeat the rate cycle we’ve been stuck in for nearly two decades now.  I still see no reason to believe that the rate friendly environment we’ve been in since the 80’s won’t keep trucking along.  Every time things start looking good, Ole Punxsutawney Phil seems to duck back into his hole for some more winter…

-Philip Mancuso

How might the shutdown impact mortgage rates?

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Well firstly, it already has to some degree.  Understand that the market doesn’t like uncertainty. We can really distill that reality into two phrases; Risk on and Risk off. If the market is in a Risk on mindset, investors are looking to take on risk to get yield or return.  The opposite is true of a Risk off bias.  Logically, one is less likely to take on risk in times of uncertainly, as it make the risk even riskier.  Therefore, right now the risk to the economy during a shutdown is severalfold.

Firstly, there are hundreds of thousands of workers partially or fully out of the workforce that are directly affected. Presumably they will spend less during this period, so businesses are indirectly affected by these furloughs. Lastly, much of the data that market participants use to trade stocks, bonds and the like aren’t made available during a shutdown. Therefore an already nervous market is somewhat flying blind.  Risk, on risk, on risk.

Couple this with a softening of data that lead into the shutdown and the result is a pretty friendly rate environment. Investors take off risk and embark on another term you may have heard, a flight to quality. The concept here is that government bonds are a safe haven asset as opposed to riskier stocks and other tradable instruments. This flight into bonds lowers yields and that usually lowers all other rates.

At the risk of getting a bit too technical here, we have seen the spread between government bonds and mortgage rates widen during this stretch.  This means mortgage rates haven’t dropped quite as much as bond yields, despite the correlation between the two.  With seemingly no end to the shutdown in sight, I wouldn’t be shocked to see rates continue to drift lower, however I advise some caution.  As aforementioned, the shutdown itself isn’t the primary driver here and moreover will end.  Therefore there will be some relief on investors when it ends and a bunch of data that could change the landscape of the risk appetite of the market.

Additionally, there’s an entire world around us that isn’t in a shutdown and those events impact our rates too, which leads me to one last economic catch phrase:  cautious optimism.

-Philip Mancuso

How the Fed Stole Christmas


My annual tribute to the markets around the holiday’s tweaked slightly for 2018.  Amazing how much of it still applies 4 years later…

‘Twas the night before Christmas, when all thro’ the house,

The Markets were stirring, bonds were aroused

The Fed dropped the hammer, rates started soaring,
Oh wait, no – they’re actually snoring;
The pundits were sparring, ’bout grandeur and dread,

While visions of recovery danc’d in their heads,
And Powell on the hot seat, with rate hikes on tap,
Had low rates been settled for a long winter’s nap?
When out in markets there arose such a clatter,
Bond traders said hey wait, let’s look at the data!

So yields went the other way in a quick flash,
Dropped below 2.80, a big green hulk smash.
The range stayed the range, as it has for some time,
Rates didn’t jump, the result was sublime;
When, what to my wondering eyes should appear,
Rate have been rallying, borrowers had nothing to fear,

With trading in holiday mode, not so lively and quick,
Instead of flashing lights, we get a few ticks.
More rapid than rate hikes the answers they came,
Powell whistled, and shouted, and call’d them by name:

“New! normal, new! Job starts, new! products, and spending,
“On! Rate Hikes, on! Tightening, Stop shouting and dissing;
“To the top of the charts! Go out to the mall!
“Now spend away! Spend away! Spend away all!”

So is the great bond rally done? Should we even ask why?
When rates meet with this obstacle, should they sink or fly?
Another year in the books, time indeed flew,
With the sleigh full of app drops – Oh boy, Oh boo hoo.
With higher bond yields, closings went poof
Borrowers and Lenders all shouted ooof!

As markets meandered and twisted, they spiraled around,
With soaring expenses, came reality with a bound:
Instead of dressing in fur, from our head to our feet,
Or eating lobster and caviar or even prime meat;
Lenders hunkered down a bit, as applications contracted,
PB&J and puddings, brown bagged lunches were pack-ed:
Apple is struggling! Still better than Blackberry
Microsoft is surging, oil’s almost buried;
Yachts, and G4s, cars wrapped in bows,
All the Fed’s money still missed main street, OH NO!!

Lining the pockets of big companies and Wall Street,
Not helping the masses, the plan’s incomplete.
They had good intentions, albeit misdirected
Now markets, the wealth gap and expectations’r disconnected!
They talk’bout dual mandates, jobs and inflation,
Playing with the future of a once powerful nation;
A wink of their eye and jab of the elbow,

When will their plans work and the economy really go?

Let’s be realistic though, maybe things aren’t so bad,
We’re still a free country, the new iPhone is rad!
Cell phones and satellites, watches that talk,
Boards that we ride on, no need to walk : /

Flat Screens and tablets, the web’s everywhere,
Nose jobs and waist training, even surgically replaced hair!
So let’s keep looking forward, aspire to greater heights,
Happy Christmas to all, and to all a good night.


