Morning Report – Slow data week ahead 9/8/14

Slow news day. The week following the jobs report always has a dearth of data, so there isn’t much on the economic front to talk about.

We will get consumer credit out of the Fed sometime this afternoon.

Why is credit so tight for first time homebuyers and people with low FICOs? Ask Washington. It seems like the authorities are now forcing buybacks and fines over relatively minor errors, and as a result, lenders are refusing to extend credit to low-income / low FICO borrowers. Of course the Administration continues to exhort the industry to loosen standards at the same time it announces record settlements.

A majority of primary dealers see the first rate hike in the second quarter of 2015. The median forecast for the Fed Funds rate at the end of 2015 is 1% and 2.5% for the end of 2016.

Hawk Charles Plosser says that keeping rates near zero until the Fed’s goals are achieved is a risky strategy.

12 Responses

  1. Drinking alcohol is good for you.


    • Brent – when I actively practiced in the admin law area I was always aware of conflicting legal mandates within local gov, within state gov, and within the fed gov, never mind across gov lines. Now that I am semi-retired and not doing either labor or admin work I need to be reminded from time to time. The exhortation to lend more to the poor coupled with the mandate to make safe loans was a refresher of bad memories of telling clients which mandate to follow for the least risk, knowing that in doing so another mandate would be ignored, hopefully with less risk to my client.


  2. Steve Pearlstein on the Ex-Im debate.

    While Pearlstein’s argument that the Ex-Im bank isn’t the biggest example of crony capitalism is true, I don’t dismiss the effort to get rid of it the same way that he does. You have to start somewhere, and if they can’t get rid of the Ex-Im bank, then there’s no hope at all of getting rid of farm subsidies and the like.


  3. Scott

    Good news, I’m looking forward to a Maker’s Mark weekend with my kids……………yay

    I’ve always believed smoking was the worst health related habit. I do think though, coming from a family with more than a few alcoholics, it’s better to keep it well under control.


  4. Yeah! It’s a real money saver!

    “I’ve actually had reports of actuarial consultants going around to the plans that failed to gain substantial market share suggesting they lower their rates in order to grab market share because they have nothing to lose with the now unlimited (the administration took the lid on payments off this summer) Obamacare reinsurance program covering their losses.”

    What a fucking.


  5. Stu Rothenberg: “While the current Rothenberg Political Report ratings don’t show it, I am now expecting a substantial Republican Senate wave in November, with a net gain of at least seven seats. But I wouldn’t be shocked by a larger gain.”


  6. Victory:

    “Congress only has four full legislative workdays in the next nine weeks”


  7. JNC, i’m in the office today because it’s damn impossible to get a worthwhile meeting. i’ve got a few lined up, but it had to important to make it worth the effort. i heard some staff are have 20-25 meetings in a day between now election break


    • McWing:


      Not sure. I have to admit I am a little confused.

      First, a little explanation. ISDAFix is a just a standard rate setting service, somewhat similar to LIBOR, which establishes benchmark rates for various interest rate swap maturities at a specific time every day. It evolved from a need to have a standardized, objective rate fixing for cash settled swaps and swaptions. Prior to ISDAFix, counterparties to a cash settled swap or a swaption had to either agree to a mid-market reference rate at the exercise time or had to take a poll of a pre-determined panel of 3rd party reference banks which would provide their estimation of the reference rate at the exercise time. The emergence of ISDAFix as a market standard put an end to this cumbersome (and easily manipulable) process.

      With that in mind, the article says two, seemingly contradictory things which I cannot reconcile. First, it says:

      Bloomberg News, citing a person with knowledge of the matter, was the first to report last year that the CFTC found evidence traders at Wall Street banks instructed ICAP brokers to buy or sell as many interest-rate swaps as necessary to rig ISDAfix by moving it to a predetermined level.

      This implies that the ISDAFix reference rates are determined by actual, market transactions executed through ICAP as brokers or, at the very least, actual market bid/offer prices held by ICAP at the time of the fixing. This is my understanding of how ISDAFix rates were set, and is exactly why one would use a broker like ICAP to set the rate, because the very job of the broker is to have markets in all of the swap maturities at any given time. If one were trying to “rig” the rate one would have to actually move the market by putting real bids or offers in the market and transacting real swaps at those rates. For this reason I don’t think “rig” in this instance is at all the correct word. If real trades are being executed, then that is the real market.

      (BTW, you don’t “buy or sell” interest rate swaps. You either pay fixed or receive fixed.)

      However, the article goes on to say:

      The banks communicated using electronic chat rooms and other means of private communication, typically submitting identical rate quotes beginning at least in 2009, the Alaska fund said.

      This implies that the settings are derived from bank submissions, a la LIBOR. If some kind of coordination was taking place between those making submissions, then “rigging” would indeed be a correct characterization. But this is definitely not my understanding of how ISDAFix gets set, and is contrary to what is implied earlier in the article. And if this was how the rate was being set, there would be no reason to involve ICAP as an intermediary collecting submissions. The only reason to involve ICAP is because as a broker they can provide information about the market without the direct input individual marKet players.

      This what confuses me. This allegation, which seems to be the core of what the article is talking about, makes no sense given my understanding of how ISDAFIx rates actually get determined.


Be kind, show respect, and all will be right with the world.

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