Morning Report – 73:1 leverage 1/8/14

Posted on January 8, 2014 by Brent Nyitray

Vital Statistics:

S&P Futures 1830.6 -0.1 -0.01%
Eurostoxx Index 3107.9 -3.1 -0.10%
Oil (WTI) 93.86 0.2 0.20%
LIBOR 0.24 -0.002 -0.70%
US Dollar Index (DXY) 81.04 0.203 0.25%
10 Year Govt Bond Yield 2.99% 0.05%
Current Coupon Ginnie Mae TBA 104.4 -0.2
Current Coupon Fannie Mae TBA 103.3 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.5
Stocks are flattish after the ADP Employment change came in better than expected at 238k jobs. The Street was at 200k and the estimate for Friday’s number is 195k. Bonds clearly didn’t like the number, with the 10 year yield around 2.99%.
Mortgage applications rose 2.6%  last week, although the holiday makes any sort of week-over-week comparison difficult. Later on today we will get consumer credit and the minutes of the FOMC meeting.
When I discussed Janet Yellen’s new role at the Fed and also showed a chart of the Fed’s balance sheet, I forgot to mention the other important side of things – the equity. Turns out the Fed announces these things weekly. And right now, we have a $4.02 trillion balance sheet supported by $55 billion in equity. For those keeping score at home, that works out to be 73:1 leverage, or about 2.6 times the leverage that blew up Long Term Capital Management. The Fed is long duration and levered 73:1 in a rising interest rate environment. And they are still building up the balance sheet, just at a slower pace than before. Everyone hopes Janet can stick the landing, but this is no sure bet.

56 out of 350 metro areas returned to or exceeded their last normal levels of economic and housing activity, according the the NAHB. More than 35% of all the markets are withing 90% of previous norms. Where does your MSA stack up? Find out here.
State of the unemployment extension: Yesterday, the Senate had a test vote that passed a 3 month extended unemployment benefits extension, however several of the Republicans who said “yea” would vote “nay” if there weren’t paid for. Of course we have the House which would probably extend benefits if they are paid for with spending cuts.

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32 Responses

  1. Michigoose's avatar
    Michigoose, on January 8, 2014 at 9:13 am said:

    Just wanted to let you guys know that Sue is almost done with her cancer treatment. She’s been in the hospital for the last five days in order to treat burns that she got from the radiation, but she’s now doing much better and should be done next Tuesday. The tumors are shrinking nicely and her oncologist is pleased.

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  2. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 9:33 am said:

    Ditto Scott’s. Thank Michi.

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  3. Michigoose's avatar
    Michigoose, on January 8, 2014 at 9:50 am said:

    Good wishes passed on!

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  4. novahockey's avatar
    novahockey, on January 8, 2014 at 9:53 am said:

    oh, that’s good news

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  6. Brent Nyitray's avatar
    Brent Nyitray, on January 8, 2014 at 10:36 am said:

    Glad to hear about Sue..

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  7. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 10:38 am said:

    Brent, does your band cover any Humble Pie songs?

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  8. Brent Nyitray's avatar
    Brent Nyitray, on January 8, 2014 at 11:18 am said:

    Troll, no we don’t, although we keep increasing the setlist.

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  9. Michigoose's avatar
    Michigoose, on January 8, 2014 at 11:35 am said:

    And Brent continues to be channeled over on Wonkblog:

    The United States can export coal, gasoline, and (sometimes) natural gas. But, for the most part, U.S. companies aren’t really allowed to export crude oil. That’s the law.

    Is it time to lift that ban on crude exports? Some people think so — especially now that the United States is producing more oil than it has in decades. Overturning the ban, in theory, would allow companies to sell even more oil and keep expanding.

    On Tuesday, Sen. Lisa Murkowski (R-Alaska) gave a speech at the Brookings Institution calling on the Obama administration and Congress to loosen restrictions on crude-oil exports in order to boost domestic production. “We need to act,” she said, “before the crude export ban raises problems and hurts American jobs.” Jack Gerard, the head of the American Petroleum Institute, expressed similar sentiments later in the day.

    But not everyone’s convinced. Sen. Robert Menendez (D-N.J.) has argued that the export ban was put in place back in the 1970s to “protect U.S. consumers from volatility and price spikes.” Allowing more exports, he argued, might cause U.S. gasoline prices to rise and hurt American consumers. And some environmental groups are leery of boosting fossil-fuel production even further.

    This debate is beginning to attract more attention. So below is a broad overview:

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  10. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 11:52 am said:

    And some environmental groups are leery of boosting fossil-fuel production even further.

    Blows my mind every time I read things like that.

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  11. Brent Nyitray's avatar
    Brent Nyitray, on January 8, 2014 at 12:20 pm said:

    The ironic thing is that lifting the ban would be better for Menendez’s constituents because East Coast refined product (read gasoline) is priced off of North Sea Brent crude and the rest of the country is priced off West Texas Intermediate. Lifting the ban would cause the prices to converge, which would mean lower gas prices in New Jersey. The difference is sizeable: North Sea is trading at 107.36 a barrel while WTI is trading at 92.83

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  12. novahockey's avatar
    novahockey, on January 8, 2014 at 12:30 pm said:

    Reps. Carolyn McCarthy of New York and Mike McIntyre of North Carolina, will not seek reelection in 2014

    McCarthy was a one-trick pony on gun control. but that stays D.
    McIntyre’s switches that seat to an R. unless they want to spent a shit ton to keep it close and still lose.

