Rosanne and I try to take in a movie every Saturday night.  We don’t do pure adventure or pure chick flick together and we scour reviews for suitable dramas and comedies that leave chickflicks to her and my adult daughters and leave adventure, scifi, and mysteries to me and my male friends or me and my son.


Our last three weeks of flicks: Boyhood, A Most Wanted Man, and The Hundred Foot Journey.

The presence of Phillip Seymour Hoffmann in his last film aroused enough curiousity in Rosanne that she readily agreed to watch that spy movie.  Predictably, it was my hands down favorite of the three and her least favorite.  I had read the novel.  PSH was so good in the role that he changed my imaginary perception of the character for the better.  I wonder if LeCarre himself had that impression?

The other two movies were entertaining and by no means a waste of money.  Boyhood leaves you with enough to talk about over drinks afterward and the sense that the movie captured a slice of life very well, but it neither leaves a lasting impression nor requires revisiting.  However, because it was actually filmed over 12 years with the same actors naturally aging it will be a film school subject, I am sure.

The Hundred Foot Journey, like Chef, is at its heart a celebration of food.  A feel good movie, dressed up as a dramady, with terrific actors.  Chef, btw, was a feel good movie dressed up as a travelogue with good standup comics.

You may have noticed I am not, here, a harsh critic.  I could be.  I am capable of pointing out the flaws in three of the four movies I have mentioned so far, and if I did you would think I did not like them.  Let it be said that the best movies I ever saw were not coextensive with my favorite movies, and I am not writing here to prove my chops as a critic, if indeed I have any.

Finally, my first cousin’s daughter just starred in this Grade B horror flick.

I am required to watch it, probably today.  Wish me luck.




Morning Report – How much slack is there really in the labor market? 8/22/14

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

Dull Summer Friday with no economic news. Janet Yellen is scheduled to hold a press conference at 2:30 EST, so there is the possibility of something coming out that could move bonds.

The Washington Post has a breakdown on the Bank of America / DOJ settlement. Although the headline amount is $17 billion, it looks like they will actually pay closer to $12 billion. Of the homeowner relief, they may run out the clock on principal modifications and drag them out, as JP Morgan is doing.

Nonvoting St Louis Fed President James Bullard argues there is less slack in the labor market than the Fed’s statements imply. He argues that it is the unemployment rate and payroll growth that matters, and that the labor force participation rate doesn’t add much information and is outside the purview of monetary policy. He is probably correct in that regard – I don’t really see how 25 basis points one way or another on the Fed Funds rate is going to affect the long-term unemployed. That said, I don’t think they move meaningfully until we start seeing wage inflation. That doesn’t rule out a symbolic increase in the Fed Funds rate sometime next year. Separately, Charles Plosser thinks we should raise rates this year.

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.

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.

Non Delegation

Scott, QB, I, and probably JNC, are interested in the doctrine of non delegation.  QB directly referred to it in discussing the rise of the bureaucracy and I avoided it in that discussion because I had no idea where it stood after 78 years or so of disuse.  I did allude to “limits” of delegation, not specifically, but in general, that arise in federal cases.  So without doing any research of my own, one of JNC’s many cool links brought up a reference to this:

I think it is very interesting.  Hope you read it too!

Morning Report – Good Housing Starts numbers 8/19/14

Markets are higher this morning after housing starts hit the highest level in eight months and inflation at the consumer level remains muted. Bonds and MBS are up.

Housing starts in July were at a seasonally-adjusted annual rate of 1.09 million, which is 15.7% above June and almost 22% above last year. Building Permits were 1.05 million, up 8.1% month-over-month and up 7.7% year-over-year. Multi-fam drove the increase, although single fam did increase as well. Multi-fam starts are notoriously volatile. We saw big increases in the Northeast, while the Midwest was flat. The South and West were up slightly. Can’t complain about the number, which was the highest in eight months. Still, “normalcy” is around 1.5 million units per year, which goes to show how depressed housing still is. We probably will not hit historical numbers until the first time homebuyer returns.

The Consumer Price Index rose .1% in July, which is up 2% year over year. Ex food and energy, it rose 1.9% year over year. This cheered the bond market.

The Despot reported earnings that beat estimates, with comp store sales up 5.8%. People are starting to spend money on home improvement. The stock is up about 4 bucks this morning.

What will the world’s finance chiefs be talking about this week at Jackson Hole? First, don’t look for any market-moving statements, but there is always the possibility. Second, the labor market and the issue of the economy’s speed limit. Is it possible to have unemployment continue to fall without increasing the labor force participation rate? Are the long-term unemployed now permanently unemployed? If so, the amount of improvement we can expect to see without causing inflation is limited. FWIW, the most dangerous words in economics and financial markets are “this time is different.” I am more sanguine than most.

Is the lock-in effect going to matter as rates rise? In other words, as rates rise, home buyers will experience an increase in their mortgage rates, which could prevent people from moving. If so, will this be a drag on mortgage production? Zillow convened a panel of experts who believe this effect will probably be muted. Unless we suddenly get a bout of hyperinflation, rates are probably moving up to 5% or so over the next few years. This is probably a gradual enough increase that it won’t affect things too much.

Morning Report – Partially improving labor market 8/18/14

Markets are higher as European stocks rally. Bonds and MBS are down on decreasing pressure in Ukraine.

The National Association of Homebuilders Sentiment Index rose to 55, the highest level in seven months.

This week will have some important data, with housing starts and building permits tomorrow, and the FOMC minutes on Wednesday. The minutes will be especially interesting as “lift off” (the Fed’s euphemism for increasing rates) approaches. Finally, central bankers, finance ministers, and other officials will meet at Jackson Hole on Thursday. There will be the possibility of market moving quotes so be aware.

The labor market is improving, at least at the higher end. Skilled labor is tough to find, and we are finally seeing some job growth in professional services. Low skilled labor and the long term unemployed are still struggling. Separately, part time workers who want to work full time are presenting a problem for the Fed. Which means don’t focus on the unemployment rate, focus on wage growth when thinking about the Fed’s posture towards interest rates.

What has QM succeeded at doing? Raising compliance costs. Has it changed business practices? Nope.

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