Morning Report – Dull week ahead 6/9/14

Vital Statistics:

Last Change Percent
S&P Futures 1946.6 -2.7 -0.14%
Eurostoxx Index 3292.7 -1.5 -0.05%
Oil (WTI) 103.5 0.8 0.79%
LIBOR 0.231 0.001 0.41%
US Dollar Index (DXY) 80.57 0.162 0.20%
10 Year Govt Bond Yield 2.61% 0.02%
Current Coupon Ginnie Mae TBA 106.6 0.0
Current Coupon Fannie Mae TBA 105.5 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.17

 

Stocks and bonds are down small on no real news. No economic data today.
The week after the jobs report is typically dull, with very little economic data. The highlight of the week will probably be retail sales on Thursday. Earnings season is over, and we aren’t close enough to the end of the quarter for companies to start confessing they will miss their numbers.
Merger Monday is back, with $13 billion in announced deals. With low interest rates and organic growth hard to come by, we will be seeing more and more deals.
In the “it’s hip to be square” category, the Spanish 10 year yields less than the US 10 year. Yes, Spain – the “S” in the PIIGS cohort can borrow money for 10 years cheaper than Uncle Sam. This undoubtedly has to do with Mario Draghi charging banks to hold money at the ECB, but it is still an astounding thing to see.

TBA trading has decoupled somewhat from Treasury trading lately. Last week, the 10 year bond yield increased 11 bps, while Ginnie and Fannie TBAs were flat. The Bankrate 30 year mortgage rate increased 2 bps. Mortgage rates seem to be ignoring the volatility in the bond market.

FHFA is asking for input on the delayed G-fee hike. For those not in the mortgage banking business, G-fees (short for guaranty fees) are the cost of mortgage insurance by the government for conforming mortgages. The borrower pays these costs. Historically the government has undercharged for this insurance, which amounts to a housing subsidy. Of course G-fee increases have been used as a slush fund – two increases were used to fund a payroll tax cut extension – so the perilous state of the FHFA insurance fund is not 100% due to insufficient G fees. But there is no doubt the government underpriced this insurance. FHFA Director Mel Watt put the latest fee increase on hold to study a bit more, and the affordable housing crowd is worried that these increases are making mortgages and housing unaffordable. That said, these hikes are also the process of price discovery, where the government is raising fees to see at what point private capital starts to compete by offering a similar insurance wrap. Once they hit that price, then the idea is to allow private capital to “crowd in” or replace government backed mortgages. Right now, the US taxpayer is backing about 90% of new origination. You can see on the chart below, we have more than doubled the G-fee since the crisis began.

 

61 Responses

  1. ProTip. if it’s a 100+ degrees and the sun is radiating off the other Vegas hotels, you might want to take it easy with the poolside sangria .

    Like

    • I’d say this is a (sic) pretty obviously a quid pro quo.

      JNC, does the VA Gov. have the power to appoint to the vacancy and the power to schedule the Special Election?

      It probably says in the article but I am too lazy to read beyond the first paragraph.

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  2. That’s just experienced legislators taking advantage of the newbie in the governor’s mansion.

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  3. I can’t fathom the rationale for expanding Medicaid. Can someone articulate it?

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  4. “markinaustin, on June 9, 2014 at 9:16 am said:

    JNC, does the VA Gov. have the power to appoint to the vacancy and the power to schedule the Special Election?”

    Yes on the special election, no on an interim appointment.

    It’s well played by the Republicans and excellent timing too as the fiscal year starts on July 1.

    McAuliffe is going to be in the position of having to veto the state budget (that the legislature will now pass since both houses are controlled by the Republicans) and shut down the government if he wants to continue the fight on Medicaid expansion.

    Also, Republicans are favored to win the special election.

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  5. Troll, to help cover people who currently lack coverage.

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  6. 1. You believe that providing “insurance” is the best way to get health care to lower-income people.
    2. Hospital payments are cut under the ACA based on the assumption that the number of uninsured patients will decrease. By not expanding Medicaid, you don’t reduce the number of uninsured by the payment cuts go into effect anyway.
    3. you believe that coverage will encourage people to seek care in the community setting (meaning not the ER). same thinking with prevention.

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    • 3. you believe that coverage will encourage people to seek care in the community setting (meaning not the ER). same thinking with prevention.

      3A. From the State’s perspective, it permits the State to leverage the poor out of the ERs.

