Morning Report – Mel the “enigma?” 1/6/14

Vital Statistics:

S&P Futures 1831.2 5.7 0.31%
Eurostoxx Index 3080.1 5.7 0.19%
Oil (WTI) 94.1 0.1 0.15%
LIBOR 0.239 -0.001 -0.21%
US Dollar Index (DXY) 80.87 0.083 0.10%
10 Year Govt Bond Yield 2.98% -0.02%
Current Coupon Ginnie Mae TBA 104.1 0.1
Current Coupon Fannie Mae TBA 103.1 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.55
Markets are higher this morning on no real news. Bonds and MBS are up small.
This week will have a couple big items – the FOMC minutes and the jobs report. The big question with the minutes will concern whether tapering is in fact on autopilot. Ben Bernanke indicated in the press conference that it more or less is on autopilot, but we will want to read the minutes to get some more clarity. Given that the mystery over whether the Fed will begin tapering is over, the jobs report will probably not have that much of an impact, unless it is extraordinarily strong. Finally, Janet Yellen will be confirmed this week, which should be a nonevent.
This week also kicks off earnings season, with Alcoa reporting after the bell on Thursday. Given the huge run-up we have seen in the stock market, companies better deliver. FWIW, perma-bull Jim Paulsen is cautious going into 2014.
Bloomberg has a piece on the enigma that is Mel Watt. The only thing we know for sure is that he has suspended the g-fee increases and the LLPAs for the moment. Since he has yet to be officially sworn in, he is playing things close to the vest. I don’t know why people would call him an “enigma.” Mel couldn’t even bring himself to come out against the eminent domain policies that some localities are pursuing. That says it all, IMO. At the end of the day, Mel Watt is a liberal CRA guy. All you need to know about how he will conduct policy is to see him through that lens. He wants credit to be easier for low-income borrowers. He likes government involvement in the mortgage market. Whether that means Fannie and Freddie continue in their current form or not is an open question. But at the end of the day, he is going to err on the side of more government involvement, not less. Whether that makes the Fannie Mae prefs a buy is another question.

30 Responses

  1. OK, now is the time for some 2014 predictions.

    1. Individual Mandate gets suspended for all in early April
    2. Employer mandate gets pushed back another year. Announcement comes in early April.
    3. Republicans take the Senate and keep the House.
    4. We will yearn for the Carter years.

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  2. Good piece on how most (but not all) of the sequester gains have been consolidated by the Republicans as the new spending baseline. This is about as good an outcome as could have been achieved:

    “Total discretionary spending will be about $1.012 trillion, of which $491.8 billion is designated for non-defense spending and $520.5 for defense, which includes not just the Pentagon but nuclear weapons programs overseen by the Energy Department.

    Measured in real dollars, adjusted for inflation, this is significantly less than the last years of the Bush presidency and well short of the $1.058 trillion that Obama had requested for fiscal 2014.

    Even in nominal dollars, discretionary spending for transportation and housing programs will be about 24 percent less than the Democrats’ high-water point in fiscal 2010.

    In this context, the omnibus is best understood as a major reset of government-wide appropriations and a bid to restore some order after all the turmoil of recent years.

    The dynamics are different in that the December budget deal makes it harder for any single-issue legislative rider to block funding for its entire chapter of the omnibus bill. Specific levels of spending were set last month and these have been allocated among the 12 titles of the bill. Thus if one title fails to close, it can’t be forced to revert to the lower spending levels in the current stopgap CR without disrupting the larger December deal.

    http://www.politico.com/story/2014/01/omnibus-government-spending-bill-101761_Page2.html

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  3. I just wonder how much more either party thinks it can borrow/monetize before it’s *too* much?

    I think we are past the point of no return and are now in repudiation territory. At some point I the future, 5-10 years, the public portion of the debt will be repudiated.

    Anybody got a number at which it’s too much debt?

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  4. i thought it was an uknown event in the Road. but i haven’t read it .. just the movie. [shame]

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  5. McCormac said it in an interview. Yellowstone in Wyoming.

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  6. In what world is expanding Medicaid a success? There is no, zero, nada data that supports this.

    http://m.washingtonpost.com/blogs/wonkblog/wp/2014/01/06/medicaid-is-obamacares-biggest-success-but-neither-side-wants-to-talk-about-it/

    Juicer’s in-fucking-sane.

    http://www.nationalreview.com/article/348200/medicaid-deniers

    But hey, Explanatory Journalism.

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  7. Try to find a specialist that accepts Medicaid.

    The real problem that I think progressives have in explaining Medicaid is that they refuse to acknowledge that the patient population is different.

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  8. Anybody got a number at which it’s too much debt?

    Good paper from Reinhart and Rogoff…

    http://www.imf.org/external/pubs/ft/wp/2013/wp13266.pdf

    Financial Repression is here to stay…

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  9. Re Luntz, it’s best to have your mid life crisis out of the media spotlight.

