Morning Report 8/29/12

Posted on August 29, 2012 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1410.4 2.6 0.18%
Eurostoxx Index 2432.9 -9.2 -0.38%
Oil (WTI) 95.95 -0.4 -0.39%
LIBOR 0.422 -0.001 -0.24%
US Dollar Index (DXY) 81.45 0.082 0.10%
10 Year Govt Bond Yield 1.65% 0.02%  
RPX Composite Real Estate Index 192.1 -0.4  

Markets are flattish after 2Q GDP was revised upwards and Mario Draghi defended the ECB’s bond buying program. Pending Home Sales increased 15% YOY in July, another sign of life in the residential real esate market. Bonds and MBS are down slightly.

Second Quarter US GDP was revised upwards to 1.7% from the initial 1.5% estimate as consumer spending was a bit higher than initially thought. The  upward revision was expected so there was no reaction in the index futures. Growth 2% or lower will probably not be enough to lower the unemployment rate 

One of the reasons for the increase in house prices has been the lack of distressed sales. CoreLogic’s latest foreclosure report bears this out, as foreclosures dropped 24% in June from a year ago, which is the lowest level since 2007. That said, the pipeline remains at 1.4 million homes and REO sales have declined while foreclosures have continued.  

Fed-Bashing was one of the themes at the Republican National Convention. Certainly a part of that is driven by the desire to keep Libertarians in the tent in the fear that Gary Johnson could pull a Ralph Nader and peel off enough Republican votes to deliver the election to Obama. Bob Corker wrote an op-ed in the FT criticizing the dual mandate. He does make a good point that bond prices should be important signals to the economy, but that signalling process is broken because of Fed manipulation.  

My gripe with the dual mandate has always been that it encourages bubbles – as long as inflation (as measured by the CPI) is behaving, the Fed must keep the pedal to the metal. Economists have accepted the fact that too much money chasing too few goods is a bad thing, but somehow think too much money chasing too few assets is okay.  Since the dual mandate was enacted in 1978, we have had the following bubbles (or mini-bubbles):

 

  • Gold and oil in the early 80s
  • Junk bonds in the mid / late 80s
  • Emerging Market Debt in the early 90s
  • Stock Market bubble in the late 90s
  • Residential Real Estate bubble mid 00s

 

Given that the consequences of getting it wrong are assymetric, maybe it is time to reconsider the dual mandate.  Of course a change in the dual mandate has zero chance of being enacted, but I would like to see the discussion move from theory (market signalling) to practice (the housing bubble).  Of course we can always show people this awesome video.  While it isn’t necessarily all about monetary policy, it does show the perils of a hyperactive Fed.

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Republican Convention Rundown

Posted on August 29, 2012 by yellojkt

I spent last evening channel flipping between CNN and MSNBC in an attempt to catch a smattering of speeches amidst the punditry. The theme of the night was We Built This, a topic honored more in the breach, at least among the televised marquee speakers. Here in semi-random order are my day-old impressions of some of the speakers.

Bob McDonnell/Rick Scott/ John Kasich served up a round robin of feel-good pep talks on how great their economy was doing despite the best efforts of the Democrats to torpedo them. Every single one had hair that was perfect. The future of Romneytron Enterprises is assured with new models rolling off the assembly line with industrial precision.

Nikki Haley at least gave some visual relief for not being a lily-white male but her schtick was the same. Her one distinguishing remark was a passage where she union bashed Northerners and bragged of the low-cost right-to-work airplane factory she sniped from Washington State.

Artur Davis, DINO turned Republican, provided a little color, both literally and figuratively. Last time around the Republicans were able to snag Joe Lieberman as their token turncoat. Davis’s lackluster soundbites showed just how far the GOP has fallen in its outreach programs. He also wins lame musical call-out (barely beating out Christie’s Springsteen allusion) with his “Somebody that I used to know” reference.

Rick Santorum provided the red meat portion of the evening puffing on a dog whistle until his cheeks turned red by cramming as many instances of “work” and “welfare” as possible into a single sentence. He also went on a long extended handsy metaphor which ended is some sort of uplifting tale of his special needs daughter. By Santorum standards it was a well-thought out speech but it just seemed out of place given the other speakers.

Ann Romney was one of two featured speakers who made it to prime time coverage. Stepping onto the stage directly from the set of “Father Knows Best” she started off with a tribute to the recently departed Phyllis Diller with five minutes of man bashing. In it she outsapped Hallmark with her tribute to the mothers and wives who really make this country run. By the end of it I was ready to vote her PTA president. She must run a heckuva bake sale. Less convincing were her tales of deprivation as the spouse of a starving college student. She was aiming for touching but it just came off as phony. Having to eat tuna fish instead of caviar. How demeaning. She sure loves that affable lug Mitt and it showed even through all the scripted folksy gushing.

Chris Christie was the most anticipated speaker of the night and like a Chris Farley SNL sketch the dramatic tension was to see just how outrageous he would get. After his seeming de riguer tribute to his immigrant parents (a theme far more prevalent than the official one), he laid into to his trademarked schtick about how he stood up to the bullies in the teacher union and their cushy low-to-mid five figure incomes.  The Twitter game (which I indulged in) was to see how long he could speak with out actually saying the name Mitt Romney. Quite a while as it turns out, fifteen to twenty minutes depending on who was holding the stopwatch.

His speech was far less the keynote of the 2012 Republican National Convention than the kick-off of the 2016 Christie Presidential Campaign. Even by the standards of New Jersey blowhards, this was a monumentally self-aggrandizing performance.

Mitt Romney managed to say not a word the entire evening. After being introduced by his adoring wife, he rushed her off the stage so quick that if you blinked you missed it. My hopes for an Al “Get A Room” Gore display of public affection were completely dashed. The rest of the evening he sat as stiffly and uncomfortably as the victim of a Friar’s Club roast.

The conventions are carefully scripted spectacles but I had no idea who the target audience was. Romney was rarely mentioned by any of the speakers. The inspirational tales of constitutionally mandated state budget balancing were tepid at best. Even the conventioneer hats seemed oddly subdued. The entire evening was completely skippable and if it weren’t for bourbon and internet snark it would have been unendurable.

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