      4. From the State’s perspective, it passes on long-time mandated emergency health costs to DC (I dislike this one, of course).

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  7. There are a lot of “truths” in health policy that do not hold up under examination. Such as “prevention lowers costs”

    Besides. if Medicaid doesnt’ help, it’s been a huge waste since the 60s and failure of the great society. and that’s can’t be right. so it’s not.

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  8. But it does not keep people out of the ER’s. Never has.

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    • nova (from the usatoday piece):

      That’s just the opposite of what many people expected under Obamacare

      Hard to believe, isn’t it?

      Like

  9. But the Democrats are the party of Science!

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  10. Comments?

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  11. I love that USA today article. it’s basically everything I’ve written about the ACA over the past few years.

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  12. It wasn’t dead. It was in a standoff, but the game of chicken is tied to the budget deadline of 6/30 and the possibility of a government shutdown.

    I’m surprised that the Republicans had their act together enough to pull this off.

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  13. I recall that Health affairs article — it was based on a survey, rather than more concrete data. so i’m a bit skeptical.

    Like

  14. Summers on inequality.

    http://www.washingtonpost.com/opinions/american-inequality-goes-beyond-dollars-and-cents/2014/06/08/55331632-ee4c-11e3-92b8-52344c12e8a1_story.html?hpid=z3

    Note that his argument is that taxes have to increase to address envy. No attempt to argue in terms of programs.

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    • jnc (from Summers):

      Unless one regards envy as a virtue, the key reason for concern about inequality is that lower- and middle-income workers have too little — not that the rich have too much.

      This is nonsense. Inequality is, by definition, a relative measurement. In the context of inequality arguments, to say that someone has “too little” necessarily implies that someone else has “too much”. If one is only concerned that a given demographic has “too little” irrespective of what others may have, then one is not concerned about “inequality”.

      Like

  15. There’s just no other argument other than covetousness.

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  16. Good piece from Theissen on the legal implications of withdrawing from Afghanistan and ending the AUMF.

    http://www.washingtonpost.com/opinions/marc-thiessen-is-obama-considering-surrendering-to-the-taliban/2014/06/09/bffd5522-efe6-11e3-9ebc-2ee6f81ed217_story.html

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  17. The other point is that increasing taxes in and of itself doesn’t give lower and middle income workers more. It just makes the rich poorer.

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  18. I’d say this is a pretty obviously a quid pro quo.

    Obvious to anybody but a trial lawyer. Without a smoking gun I bet it is nearly impossible to prove especially since no actual vote is involved.

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  19. There’s nothing to prove. Most quid pro quo’s aren’t illegal. If anything it’s the core of political “horse trading”.

    Like

  20. Scott – you might like this.

    Jacobin unintentionally gives one of the best defenses of the financial sector I’ve seen in print:

    “More important is the fact that even where this is not the case, capitalists outside of finance have come to understand that finance is an essential part of their own success. Finance has not only provided business and the consumers they need with low interest rates; it also stands at the center of neoliberal restructuring. Finance reallocates capital to where it is most profitable, enforces the closure of plants the market deems inefficient, facilitates mergers, and through venture capital supports the development of new high-tech companies.

    Especially important, though derivatives have added to the systematic risk of capitalism as a whole, the markets they are part of have served as mechanisms for companies to cope with the international uncertainties of exchange rates, interest rates, and global political developments. Without the capacity for such hedging — just as without cheap transportation — the scale of current globalization would not be possible. Finally, financial markets have played a crucial imperial function. Finance brings global savings to the US and thereby further enables the US state’s role in overseeing global capitalism.”

    https://www.jacobinmag.com/2014/06/unmaking-global-capitalism/

    Like

  21. Does anything the guy get or get offered rise to the legal definition of bribery:

    A person shall be guilty of bribery under the provisions of this article:

    (1) If he offers, confers or agrees to confer upon another (a) any pecuniary benefit as consideration for or to obtain or influence the recipient’s decision, opinion, recommendation, vote or other exercise of discretion as a public servant or party official, or (b) any benefit as consideration for or to obtain or influence either the recipient’s decision, opinion, recommendation, vote or other exercise of official discretion in a judicial or administrative proceeding or the recipient’s violation of a known legal duty as a public servant or party official; or

