Let’s do something strange and use science!

It is an article of faith among those on the political left and in the media (but I repeat myself) that the Republican party has moved significantly to the right in recent years. Depending on who you are talking to and what purpose they have at the moment, the alleged radicalism of the right either began with GWB (Bush shunned the UN on Iraq!) or has actually occurred in reaction to Obama’s rise to power (those insane Tea Partiers, don’t you know). As I have mentioned, I think this alleged movement is largely a myth, and that by any objective measure both the Republican party and the politics of the nation have actually been trending to the left for pretty much nearly a century.

But that discussion got me to thinking just what kind of objective measure might there be for such a thing, and how can we go about measuring it? It is actually quite a difficult question, kind of like objectively defining pornography. What is right and left can mean all kinds of different things, and is ultimately determined relative to the point of view of the determiner himself. To someone like Noam Chomsky, Bill Clinton was probably a rightwing fascist, while to Jonah Goldberg actual fascists were in fact members of the left. So you can see how this might be a problem.

But after thinking about it, the first measure that I came up with was government spending. We can easily see what kind of things the federal government has spent money on throughout history, and so if we can allocate various federal programs as favorites of the political left or right, and see how spending priorities have changed over time, that might give us some clue as to the direction in which the government itself, if not the political parties individually, have been trending.

This site is somewhat useful for this purpose. We can look at government spending broken down into various categories like defense, education, welfare, pensions, and interest, for various years going back all the way to 1792. Further breakdowns are possible as well.

Defense spending has, of course, long been a sacred cow for Republicans. This is not to say that D’s have no interest in defense, but trying to get R’s to agree to defense cuts has been virtually an impossible task. So it seems reasonable to me to categorize defense spending as a right wing priority. How has defense spending fared since, say, 1950 to pick a year somewhat randomly? Well, in 1950 defense spending comprised 54% of the federal budget. By 1970 that had dropped slightly to 48%. By 1990 it had dropped to only half of what it was in 1950, to 27% of the total federal budget. And by 2010 it had dropped further, albeit slightly, to 25%.

Welfare spending, on the other hand, has long been a priority of Democrats. Again, this is not to say that R’s have no interest in supporting welfare spending, but I think it is fair to say that it is a higher priority for the left than the right. So how has spending on welfare programs changed over the last 60 years? In 1950 spending on welfare programs made up 3.6% of all federal spending. By 1970 it had risen to 5.2%. By 1990, it had risen to 8%, and by 2010, it had nearly doubled again to 15%. (Go here for a more detailed view of what constitutes “welfare” on this site.)

So we see that since the middle of the last century, spending on a right-wing sacred cow, defense, has steadily decreased by roughly 50%, while spending on a left-wing sacred cow, welfare, has increased by more than 400%. So is this indicative of a national politics that has moved to the left, or the right? To me the data speaks for itself.

Of course defense and welfare spending are not the only possible spending measures, and spending itself is just one possible measure of political trends. Which gets me to the real point of this post. If we were to attempt to devise a scientific (who doesn’t like science?) and objective analysis of political trends, left or right, in the nation over the last 50 to 100 years, what type of measure would you all suggest?

Morning Report – the beginning of a secular bear market in bonds? 5/31/13

Vital Statistics:

  Last Change Percent
S&P Futures  1645.7 -7.9 -0.48%
Eurostoxx Index 2781.4 -17.8 -0.64%
Oil (WTI) 92.79 -0.8 -0.88%
LIBOR 0.275 0.001 0.22%
US Dollar Index (DXY) 83.15 0.108 0.13%
10 Year Govt Bond Yield 2.10% -0.01%  
Current Coupon Ginnie Mae TBA 102.6 0.4  
Current Coupon Fannie Mae TBA 101.1 0.1  
RPX Composite Real Estate Index 200.6 0.4  
BankRate 30 Year Fixed Rate Mortgage 3.9    


Markets are weaker this morning after personal income and personal spending came in weaker than expected. Bonds and MBS are up small.
University of Michigan Consumer Confidence increased to 84.5 from 83.7 the week before.  
Goldman believes the bond market sell-off is for real. They are forecasting a 2.5% 10 year by the end of the year. The sell-off has been global, as Japanese Government Bonds, UK Gilts, German Bunds have also been hit. FWIW, Bill Gross of PIMCO called it 3 weeks ago when he tweeted “The secular 30-yr bull market in bonds likely ended 4/29/13” 


What the Hell is a Moderate Anyway?

I enjoy reading political writers who have both a sense of humor and ask thought provoking questions.  When I read this brief piece by booman, it resonated with me.

What constitutes moderation in Democratic politics? Which policies of mainstream Democrats are simply unacceptable to South Dakotans, for example? I think these are questions that need to be empirically tested. South Dakota clearly preferred Mitt Romney to Barack Obama, but it isn’t entirely clear why they felt that way. While Republicans absolutely dominate on the local level, the Democrats have done very well in recent years on the federal Senate/House level. Why is that?

