Oyster Stew! WTI Crude Spot Rises 21%, US Jobless Claims Up 4.43 Million (But Slowing), New Home Sales Decline -15.4% MoM In March

I feel like we are in the Three Stooges film “Oyster Stew.” Every time we look for good news, more bad news come out.

But here is some good news.

WTI Crude oil is up 21.26% this morning .. to $16.71 a barrel (still low).

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And while US jobless claims rose 4.43 million the past week, the US is several weeks past the peak. (Knock on wood).

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But back to crude. Saudi oil is still negative for heavy and medium crudes to the USA.

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Now for the oyster eating the cracker.

US new home sales fell -15.4% MoM in March.

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As I said, oyster stew.

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WTI Cushing Oil Plunges Below $11, Hotel Occupancy Rate Declines 69.8% YoY To 21% (All Time Record Lows)

My Corona!

The lack of demand for oil (and incredible supply build-ups) had led to WTI Crude oil to fall below … $11!

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WTI Crude (Cushing, OKLA) is now at an all-time low.

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Crude oil prices in the Middle East are … negative?

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On the hotel front (government lockdowns are pretty bad for travel and hotels!), in comparison with the week of 7-13 April 2019, the industry recorded the following:

Occupancy: -69.8% to 21.0%
• Average daily rate (ADR): -45.6% to US$74.18
• Revenue per available room (RevPAR): -83.6% to US$15.61

What I like about the government shutdown of the US economy? NOTHING!

Even Jack Torrance can’t get a drink from Lloyd in the shutdown.

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Housing Starts Plunge 22.3% MoM For March Despite Mortgage Rate Decline (Worse Than Financial Crisis!)

With the US effectively locked-down thanks to the Wuhan virus, it is not surprising the US housing starts dropped 22.3% MoM in March.

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It is the worst dive in housing starts since 1984.

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What is surprising is that with The Fed going all out to lower interest rates, they were not able to stop the skid of the housing market.

Why? While initial jobless claims has slowed, continuing jobless claims have hit all-time highs.

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Yes, The Federal Reserve (Green Man) is not able to fix the Wuhan virus problem.

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Builder Confidence Plunges To ALT-A/Subprime Virus Levels Of 2007 (30)

The Wuhan virus is sweeping the globe (albeit slowing down in the USA), and is having a similar effect on the economy like the ALT-A/Subprime virus of 2007.

This virus has led to a lockdown of commerce, while the ALT-A/subprime crisis of 2007 did not lead to social distancing and government-mandate closures. Same result, although this virus is worse than Big Short virus.

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Builder confidence is only at 30.

Federal Reserve To Provide Up To $2.3 Trillion In Loans To Support The Economy (Fed Seizes Control of Entire U.S. Bond Market)

The Fed Seizes Control of Entire U.S. Bond Market!

The Federal Reserve on Thursday took additional actions to provide up to $2.3 trillion in loans to support the economy.This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.

“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” said Federal Reserve Board Chair Jerome H. Powell. “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

The Federal Reserve’s role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system. In support of these goals, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit in the economy.

The actions the Federal Reserve is taking today to support employers of all sizes and communities across the country will:

  • Bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The PPP provides loans to small businesses so that they can keep their workers on the payroll. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value;
  • Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will provide $75 billion in equity to the facility;
  • Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury; and
  • Help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

In addition, on April 9, 2020, the Federal Reserve announced additional measures to support the economy amounting to as much as $2.3 trillion in liquidity. Among their actions, the Term Asset-Backed Securities Loan Facility (TALF) will now include legacy commercial mortgage-backed securities (CMBS) as eligible collateral. Eligible CMBS securities must have been issued prior to March 23, 2020, while securities related to other asset classes are only eligible if they were issued after this date.

TALF Specifics for CRE

The TALF term sheet specifies the following for the commercial and multifamily real estate loan/securities markets:
The underlying credit exposures for CMBS must be to real property located in the United States or one of its territories;
CMBS securities related to single-asset single-borrower (SASB) and commercial real estate collateralized loan obligations (CRE CLOs) are not eligible at this time.

TALF provides three-year loans to investors of CMBS and other eligible collateral. Haircuts and other terms can be found on the Fed’s website.

Mortgage REITs were pleased by the news!!

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But remember the old proverb, “There’s many a slip ‘twixt the cup and the lip.” Or “Don’t count your chickens before they hatch.”

 

 

Commercial & Industrial Lending Growth BOOMS As Companies Seek Funds To Survive The Lockdown (Back To Just Before The Great Recession)

As the US economy slows thanks to the Novel Coronavirus, we are seeing business loans growing at a tremendous rate as they seek to live another day.

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The growth rate of C&I lending (aka, business loans) is the highest since … just before Q4 2007 and The Great Recession.

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Hopefully, this situation is temporary. Otherwise, …

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Dow Closes Friday Down 915 (Or 4%) As 10-Year Treasury Yield Drop 17 BPS (Fed Announces Reduction In QE)

Despite titanic intervention by The Federal Reserve and $2 trillion Congressional spending bill (packed with pork-barrel spending unrelated to the coronavirus), the Dow continued to nosedive.

Or as Buzz Lightyear once said “To infinity … and beyond!” He was referring to government  spending and The Fed’s balance sheet.

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The Dow has whipsawed over the week, but particularly Friday. When The Fed announced it will reduce Treasury QE from $75BN to $60BN per day, the Dow dropped.

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Oddly, the Dow has been fairly predictable .. until The Fed/Congress got involved.

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According to the Elliott Wave, the Dow has broken from the major wave.

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Equity markets are still hypersensitive to coronavirus news and its impact on the economy.

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At least Chilean markets are up!

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Mortgage Bonds Rattle Wall Street Anew With Invesco Joining Pain (Fannie Spread To Gov’t SOARS)

Margin calls, the focus of books and movies like Margin Call, The Big Short, etc., during the financial crisis, are back!!

(Bloomberg) — The $16 trillion U.S. mortgage market — epicenter of the last global financial crisis — is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Federal Reserve to intervene.

Unlike last time, risky mortgages aren’t the cause. Instead, the coronavirus pandemic is threatening to make good loans go bad — and simultaneously sapping the market’s funding. There are fears that government efforts to shore up borrowers and financing won’t be enough and that mortgage and property investors again face massive losses.

Measures to slow the spread of the deadly disease are slamming the brakes on commerce, threatening to prevent companies from making payments on their leases and commercial mortgages. Companies are also firing employees, who won’t be able to keep up on their own rents and home loans. Mortgage industry veterans warn of a cascade of defaults.

At the same time, holders of mortgage-backed securities are fielding redemption requests from clients, margin calls from jittery counterparties and drops in their valuations, forcing the funds to solicit offers on billions in assets in emergency sales over the weekend. The pain continued Tuesday with Invesco Mortgage Capital Inc., a real estate investment trust that invests in mortgage-backed securities, also saying it’s no longer able to fund margin calls. If forced sales accelerate, bond prices could fall and put pressure on other investors to mark down or sell their holdings too.

Yes, Invesco Mortgage Capital is getting slaughtered, plunging from $18 on February 20th to $2.64 today.

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The Fannie Mae to Gov’t 10 year has exploded indicating a troubled mortgage market.

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Margin calls … they’re ba-ack!

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