    (2) If he accepts or agrees to accept from another (a) any pecuniary benefit offered, conferred or agreed to be conferred as consideration for or to obtain or influence the recipient’s decision, opinion, recommendation, vote or other exercise of discretion as a public servant or party official, or (b) any benefit offered, conferred or agreed to be conferred as consideration for or to obtain or influence either the recipient’s decision, opinion, recommendation, vote or other exercise of official discretion in a judicial or administrative proceeding or the recipient’s violation of a known legal duty as a public servant or party official; or

    (3) If he solicits from another (a) any pecuniary benefit or promise of pecuniary benefit as consideration for or in exchange for his decision, opinion, recommendation, vote or other exercise of discretion as a public servant or party official, or (b) any benefit or promise of benefit as consideration for or in exchange for his decision, opinion, recommendation, vote or other exercise of official discretion in a judicial or administrative proceeding or his violation of a known legal duty as a public servant or party official.

    (Code 1950, § 18.1-282.2; 1968, c. 552; 1975, cc. 14, 15.)

    https://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-447

    It’s all going to hinge on the definition of “known legal duty as a public servant or party official.” I bet it doesn’t. This is a gambit worthy of Frank Underwood.

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    • It’s all going to hinge on the definition of “known legal duty as a public servant or party official.”

      This, from yello?!?! Has hell frozen over or something?

      Like

  22. He’s not voting any specific way. He’s resigning. That’s going to be pretty much an impossible threshold to clear. They can try some sort of denial of honest services , but I don’t know of any holding where an official is required to remain in office and can be prevented from resigning.

    And yes, it’s Frank Underwood worthy. I didn’t think the Republicans were competent enough to pull off something like this.

    Like

  23. ” “known legal duty as a public servant or party official.””

    which is to trade your position for a better one.

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  24. ” If anything it’s the core of political “horse trading”.”

    FWIW, this is were the PL is unhinged on the immigration issue. The position seems to be “I get amnesty b/c you have to do something to remain electorally viable.”

    Like

  25. The Pl unhinged? Really? Hyperbole much?

    How bitter is hack Sargent about not being a Voxplainer?

    Like

  26. I think the chance for “VA to kill people by expanding Medicaid” has fallen on even harder times has him pissy.

    Like

  27. “I’m Now Kevin’s Biatch, on June 9, 2014 at 1:24 pm said: Edit Comment

    The Pl unhinged? Really? Hyperbole much?”

    A prime example is going on right now. Greg’s other writing partner Paul Waldman is going through the usual post shooting exercise of blaming Republicans and conservative media for it, while at the same time trying to argue that he’s not really doing that.

    Like

  28. One great thing about reading Jacobin is that they are even more convinced than QB that the country is going down the tubes, but in the opposite direction.

    Their pessimism over the left’s over reliance on the Supreme Court as an agent of social change is an interesting take.

    https://www.jacobinmag.com/2014/06/waiting-for-scotus/

    Like

    • jnc:

      One great thing about reading Jacobin is that they are even more convinced than QB that the country is going down the tubes, but in the opposite direction.

      I don’t see them arguing that the country is going down the tubes so much as arguing that it has always been down the tubes. QB, in arguing that the nation is faltering, can at least identify conditions that actually once existed, the movement away from which represents to him a degradation. Jacobin, it seems to me, does nothing more than repeatedly try to rationalize why, at any given point in US history, the nation was/is failing to fulfill Jacobin desires. There is always an excuse. The reasons are varied and may be different now than they were in 1789 or 1870 or 1960, but the story is always basically the same. The “people” are and always have been utter failures at demanding what they deserve.

      Jacobin doesn’t want to stop trends that it thinks are taking us to hell. It wants to initiate trends that it thinks will at long last and for the first time in history get us out of hell. The comparison to QB isn’t really fair, I don’t think.

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  29. I also love Jacobin!

    In 1789 — the same year that French revolutionaries were storming the Bastille — the wealthy and landed elites of the newly formed United States were consolidating their power. The French Revolution sought to abolish the aristocracy. In the United States, however, a new aristocracy of landowners, merchants, and slavers — the framers of the Constitution, which went into effect that March — sought to prevent anything like the French Revolution from taking place on American soil. They were aghast at popular uprisings, demands for mass debt forgiveness, and state governments that appeared dangerously willing to consider subordinating the interests of creditors and mercantile elites to those of farmers and workers.

    Yeah, that was why!

    What’s not to love!