It’s a few days early, but Merry Christmas and happy holidays everyone.

-Philip Mancuso

Diversion from the Inversion


Hey folks. 

Since my Toys-R-Us post, not much has really changed.  Still banging around 2.9, data still not stellar, Fed still hell-bent of hikes, long end still resisting.  If I go back to some of my posts 2-3 years ago, there are things that have changed, pockets of some economic hope.  At the same time, the very basis for my unmitigated, unwavering bullishness in bonds remains; technology and information. 

Unless the internet goes away, unless every machine is shut down, the very anchor on price and wage growth remains and dare I say strengthens it’s grip on inflation, and therefore; persistently low-ish rates.  As far as I’m concerned, everything else is a diversion.  I recall the reasons we boomed out of the dot.com bust; home prices, inheritance, historically low rates, intra-year tax cuts.  All transitory influences on spending. 

Note the big exclusion; WAGES.  Here we are, nearly two decades later.  In nearly the longest, yet unimaginably lumbering recovery the free world has ever seen.  What is driving us?  Home prices, tax cuts, stock prices. Familiar?  Note what is missing, yep, WAGES.  So how is now different?  Why is now different?  See every post I’ve ever done.  I don’t believe it is.  It’s a diversion, some noise from the reality of a new economy.  One that generally doesn’t support long term inflation and further creates a wealth gap that doesn’t support sustained and widespread growth. 

What does this mean for mortgage rates?  We always want to play protect, but on longer term basis I’ll just say I like the way things are shaping up.  So will there be an inversion?  It looked for some time like the Fed learned from the mid 2000’s, but perhaps they didn’t.

-Philip Mancuso

It’s All Fun and Games Until Someone Gets Hurt

OK, so I guess it’s time for the hermit to emerge from his winter’s slumber to speak a bit about the market.  I do again apologize to my followers for not speaking more often.  Anyway:

 The Fed hiked as expected yesterday, yet perhaps the market didn’t react in kind.  I going to spend a few bullet points on this before I get to why I write:

  1. Many folks were bracing for 4 hikes in 18
  2. Fed signaled 3
  3. Powell said forget about 19-20, which at the time of the statement were reason for concern
  4. We’ve been unable to break 2.9ish for some time

The longer we stay(ed) at these levels (2.9ish), the more likely it is we’ll see(saw) a bounce, just as our inability to break lower in q3 2017 inversely hurt us.  I’ll just add that I’m not so sure the Fed should have shrugged off the weak q1 consumer…

Now that’s a good segue into my point.

If you were a kid growing up in America (they later became worldwide), was there a greater place than Toys r us? I mean who didn’t want to go there?  Who’s parents didn’t shop there?  For goodness sakes, their name IS TOYS R US.  They R TOYS!!!   Well no longer.  No more fun and games.  No more holiday time retreats for kids to show their parents the toys they so want for Christmas.  They are closing the doors.  Replaced by a computer or smart phone.  Very romantic.  And why does this matter??  See every post I’ve ever written.  This compression of the retail distribution channel and erosion of price elasticity is the culprit of the persistently low inflation numbers that is so perplexing to the Fed.  Why?  I don’t get it.  To me it’s clear as day.  In a bit of irony I can’t help but feel like just as Toy R Us didn’t see this new wave of commerce as a threat, the Fed continues to miss the mark similarly of why we are in a growth and inflation-less recovery. 

We’re now almost through the first quarter of 2018 and the consumer numbers have been weak.  Really weak.  Like negative weak.  Sure there’s some stronger numbers printing here and there, but we can’t have a recovery without consumer spending.  We’ve seen homes pause here as of late as well.  Is that the result of higher rates?  Not sure, but it’s hard for me to digest a recovery if the folks who are recovering all of the sudden aren’t spending money on goods or homes.  It makes me wonder if something is brewing below the surface.  I think the next few months will be very telling. They historically have been rate friendly, let’s see what happens.  I certainly wouldn’t base my recovery estimates on the Feb BLS number.  It’s not the first time we’ve seen a blowout Feb number.  March has historically been a down month, so if we see that pattern continue it could extend the rally.  You know I’m a big ISM guy, so I’m really interested in those March numbers as well.  I’ve been surprised by the fact that the spending numbers haven’t weighed down the ISMs and wondering if/when that may happen. 

TO BE CLEAR, I’m NOT making a call here.  That said, I do think some moons are aligning that could leave us with some surprisingly disappointing economic data in the coming months.  I’m not ready to make a call yet, because frankly I do see things as being a bit better.  I get that, I see that.  For me the 64k question though is better how?  What I’m not convinced about is that unlike in the pre-web days, some extra money, a bigger smile and a job doesn’t necessarily equate to a convergence of disposable income and the willingness to spend it like a drunken sailor and both are needed to fuel real growth and inflation.