These same dynamics have played out in North Dakota and Montana, where Democrats have over performed in Senate contests. Senators like Max Baucus, Jon Tester, Byron Dorgan, Kent Conrad, Tim Johnson, and Tom Daschle have certainly been frustrating at times, but it’s hard to find all that much commonality between them in terms of their apostasy from the party platform. I suppose they have probably been less environmentally friendly than your average Democrat. They’ve been cozy with the banking and credit card industries. They’ve been a bit more socially conservative than their peers.

If I had to name something really out of whack, it’s been their obsession with the deficit. Because the other stuff is easily explainable by the fact that they represent sparsely-populated states with a lot of mining and financial services activity and not much religious or ethnic diversity, their love of austerity sticks out.

Opposition to big spending seems to be a requirement in these northern plains states. Is that the key ingredient for success? Or is it possible to use a different playbook? How much of a role does personality play? Jon Tester and Max Baucus don’t seem much alike but they both have success. Kent Conrad struck me as quite a bit more conservative than Byron Dorgan, who could be quite openly partisan at times.

I understand the urge to find a candidate who is seen as moderate, but I can’t pinpoint what moderate really means.

I’m working with a group trying to find a congressional candidate to support who will run against our very conservative congressman here.  The last time we came close to beating him was in 2008 and we had a pretty progressive candidate who barely lost.  In 2010 the same candidate lost by a larger percentage.  And 2012 was awful.  We lost by 25 or 30 percentage points I think, but we’re not sure if it was from redistricting or because of a new and relatively unknown candidate.   Both worked against us of course, but which played the larger part?

We’re a very conservative district, perhaps even more so now, and so I’ve been arguing for a more moderate candidate but I think I’m being out voted.  It’s a pretty liberal group so they want the most progressive candidate we can find.

One of the aspects of politics today that I’ve been fascinated watching is the apparent growing split in the Republican Party between the more ideologically driven members of the base or Tea Party and more traditional or moderate conservatives.  As I’m sure everyone has already heard Bob Dole had a few things to say about today’s Republican Party.

“Reagan couldn’t have made it. Certainly, Nixon couldn’t have made it because he had ideas,” he pointed out. “I just consider myself a Republican, none of this hyphenated stuff. I was a mainstream conservative Republican. It seems to be almost unreal that we can’t get together on a budget or legislation,” Dole said, comparing today’s Congress unfavorably with the institution in which he served for decades. “We weren’t perfect by a long shot, but at least we got our work done.”

Another example, of course, would be John McCain’s criticism of the small group of Senators who appear to be blocking budget negotiations.

I consider myself a moderate on some issues and a progressive on others but I’d still rather be represented by a Democrat than a Republican so I’m willing to compromise a bit.

It’s funny, when Kevin picked the name for this blog, I told him I wasn’t a moderate but now I’m not so sure what that even means or if it matters.

I’m also wondering if any of the conservatives here worry about the same things I do.   Are they being too driven by the base, or political purity, when they might have a better chance at winning more elections if the moderates, or more traditional members of the party had a little more influence?  Or is winning with moderates some sort of cop out?

Morning Report – Fannie Mae comes back to earth 5/30/13

Vital Statistics

  Last Change Percent
S&P Futures  1652.6 5.6 0.34%
Eurostoxx Index 2807.2 20.6 0.74%
Oil (WTI) 92.59 -0.5 -0.58%
LIBOR 0.275 -0.001 -0.40%
US Dollar Index (DXY) 83.7 0.037 0.04%
10 Year Govt Bond Yield 2.14% 0.02%  
Current Coupon Ginnie Mae TBA 101.8 0.4  
Current Coupon Fannie Mae TBA 100.8 -0.2  
RPX Composite Real Estate Index 200.6 0.4  
BankRate 30 Year Fixed Rate Mortgage 3.94    


