Mortgage Apps Soft, ISM Strong

March 5, 2012

The ISM Non-manufacturing composite came in at 57.3 vs. expectations of 56.0, and factory orders declined by 1.0% vs. an expected decline of 1.5%. This is the first decline in factory orders in the past four months. Factory orders for January were revised upwards from 1.1% to 1.4%.

China lowered their GDP growth target for 2012 to 7.5%, the lowest rate in the past eight years. The country has been battling a real estate bubble and domestic inflation. Technology and basic materials stocks were hit hard in APAC trading after the announcement. The Hang Seng fell 1.4%, Nikkei 0.8%, Shanghai 0.6%, Taiex 1.4%, Kospi 0.9%, ASX 200 0.2%, and Sensex 1.6%.

European banks, after just squeaking past the Greece crisis, have reportedly been heavy sellers of Italian sovereign debt over the past eight weeks. The banks are very conservative right now as they deposited 777 billion Euro into the ECB’s overnight facility last Thursday, right after the second tranche of LTRO funds were allocated.

The Mortgage Bankers Association’s Purchase Application Index shows a slight uptick for the week ended February 24, which would normally be viewed positively until we take a look at the longer term chart (below). Applications are above the recent low of August, but are dramatically off the all-time highs recorded in 2005.

AIG, the insurance company that we bailed out in 2008, has announced plans to sell its Asian insurance unit for $6 billion. The company intends to use some of the proceeds to repay the $183 billion it owes US taxpayers.

I’m the only adult I know who admits to liking the food at McDonald’s (MCD), although when I eat there I try to keep it simple-burger, fries, soda and a nap. The company has launched a new version of its McRib sandwich in Austria, called the McRibster. This item must have been dreamed up by cardiologists looking to generate customers for the long run. It contains “juicy pork, bacon, pepper-Jack cheese, crunchy iceberg lettuce, red onion, honey-mustard sauce, and spicy sweet chili sauce. The major difference between the McRib and the McRibster appears to be in the preparation, where the McRibster is DEEP FRIED!!!

From Peter Boockvar: “After receiving 530b euros of fresh funds from the ECB, European banks immediately re-deposited 300b of it right back at the ECB. Total overnight deposits at the ECB now total 777b euros up from 475b yesterday. After 11 straight days of drops for Spanish bond yields, they are rising today after Spain’s PM said their budget deficit target is 5.8% of GDP, above the agreed level with the EU of 4.4%. This is not new news but Spain was hoping the EU would give them more breathing room but the Germans would have no part in that. Italian bond yields have also stopped falling for the 1st day in 6 as their 2011 budget deficit as a % of GDP came in at 3.9%, a touch below expectations of 4.0%. The rising price of oil showed up in the Euro zone PPI for Jan as overall prices rose .7% m/o/m, the biggest gain since April as energy prices rose 2.2% m/o/m. With Brent crude up another 10% in Feb, this upward trend will continue. From an economic impact standpoint, comparing this move higher firmly above $100 with the one in ’08, both are being lifted by global easing but the main difference is this time is due to supply constraints, the bad kind as opposed to strong demand that was seen in early ’08 before everything hit the fan in late ’08.”

US Republican candidate Mitt Romney has vowed to repeal both Dodd-Frank and Sarbanes-Oxley. He has also discussed plans to reduce the impact on small and mid-sized firms of these bills. In my view he’s missed the boat if he doesn’t repeal Gramm-Leach-Bliley, the ill-advised 1999 law that repealed Glass-Steagall and directly contributed to the financial crisis.

The chart below, courtesy of Realty Trak, shows that foreclosure sales as a percentage of total home sales have declined over the past two years. Analysts are attributing part of the decline to the foreclosure moratorium, where banks agreed not to process foreclosures until the back end issues (think Robo-signing) were clarified. I would expect that percentage to increase into the back half of this year as banks begin pursuing foreclosures once again.

I'll mention this periodically in notes, but again I'd like to thank Falcon Point Capital for their sponsorship of this site. Their add and a link to their website can be found in the upper right of this note.

Have a great day

Ned