NOT making a political statement here, but maybe we’ve all gotten to be a bit too serious.  Maybe we could all use some fun and games and just maybe that’s a bit more important than saving a dollar. 

RIP Toys R Us   

I just wanted to add this to my rant from earlier.  This is quoted from an AP article.  THIS is the impact of online sales vs brick and mortar that IMHO the Fed is discounting too greatly.  While TRU only has about 30k employees, check out how many jobs outside the company might be lost if they shutter.*  Do you think this many folks have a stake in an online toy sale????

The demise of Toys R Us will have a “devastating effect” on the toy industry, said Larian, who believes that 130,000 U.S. jobs could be lost when layoffs at suppliers and logistic operations are included.

* I write IF, as there is a long shot attempt to salvage parts of the company by the CEO of toy manufacturer MGA Entertainment.

Here’s the link to the article  https://www.msn.com/en-us/money/companies/toy-company-ceo-leads-effort-to-salvage-toys-r-us/ar-BBKxNlL?ocid=spartanntp

Maybe we should be reading the tea leaves…

Q2 GDP just printed and while you can draw some near term conclusions, I’m compelled to push back a bit as I usually do.
Frankly I don’t care about 2.2 v 2.5 v 2.8 right now.  As we know this number could be off 1 anyway.  We saw 2015 rev up, 2016 and Q1 2017 rev down.  Make no mistake, net, this is a bad 2017 report.  The combined total of Q1 and Q2 miss, earnings missed, prices missed.  The other components were a bit of a mixed bag.
I don’t want to get caught up in the weeds though, I’m a bit more focused on the leaves…Tea leaves.  Why?  Starbucks is shuttering all their Teavana stores by Q1 2018.  Why?  Mall traffic or lack thereof.  Why does this matter?  Well, to TEA (sic) it up for you, here’s a refresher you can catch later:
So why do we care about mall traffic, people are just buying on the web right?  I’ve covered this topic before as well, so I’ll keep it short.  All commerce isn’t equal.  E-commerce clearly has a much smaller eco-system and lower margins.  Both equate to a much smaller segment of the population benefitting from an E-tailer’s propriety, versus a brick and mortar shop.  The result is an anchor on prices and thus inflation and wages, and oh yes, an extended period of low growth.

If you don’t believe that, check this out:

Therefore, in the near term, I still see the range intact.  Who knows if the Fed moves.  Maybe we do make a run at 3 before year end as ridiculous as I think that would be.  I have difficulty seeing a break above 2.41 in the near term though.  We have a ton of data next week, so it makes sense to play it close to the vest until then as you never know, perhaps with a slight bias to lower rates.  More importantly, until something big comes along to change things, all I keep seeing is #LowerForLonger.  It’s #InTheLeaves
#WhatRecovery #ThingsAren’tBroken #Hashtag
-Philip Mancuso

It’s 5 O’clock somewhere

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Hey folks, it’s been too long.  I just haven’t felt inspired.  My thought was I’d just do another piece on how the market got it wrong @ 2.40 and calling for 3 by year’s end.  I mean how much of that can you really hear?  Here’s a quick refresher and those new to the blog, please go back and read the previous posts to catch up.   It figures I’d pick a day with no data and where it seems all of Wall Street is likely already sipping on gin and tonics in the Hamptons to post.  At worst, they fired up the helicopters by now, I mean nothing is happening.   My screen hasn’t blinked in what seems like 5 minutes.

Anyway, a slightly positive open reinforces the trend down.  As liquidity evaporates into the Long Island sun, the afternoon could go either way.  I wouldn’t read to much into it.  

Range intact?  Check.  

2.12-2.41 with stops in between.  Check.  

Data not correlating with central banks desire to tighten.  Check.  

For the 9,833,123rd time central banks realize there will be a tantrum if they try to get serious and consequently are forced to reel it back in.  Check.

I see little inspiration to break 2.12, so I’d continue to lock the range (always look out for geopolitical stuff, etc).  Our first run at a new direction comes at the end of next week.  Durables on Thursday (meh), but a pretty important Q2 GDP on Friday.  Here’s my thought:  Central bankers are already hellbent on further tightening.  I can only see this report as surprising them to the downside and thus giving reason for pause.  I mean, what sort of blockbuster would require them to redouble their current tightening efforts.   I’ll post a strategy around mid week around that.  Locks/floats ahead of that event are really predicated on current levels, so it’s not something I’d want to advise on today.

In the meantime, it makes sense to lock whatever July stragglers are left and you you feel froggy, early August closings could float, but I’d begin locking those up if we break 2.20.

-Philip Mancuso

Who cares about rates, you need to change your cell phone plan!

