Morning Report – Are We Japan? 8/20/14

Stocks are lower this morning on no real news. Bonds and MBS are flat.

Mortgage Applications rose 1.4% last week. Purchases fell .4%, while refis rose 2.7%. The 30 year fixed rate mortgage finally fell six basis points after stubbornly resisting the moves in the bond market.

Later on today, we will get the FOMC minutes. While there were no changes to the economic forecasts, the markets will be looking to see if the circle of hawks is growing.

Job growth is mainly at the low end of the pay scale. But the wage growth is mainly at the high end. The US labor market is incredibly bifurcated at the moment. This is certainly what keeps Janet Yellen up at night, although the bigger question is whether the Fed can really do anything about it.

BlackRock chief investment strategist Russ Koesterich is saying that bonds have it right, stocks have it wrong with respect to the view of the economy. The higher debt levels will act as a drag on growth for the next decade or two. In other words, we are Japan, and Reinhart / Rogoff are right. This is of course heresy to Dr. Cowbell, who believes the solution to the economic morass is to borrow more (since rates are so low) and to spend it on infrastructure. Japan did exactly what Krugman wanted, and took their debt to GDP ratio to 2.2x and has had little to no economic growth for a generation. As a point of reference, our debt to GDP ratio just over 106%, however the Fed owns about a quarter of that (through QE) so it is really debt we owe ourselves.

Foreclosure starts and Delinquencies ticked up in June, according to Black Knight Financial Services (formerly known as Lender Processing Services or LPS). DQs increased to 5.7% from 5.62% in May, while foreclosure starts ticked up to 88.3k vs 86.3k a month before. On a year over year basis, foreclosures starts are down 19%. Inventory continues to be concentrated in the judicial states of NY, NJ, and FL. Short sale discounts continue to narrow, while the REO discount is flat.

13 Responses

  1. Wow–frist! Where is everybody?


  2. It’s August.


  3. Does Japan put a bullet in the back of the head of Keynesian by serious economists?


  4. Does Japan put a bullet in the back of the head of Keynesian by serious economists?

    Keynsianism never fails, it is only failed.


  5. More cowbell (or in Japan would it be more Taiko)?


  6. What does Krugman say aboot Japan?


  7. What does Krugman say aboot Japan?

    The Bank of Japan tightened too soon, and the Japanese government tried austerity and it didn’t work.

    Never mind is is kind of hard to run up a debt to GDP ratio of 220% on an “austerity” budget.


    • Dershowitz on the Perry indictment:

      “The two statutes under which [Perry] was indicted are reminiscent of the old Soviet Union — you know, abuse of authority,” Dershowitz said Monday. “The idea of indicting him because he threatened to veto spending unless a district attorney who was caught drinking and driving resigned, that’s not anything for a criminal indictment. That’s a political issue.”…

      He also says he was “outraged” by the (eventually overturned) DeLay conviction that came out of the same office.


      • No doubt in my mind that if this was not a convenient cover for influencing an ongoing investigation it should not be a crime. But Dershowitz raises a better point – the statute itself may be defective, in a constitutional sense. Proving Perry tried to influence an ongoing investigation could have been charged under a narrower statute, I am sure.

        So this could result in a conviction because Perry really did something wrong, but then be overturned because the statute is vague and overbroad. One might expect pretrial motions to set aside the indictment that will shed light on this issue. However, my recollection of criminal procedure is that constitutional defects are not waived by failing to point them out in pretrial. So if Perry did try to influence an ongoing investigation (and the defense knows that is where this is headed) it might be quiet on the defective statute so that the indictment would not be dismissed only to be followed by an indictment under a narrow and valid statute.


  8. Heh.


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