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  10. In what world is expanding Medicaid a success? There is no, zero, nada data that supports this.

    racist

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  11. What I did fascinating is his upsetment at the American electorate and our failure to believe that Washington can *solve our problems* when the right “team” is in charge. There is no self-awareness on his part that I could tell on the concept that he sold Republican governance as a solution to problems versus acknowledging or even knowing that governemnt solutions may either not exists or cause more harm that good. There is never a trade off in his mind about a proposed governemnt solution that may harm some group as it helps another. With believers in government power it’s always Upside/win win.

    Just because a government program can solve a problem, even *if* it can do so without creating a new and/or worse one, should it?

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  12. it’s best to have your mid life crisis out of the media spotlight

    Best summation I’ve seen.

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  13. Krugman is funny. Apparently US austerity wasn’t so significant after all

    “US austerity, although a really bad thing, wasn’t nearly as intense as what happened in southern Europe; it was small enough that it could be, and I’d argue was, more or less offset by other stuff over the course of a single year.”

    http://krugman.blogs.nytimes.com/2014/01/04/happy-new-year/?_r=0

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  14. “US austerity, although a really bad thing, wasn’t nearly as intense as what happened in southern Europe; it was small enough that it could be, and I’d argue was, more or less offset by other stuff over the course of a single year.”

    Hey the confidence fairy returned without a massive Keysian stimulus? How about that?

    Actually, she returned about the time the US residential real estate market bottomed. Letting the markets clear…. what a foreign concept.

    Although he is probably right that another trillion yen of stimulus will make Japan party like its 1989.

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  15. Brent, you see this piece?

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/03/2014-will-answer-this-huge-question-about-the-u-s-economy/

    Also, despite all the maligning of their reputations, Rheinhardt and Rogoff still have the best record for predictions on how long and extensive the downturn would be after the financial crash.

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  16. Also, despite all the maligning of their reputations, Rheinhardt and Rogoff still have the best record for predictions on how long and extensive the downturn would be after the financial crash.

    Two decades feels optimistic. I got the impression that they figured two decades once a country addresses the debt overhang. Have we even started addressing it?

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  17. No, it was seven years.

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  18. From Brent’s link above.

    Research shows that a debt overhang of this size is typically associated with a sustained period of sub-par growth, lasting two decades or more (Reinhart, Reinhart, and Rogoff, 2012, which includes a review of the scholarly literature; and World Economic Outlook, October 2012 and April 2013). In light of this dim prospect, the paper reviews the possible options, concluding that the endgame to the global financial crisis is likely to require some combination of financial repression (an opaque tax on savers), outright restructuring of public and private debt, conversions, somewhat higher inflation, and a variety of capital controls under the umbrella of macroprudential regulation.4 Although austerity in varying degrees is necessary, in many cases it is not sufficient to cope with the sheer magnitude of public and private debt overhangs. All these options, understandably anathema to the current generation of advanced country policymakers, are more familiar to their economies than is commonly recognized. This paper highlights four basic lessons from the historical track record, as well as those lessons economists, financial market participants, and policymakers seem to have collectively forgotten.

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  19. The difference between 2010 and now is that real estate has bottomed.

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    • Brent:

      Not sure if you have any interest, but Cato is having a luncheon in NYC next Monday. PJ O’Rourke is the featured speaker. I went to the same luncheon last year and it was very good. John Allison was the main speaker and he was excellent, but even the non-headline speakers were very interesting.

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  20. Warning! ContraNarrative! Alert MMofA and Send Refutation to G.Sargent! He Will Print anything! Say Again, He.Will.Print.Anything!

    http://m.nbcnews.com/health/health-spending-rose-slowly-2012-thanks-recession-not-obama-2D11866979

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  21. The stupid is strong at PL today.

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  22. Heh.

    But wait! A final level of deception remains to be revealed: one of the many companies that have contributed to the State Policy Network is Comcast, which owns MSNBC and is Rachel Maddow’s employer. So in her Thursday broadcast, Maddow could equally well have said that MSNBC “ha[s] been promoting forced drug tests for people on welfare,” and that FFGA is an “MSNBC-affiliated group.” She didn’t do this for obvious reasons. She knew that she was addressing a stupid audience that would never know the difference.

    Doesn’t this meet the definition of, er, successful trolling?

    http://www.powerlineblog.com/archives/2014/01/rachel-maddow-is-crazy-too.php

    Koch Brothers must test well in the Demo.

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  23. One of the things I’ve noticed about the debate over the slowdown in health costs. If utilization is in part driven by economic factors that means all of the button pushing and lever pulling at health care central might not be all that effective. and we can’t have that. so just dismiss the economic slowdown aspect. this stems from an inability to accept that no, health care is not different, it’s just like any other commodity.

    Like

  24. Regarding state policy network ….
    recruiting for that organization and similar ones is handled by http://talentmarket.org/

    Like

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