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  1.  Who knew I had a bad cell phone plan.  I was looking to the Fed to set rates, but this was a huge help.  
  2.  The Fed picks now to get hawkish????  What are they seeing that they haven’t in the last 8 years?
  3.  Generally the market doesn’t care, but we’re certainly not as happy as we were at 1:59

So my near term takeaway,  most everything I said in my prior post sticks. Obviously they didn’t hold, thus we’re not seeing 2 by 5:00.  The market is having one of the expected reactions though, which is they are largely ignoring the hawkish tone due to the weakness of the underlying data.  I’d have the same approach to locking, except add a bit more caution.  I don’t think our path has changed, it’s perhaps just gotten a bit steeper and a touch longer.


In a broader view:  What the heck just happened??? Did Yellen just blame cell phone plans for being a drag on prices????

What’s next?  A leak that Wendy’s is considering taking one slice of bacon out of the Baconator as a reason to short pork???  C’mon.  Also, she clearly hasn’t been to the drug store if she thinks prescription drugs are cheaper!!  Hello, EPI pens!!?!?!?!?

I must say that I believe what possibly just happened was a worst case scenario for the economy.  The fed more bearish, announcing a hike and balance sheet activity.  This is 2005/2006 IMHO.  Ignoring the facts, being pig headed.  Staying the course because that’s what you do, that’s what we’ve always done.  This isn’t the old economy though!  This could crush the economy as it did in 2008 if they stay this course IMHO.   Just as I predicted on CNBC 2005, and I loosely quote “the fed is tightening for no reason and they are going to wake up and say oh my God what did we do?”  Now we are potentially looking at a stock and balance sheet bubble that could burst.  We already are talking about a potential yield inversion.  You know when that last happened????  You know that is usually an indicator of a recession right??

This is not good.

In terms of today, we are surging back into the closed it’s looking like 2.12.  That level in itself doesn’t tell me where we are going tomorrow, so it’s a bit of a coin toss.  I go back to earlier, I would stay the course, just with a bit more caution.  #lowerforlonger for sure though.

I have to go now.  I’m headed to the mall to change my phone plan and refill my son’s allergy prescriptions.  Who knew…

-Philip Mancuso

No bull just an outright bull rush


Nothing funny, no anecdotes, just straight stuff here.

What we are seeing is a strong move down in coupon on the data tanks. It’s unlikely we will see this in all rate sheets today as the fed is looming at 2, but all things equal we would see it in reprices later or tomorrow.  Pulling out to a higher level for a moment, when something like this happens we see lower rates improve exponentially and the belly and upper end move negligibly.  I can’t even rule out higher rates worsening slightly as par rates get adjusted.

Further, make no mistake this is a full on repricing of 2017 as far as I see it.  The Fed doesn’t have a leg to stand on right now.  Consumer crushed, inflation in check, jobs sagging.  If the Fed holds today, we may breach 2 by 5 even if temporarily.  Keep in mind we have been repricing 2017 all the way down here, so at some point there may be some profit taking.  As for the Fed, the key is looking at the projections, which by the way they haven’t gotten right since 1582. OK here’s my Mancuso soap box:

  1.  If we are getting shook here, what happens when the Summer data is typically bad?  Can we bet on that data being good?  That a typically rate friendly period all of the sudden reverses the trend, both on an intra and multi year basis?
  2.  If we’ve been in recovery as many would sell you on, then this data weakening is a sign of a potential move to recession.  This is almost year 10 of the “recovery” right?
  3.  Get ready for the hashtags

#lowerforlonger #whatrecovery #theywerewhowethoughttheywere #ifitwalkslikeaduck #sink-oohmy-o #there’sbeenanawakening #somethingfunnyhappenedonthewayto3% #thingsaren’tbroken #figureslieandliarsfigure

OK, so now a touch of reality.  Rates never go straight down.  More importantly, while my reaction today is a bit over the top, its more about “I told them so” then it is that I think something groundbreaking has happened here. I just get the sense that a bit more of the market is coming around to our way of evaluating the facts.  I would simply stay within the narrative of #lowerforlonger and therefore to hit when it makes sense. Pigs get slaughtered.  I don’t think locks here are a terrible idea, even if the full move hasn’t been realized.

We don’t know what the Fed is going to do today.  At the same time even if they fully unload on us will the bond vigilantes go over the top?  I can’t rule that out.  There are a ton of moving parts here to figure out where we go from here and it could still go either way, but I do feel pretty strong here though.  I think floats have a bit more room. Again, don’t get greedy.  If we hold these levels into the close, I’d take the winner off the table either on the first pull back or 2 neg days in a row if it’s a June/early July closing.

My bottom line for Quarter 2/3:

95% we see 2.00

65% we see 1.80

My bottom line for Quarter 3/4:

30% we see 2.42

50% we see 2.35

0% we see >2.65

-Philip Mancuso