Markets are higher this morning in spite of a 5.2% sell-off in the Nikkei 225 last night. Q1 GDP was revised downward to 2.4% from 2.5%. Initial Jobless Claims rose to 354,000. Bonds and MBS are down small.
Yesterday was the first relatively stable day in the Treasury markets in quite some time, notwithstanding the major sell-off in early Asian trading yesterday morning. Today we are more or less in the same place. 
The CFPB has tweaked the Ability to Repay rule a tad, with new guidance for mortgage broker compensation and exempting small lenders that focus on low-income lending. These amendments will take effect Jan 1, 2014.
It is tempting to think the the U.S. Treasury yield is being driven by differing interpretations of Bernake’s words. And maybe some of it is. But we are seeing a global sell-off in G7 sovereign debt that started at about the same time.  The US Treasury yield is up 54 basis points since May 1. UK Bonds are up 26 basis points. Japanese Government bond yields are up 31 basis points. That is in spite of a new quantitative easing program by the Bank of Japan – think about that! German Bund yields are up 30 basis points. Everyone started selling off more or less on May 1. My point is that there seems to be more going on in US Treasuries than a simple question over when the Fed is going to start tapering QE. Given the move in world stock markets, it feels like a very big investor (probably a sovereign wealth fund) is doing an asset allocation trade out of G7 debt and into stocks. 
Remember Fannie Mae, which was more or less given up for dead? Well, it has rallied about fourteenfold since mid March. It sold off had yesterday, but you can’t deny the move. 30 cents to an intraday high of $5.44. This has been one big speculative toy for the past couple of months, while the big hedge funds are in the prefs. If Fannie Mae survives in some way, shape, or form those bets could pay off. However Fannie Mae is simply sending all of its profits to the government, which is not counting them against money it owes. (They changed the rule last Fall, right before Fannie Mae started turning a profit – what a coincidence). Oh, and before you dismiss it as just another “penny stock” – it sports a market cap of $16.7 billion. Anyway, play in this sandbox at your own risk.
Chart:  Fannie Mae (FNMA)


Tuesday Bits and Pieces

This post is for Brent.

Classic commercials of the 60’s and 70’s. Talk about nostalgia and bringing back memories. Remember that crying Indian?

I don’t know what made me think of this, but I remember seeing this game live on WPIX when I was a kid. I’d never seen anyone so crazed before.

Duke beat Syracuse for the NCAA lacrosse national championship yesterday. This a more palatable memory, from 2009 (OK…this is more for me than Brent):

For all you Star Wars and Star Trek geeks, the physics of space battles.

This one really is for Brent…America’s coolest houses. BTW, number 2 is actually in New Canaan, so Brent you can easily visit. (I don’t get why it is such a big tourist attraction, but then again I don’t get a lot of things.)

And finally, an old KW favorite…bad lip reading:

ATiM: Dead or Alive?

ATiM has been extremely quiet for some time now. Brent keeps up his morning post, and both jnc and McWing continue to post daily links, but apart from that there doesn’t seem to be a whole lot of commentary. A lot of people seem to have checked out for good. At the moment ATiM is, at best, on life support, if not dead altogether. Can it be revived? Should it be? What needs to be done in order to revive it, or should it be put out of its misery altogether?

Anyone out there lurking who would care to offer up an opinion? Consider it an exit interview…brutal honesty is welcome.

Morning Report – Foreclosures drop again 5/29/13

Vital Statistics:

  Last Change Percent
S&P Futures  1646.2 -8.4 -0.51%
Eurostoxx Index 2794.0 -41.9 -1.48%
Oil (WTI) 94.43 -0.6 -0.61%
LIBOR 0.276 0.003 1.10%
US Dollar Index (DXY) 83.58 -0.516 -0.61%
10 Year Govt Bond Yield 2.14% -0.03%  
Current Coupon Ginnie Mae TBA 101.7 0.3  
Current Coupon Fannie Mae TBA 100.6 0.3  
RPX Composite Real Estate Index 200.2 0.0  
BankRate 30 Year Fixed Rate Mortgage 3.88    


Bond market volatility is the theme of the day (yet again). The 10-year bond yield jumped to 2.23% this morning in late Asian hours. No real news drove the decline, just the general fear that the Fed will start paring back QE sometime this fall.
Lender Processing Services reported that home prices are up 1.4% month-over-month and 7.6% year over year. It does appear that the rally is becoming more broad, as states other than the usual suspects are showing the biggest gains. This time around, Georgia leads the way as Atlanta prices increased 2.6% MOM. Arizona was actually in the bottom 10, indicating that perhaps the big professional-driven rally off the bottom has been played out.
CoreLogic reported that foreclosures are down 16% YOY and 1% MOM. 52,000 foreclosures were completed in April 2013. In states like Arizona and California, the year-over-year decline is over 50%. The shadow inventory of homes in some state of foreclosure is 1.1 million, compared to 1.5 million a year ago. The judicial states of FL, IL, NJ, NY, and CT still have some work to do, but the rest of the states have largely completed their foreclosures.
The sell-off in bonds has created a massive jump in mortgage rates. Now, as the mortgage REITs hedge their books, we are approaching another wave of selling in TBAs as MBS investors hedge their convexity and REITs de-lever. This is going to push mortgage rates even higher. If rates stay here, we should be best-exing into a 3.5% coupon pretty soon.