    Like

  30. That’s a sort-of-interesting article at Jacobin, but it’s a very old and well-worn argument, and it seems blissfully ignorant of developments like Windsor and Anthony Kennedy’s long-running quest to impose his “queer-friendly” vision on the country, let alone the stealthy and devious strategy coordinated between radical organizations, the self-evolving Obama, and the Court.

    Like

  31. That’s smart. Wait for the heat to die down before collecting the pay off.

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  32. Scott, they are making a pretty clear argument that from a standpoint of class solidarity via strong unions and the like, it’s less likely than ever for them to be able to get rid of capitalism and also the inherent contradiction in using the least democratic branch of government to propagate policies in the name of the masses.

    This is an illustrative quote:

    “The conditions that radicals now face are profoundly different from those that previous generations confronted. For the first time in history, we must deal with the challenge of a truly global capitalist system. The Soviet Union has been dead for over two decades, and despite its many failures, its collapse was a political setback for reformists and revolutionaries alike.”

    https://www.jacobinmag.com/2014/06/power-play/

    Like

  33. Unless one regards envy as a virtue, the key reason for concern about inequality is that lower- and middle-income workers have too little — not that the rich have too much.

    This is wrong for so many other reasons as well.

    The less wealthy or poor don’t have less because Bill Gates has more. They wouldn’t have more if he had never founded Microsoft. (They would probably have less.)

    Moreover, the complaint of liberals in fact is that the rich have too much. (At some point, you have enough money. You didn’t build that; somebody else built that.)

    Of course, that only applies to others, not to the Obamas, Reids, Clintons, or Kerrys of the world.

    Like

  34. Looks like the VA IG is trying to figure out who the whistleblowers are:

    http://www.washingtonpost.com/blogs/erik-wemple/wp/2014/06/09/nonprofit-to-fight-va-ig-subpoena-for-records/

    Like

  35. “Of course, that only applies to others, not to the Obamas, Reids, Clintons, or Kerrys of the world.”

    No doubt because none of them have ever built anything. They’re basically parasites.

    Like

  36. Does anybody disagree?

    Like

  37. Anyone who travels a lot and has had to take taxis in many major cities over the last ten years can only shake his head in disbelief at the regulation crowd who cites issues like safety and security in favor of the taxi monopolies the cities enforce. It is so patently clear when you exit an airport or leave a hotel and need transportation that you are in the hands of a vast system of graft and corruption, large and small, and if you feel safe and secure in most taxis you must not have your wits about you. That’s not even to mention the many inconveniences and annoyances that go with taxis: they are cramped, hot, filthy, uncomfortable; if you happen to leave something behind, say goodbye to it forever; good luck getting that email receipt they all claim to send to you now; anyone here speak English?

    It’s really incredible that we put up with the tax racket.

    Like

    • qb:

      It’s really incredible that we put up with the tax racket.

      Totally agree. Almost as bad as the taxi racket.

      Like

  38. Scott, well played.

    Like

  39. I refuse to use DC taxi’s anymore. Uber only. UberX when it’s just me. UberBlack for clients.

    As of 2-3 weeks ago, i’d take an occasional cab, but after getting in yet another one that didn’t have a functioning credit card machine, I’ve had enough. .

    Like

    • Very good stuff from Kevin Williamson on Catholics against capitalism.

      I myself first felt the pull of the Church in a very, very poor place — India, as it happens — that was at the time engaged in the humane project of making itself a considerably less poor place, largely by ignoring the advice of the Hindu versions of Cardinal Rodríguez Maradiaga. I am grateful to our clergy, and if my criticism herein seems unduly uncharitable to these princes of the Church, it is only because their backward views on capitalism are doing real, material, irreversible damage to the world and especially to the lives of poor people, who are most in need of what only capitalism has to offer. His Eminence may not entirely understand it, but the banks and boardrooms are full of men and women doing more in real terms for the least of these than he is — more, in fact, than he would even understand how to do — and what he proposes mainly is to stand in their way. For God’s sake, stop it.

      Like

  40. Disheartening. so much principle of subsidiarity. let alone the “crowd out” nature of centralized gov.

    why should I be good/decent/care at all about my fellow man if the government is doing it.
    obviously capitalism is fair game for criticism, but this seems misplaced.

    Like

  41. I have always felt that the name “capitalism” is itself an unnecessary and prejudicial misnomer.

    It is freedom. Free enterprise. Economic freedom. “Capitalism” is nondescriptive and too useful as a pejorative, because it is nondescriptive.

    Like

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