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  13. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 12:33 pm said:

    Re Christie bridge closing scandal.

    Heh.

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  14. novahockey's avatar
    novahockey, on January 8, 2014 at 12:50 pm said:

    maybe the government can’t be trusted with the roads.

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  15. Michigoose's avatar
    Michigoose, on January 8, 2014 at 1:37 pm said:

    Most excellent news from Sue:

    I had a radiation treatment today, and my radiologist told me that the stalk the tumor is hanging on to now is like the size of a thread!!!!! [He] was just beaming when he told me, just so happy, and then kept saying, “I am so proud of you!” as though I did something. This is a happy day all around.

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  16. Michigoose's avatar
    Michigoose, on January 8, 2014 at 1:40 pm said:

    maybe the government can’t be trusted with the roads.

    Clearly not vindictive Republican governors, at any rate.

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  17. Brent Nyitray's avatar
    Brent Nyitray, on January 8, 2014 at 2:30 pm said:

    Can’t let that man in charge of the IRS, he might try and use it to hobble his political enemies!

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  18. novahockey's avatar
    novahockey, on January 8, 2014 at 2:37 pm said:

    Christie was just answering the age old question

    What is best in life.?

    To crush your enemies, see them driven very slowly in soul-crushing traffic before you, and to hear the lamentation of their women.

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  19. Michigoose's avatar
    Michigoose, on January 8, 2014 at 3:06 pm said:

    Are you channeling Tywin again, NoVA?!

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  20. Brent Nyitray's avatar
    Brent Nyitray, on January 8, 2014 at 4:43 pm said:

    I suspect this will matter about as much as the Rose Law Firm billing records.

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  21. Michigoose's avatar
    Michigoose, on January 8, 2014 at 6:05 pm said:

    Maybe, maybe not, Brent.

    The problem is that this plays so perfectly into the persona that Gov. Christie has cultivated for himself. As Ezra put it,

    The reason Chris Christie is so good at this is that Chris Christie is actually a bully. That doesn’t mean he’s not also a nice guy who cares deeply about his family and his constituents and his country. It doesn’t mean he’s not an unusually honest politician who’s refreshingly free of cant and willing to question his party. There’s a lot about Christie that’s deeply appealing. But there’s one big thing that’s not: He’s someone who uses his office to intimidate people and punish or humiliate perceived enemies.

    If it turns out that somebody was actually harmed by the bridge shutdown it won’t be so easy to sweep under the rug:

    FORT LEE – Emergency responders were delayed in attending to four medical situations – including one in which a 91-year-old woman lay unconscious – due to traffic gridlock caused by unannounced closures of access lanes to the George Washington Bridge, according to the head of the borough’s EMS department.

    [snip]

    It also took EMS seven minutes to reach an unconscious 91-year-old woman who later died of cardiac arrest at a hospital. Although he did not say her death was directly caused by the delays, Favia noted that “paramedics were delayed due to heavy traffic on Fort Lee Road and had to meet the ambulance en-route to the hospital instead of on the scene.”

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  22. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 6:12 pm said:

    Hopefully it knocks him out.

    Drudge is having some fun with it.

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  23. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 6:25 pm said:

    Sound familiar?

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  24. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 6:51 pm said:

    See what I mean?

    Shot:

    http://www.mediaite.com/online/chris-christie-responds-to-bridge-gate-allegations-im-outraged-to-learn-i-was-misled/

    Chaser:

    http://www.nationaljournal.com/politics/you-want-angry-i-ll-show-you-angry-obama-says-on-irs-scandal-20130515

    They’re either lying or ignorant. Either way, their instincts suck as much as their hiring skills. I mean, look who Obama picked as his VP for Christsakes!

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  25. Brent Nyitray's avatar
    Brent Nyitray, on January 8, 2014 at 7:04 pm said:

    You’ll need a Christie smoking gun for this to have legs…

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  26. Michigoose's avatar
    Michigoose, on January 8, 2014 at 7:13 pm said:

    Sound familiar?

    “Carl”, I actually did a teaspit when I read that quote. Yes, it really does sound all too familiar.

    Doesn’t mean that they’re equivalent scandals. And I like Joe.

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  27. Michigoose's avatar
    Michigoose, on January 8, 2014 at 7:14 pm said:

    You’ll need a Christie smoking gun for this to have legs…

    I just keep hearing all of the statements in my head in a bad Joisey accent. . .

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  28. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 7:23 pm said:

    Delicious.

    I like Mr. Magoo, but I wouldn’t make him my VP.

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  29. Let the mutherfuker burn!'s avatar
    Whitaker. Motherfucking. Chambers, on January 8, 2014 at 7:34 pm said:

    Heh.

    It’s one thing not to accept an assertion at face value, and to try to refute it by searching public records. But the “follow the money” approach only works if you actually follow it.

    http://watchdog.org/122678/maddow-embarrasses-koch-bros-accusation/

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  31. Brent Nyitray's avatar
    Brent Nyitray, on January 8, 2014 at 8:01 pm said:

    Money quote from the article:

    “That’s because, contrary to Maddow’s fevered imagination, the free-market movement is not a conspiracy. It’s not the invention of two wealthy brothers. And it’s not a monolith.”

    So true. Just because the Left likes centralized power doesn’t mean we operate the same way.

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