Morning Report: Case-Schiller Home Price Index up 10.9% 5/28/13

Vital Statistics:


  Last Change Percent
S&P Futures  1664.4 13.8 0.84%
Eurostoxx Index 2832.8 37.8 1.35%
Oil (WTI) 95.11 1.0 1.02%
LIBOR 0.273 0.000 0.00%
US Dollar Index (DXY) 83.75 0.045 0.05%
10 Year Govt Bond Yield 2.05% 0.04%  
Current Coupon Ginnie Mae TBA 102.8 -0.3  
Current Coupon Fannie Mae TBA 101.4 -0.3  
RPX Composite Real Estate Index 200.2 0.3  
BankRate 30 Year Fixed Rate Mortgage 3.75    


Markets are higher after equity markets rally worldwide. Bonds and MBS are down again.
The S&P Case-Schiller House Price Index rose 1.12% MOM and 10.87% YOY in March. This is the biggest gain since April 2006. Gains were widely distributed, with Phoenix rising 22.5% and New York rising 2.6%. 
Chart:  S&P / Case-Schiller Home Price Index:

Jon Hilsenrath of WSJ discusses the Fed’s expectations management issue. The latest FOMC statement inserted language stating that the Fed was ready to increase or decrease purchases as conditions change. During Bernake’s testimony, he refused to rule out tapering QE by Labor Day. It feels as if the market expectations and the Fed are not in sync at the moment, which leads to interest rate volatility.
Investors are rotating out of bonds and into balanced funds. Balanced funds will allocate between stocks and bonds and can trade tactically. This could explain some of the “risk on / risk off” behavior we have been seeing. The net result of this could be greater interest rate volatility going forward. After Ben Bernake’s comments last week about ending QE this fall, we saw massive selling in the Treasury futures market (something like 250 contracts being sold in a couple minutes) as stocks rallied. If interest rate volatility is the theme of the market going forward, it makes sense to lock and not float. 
Title Insurer Fidelity National Financial (FNF) is buying outsourcing / data firm Lender Processing Services (LPS) in a $2.9 billion cash and stock deal. 

Graduation Day at the USMA

My daughter has a friend who graduated from the United States Military Academy today, and he invited her to the ceremony. I was lucky enough to be allowed to accompany her, so I spent the day today at West Point, which is a truly beautiful and impressive place. I thought some of you may be interested in a few pictures from the ceremony.

This was taken as the cadets marched into the stadium and to their seats.


This one shows the cadets as they received their diplomas.


And my favorite, this one shows the traditional throwing of the caps as the cadets get dismissed. I hadn’t realized that part of that tradition included allowing young children, between 6 and 10, onto the field to collect, and keep, the hats right after they are thrown. The cadets apparently put various tokens inside their hats, ranging from money to gift cards to notes of advice for the lucky young collectors.


Another tradition I was not aware of until today: All of the graduating cadets sat in dignified silence as their fellow graduates proceeded up to the podium to collect their diplomas once their name was called. That is, they did until one particular name was called, at which point the entire class rose in unison and screamed and cheered as if the winning touchdown had been scored as time expired. I found out later that the person they went berserk for was the “goat”, the cadet who had finished last in their class.

Anyway, it was really a spectacular day, despite some pretty bad weather (45 degrees and a steady drizzle all day), and the West Point Campus is truly a beautiful place. I’d encourage you all to go and see it if you have the opportunity.

Morning Report – New Home Sales 5/24/13

Vital Statistics:


  Last Change Percent
S&P Futures  1641.0 -9.0 -0.55%
Eurostoxx Index 2765.2 -11.6 -0.42%
Oil (WTI) 93.17 -1.1 -1.15%
LIBOR 0.273 0.000 0.00%
US Dollar Index (DXY) 83.71 -0.094 -0.11%
10 Year Govt Bond Yield 2.01% -0.01%  
Current Coupon Ginnie Mae TBA 103.1 0.1  
Current Coupon Fannie Mae TBA 101.9 0.1  
RPX Composite Real Estate Index 200.2 0.3  
BankRate 30 Year Fixed Rate Mortgage 3.77    


Markets are lower on no real news. Today will be basically a throw-away as the bond market closes at 1:00 pm and most of the Street will be on the LIE by noon. Bonds and MBS are up small
Durable Goods orders increased 3.3% in April. Ex transportation, they increased 1.3%. Good numbers.  That said, the manufacturing sentiment reports out of the various Fed banks have been subdued, to say the least. 
New Home Sales jumped to a seasonally adjusted annual rate of 454,000. This is 2.3% above the revised March rate and 29% above last year. The median sales price was $271,600 and the average sales price was $330,800, both big increases, indicating more activity is happening at the high end. Strangely, McMansion builder Toll Brothers’ earnings report was on the weaker side compared to its competitors. 
So far, the narrative regarding Bernake’s statements in front of Congress has been that the Fed is considering   tapering QE sometime this summer. My take is that is wrong, but we are seeing bear market behavior in bonds right now. Rallies are brief and quickly sold, while sell-offs seem to gather steam. 
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