Morning Report – FOMC minutes data dump 8/21/14

Markets are higher after another sub 300k initial jobless claims number. Bonds and MBS are flat.

Existing home sales rose to a 5.15 million annual pace, according to NAR. Median Home Prices are up 4.9% to $222,900. Distressed sales made up 9% of all sales, the lowest percent since 2008. First time buyers inched up to 29%, and all-cash buyers ticked down to 29%. Days on Market increased to 48.

In other economic data, the Index of Leading Economic Indicators ticked up to .9% from an upward-revised .6% in June. The Philly Fed Manufacturing Index was strong at 28.

There was nothing earth-shattering in the FOMC minutes. One thing did jump out at me, and it was the fact that they lowered their estimate for the potential GDP growth rate. They revised their GDP forecast downward and also said that unemployment was closer to its natural rate. This effectively lowered the “speed limit” of the U.S. economy, and in a way, waves the white flag over the plight of the long-term unemployed. Of course there is probably not much monetary policy can do for the long-term unemployed in the first place, but that is a separate issue. I guess the Fed is seeing wage growth somewhere (not sure where, aside from skilled labor), and they think we are closer to seeing inflation flare up for the whole economy. The punch line is that, at the margin, rates may be going up sooner than anticipated.

Speaking of inflation, thanks to the recent rally in the US dollar, commodity prices are getting slammed. Oil is down 13% in the last two months, natural gas is down 20%, corn is down 17%, and bonds are rallying. Not seeing where the inflation is going to come from. Fun fact: Spanish 10 year bond yields are now lower than the US 10 year. Remember the PIIGS of the European Sovereign Debt Crisis? Their bond yields are generally in line with ours: Portugal is 3.26%, Italy is 2.59%, Ireland is 1.88%, Greece is 5.78% and Spain is 2.39%. Kind of amazing when you think about it. The point is that you can’t look at US rates in a vacuum – worldwide sovereign yields are rallying, and it is pulling US yields lower as well.

Bank of America settles with the DOJ for $17 billion. BOA’s purchase of Countrywide will probably go down in history as one of the most ill-advised mergers ever, along with Time Warner’s purchase of AOL, and Warren Buffet’s purchase Johns Manville’s asbestos liability stream. Separately, while the government dropped its criminal case against Angelo Mozillo, they are still going after him in a civil case.

26 Responses

  1. a functional difference is just semantics.
    in that case, i want a M249.

    Like

  2. I’m curious how the Frogs define Austerity.

    http://mobile.nytimes.com/2014/08/21/business/international/france-acknowledges-economic-malaise-blaming-austerity.html?referrer=

    Cause tax increases don’t scream austerity to me.

    Course, I’m a bagger, so…

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  3. This parts just fun!

    “He spoke in the face of signs that the broader eurozone economy is stumbling anew, in contrast to the strong recovery in the United States.

    Oh yeah, we’re kicking fuckin’ ass, yo!

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  4. Wooo!

    “If you’re about 33 to 49 years old, we know the past few years haven’t been easy on you. The Pew Charitable Trusts says the leading edge of Generation X — folks born from 1966 to 1975 — lost about 45% of its wealth during the Great Recession. It’s a generation that graduated amid one recession, missed out on the dot-com bubble that preceded it, missed out on the housing boom because it couldn’t scrape together enough cash and was plunged headlong into yet another recession, thanks to the housing bust that followed.”

    http://www.thestreet.com/story/12845643/1/generation-x-needs-to-get-serious-about-retirement.html

    Like

    • No way would Chris Walling lie under oath. If this was based on the cancer funds it looks like a pile of equine feces. I’ll wait for the Special Prosecutor to outline his case, but this really makes it look like no case except the literal words of an indictment under a statute that is suspect for overbreath in the first place. I have no idea what other investigation was going on at the time that could have touched the governor in any way – this was always the obvious one. The other big investigation at the time that was known to the public was the food bank, but that involved a D legislator, not friends of the gov.

      Like

  5. Never mind. You mean Mark’s take on the affidavit.

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  6. I’m speaking of the specific affidavit I linked.

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  7. “The Pew Charitable Trusts says the leading edge of Generation X — folks born from 1966 to 1975 — lost about 45% of its wealth during the Great Recession.”

    Only if you were stupid enough to sell at the bottom.

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  8. “The Pew Charitable Trusts says the leading edge of Generation X — folks born from 1966 to 1975 — lost about 45% of its wealth during the Great Recession.”

    Between chewing up my savings while unemployed and the drop in asset prices, it was a lot worse than that for me. Also took about a 70% pay cut once I got back in the labor force.

    The last 7 years have been a complete and utter bitch…

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  9. “Only if you were stupid enough to sell at the bottom.”

    Or had to live off of your savings during the worst part of it.

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  10. that’s brutal, brent.
    we just had a paperloss. but the “missing” out rang true for me.

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  11. @McWing: Automatic guns are the ones that can fire themselves. 😉

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    • Seriously: what is the accepted definition of an automatic weapon? I have always thought of it as one that will shoot multiple rounds on a single pull. How far off am I?

      Liked by 1 person

  12. Between chewing up my savings while unemployed. . . Also took about a 70% pay cut once I got back in the labor force.

    I got lucky with the timing and the re-employment (~25% pay raise by moving here). Don’t really want to go through that again, though. I didn’t know about that, Brent, but I sure can feel for you!

    Like

  13. sentry guns. now we’re talking.

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  14. I am still paying off taxes from having to liquidate my 401k to live…

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  15. mark, that is the correct definition.

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  16. out of town most of next week. catch you all later

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  17. “Brent Nyitray, on August 21, 2014 at 2:42 pm said:

    I am still paying off taxes from having to liquidate my 401k to live…”

    My comment was targeted at the author cherry picking his date range for his analysis from 2007 – 2010, not meant at you personally.

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  18. I know.

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  19. I got wiped out in a layoff in ’03. It sucked. After that I decided to keep a substantial cash horde.

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  20. It’s actually pretty difficult to look back at the last 6 or 7 years and not find a family member, friend or even ourselves who weren’t affected by the housing crash and terrible recession. We’ve personally been affected worse financially by earlier downturns as we didn’t have the same kind of cushion we had in this one. We lost a lot of business income but hung on to everything else fine.

    I know lots of people who lost jobs, homes and nearly everything they ever invested in. Our oldest daughter took a big hit in the education field here in CA and is just now getting back on her feet with a lot of school loans to pay still. Our other two fared well, with the youngest doing exceptionally well. She stayed in school throughout the entire thing with Chevron paying for virtually everything and then skated into a fabulous and well paying job. Quite a few of her friends from CO have done the same.

    Our greatest loss was because of the healthcare system pre ACA but was only tangentially affected by the economy as we were trying to borrow money or sell the rental and had a lot of difficulty doing either in 2008 the year my niece died. We needed to come up with a lot of money up front for her care and just didn’t have enough time to do it.

    I’m sorry for everyone here who suffered. It was a terrible time and I don’t think it’s really over yet. The lower end of the income scale may never fully recover unfortunately.

    Like

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