Morning Report – Looks like we have a budget deal 12/11/14

Stocks are higher this morning after initial jobless claims and retail sales surprised tot he upside. Bonds and MBS are flat.

Initial Jobless Claims fell slightly to 294k last week. We have been consistently hitting under 300k for a while, which is a very bullish sign. Companies may not be raising wages yet, but they are holding on to the people they have.

Retail Sales increased .7% in November, well above the .4% Street estimate. October was revised upward Ex autos and gas, sales rose .7%. Lower gasoline prices are providing a bit of an economic dividend.

Congress looks like they have circled around a spending bill to keep the government open for the near term. The left (led by Elizabeth Warren) is complaining about the bill. The Department of Homeland Security is funded only through February, which will give Republicans a chance to wrangle with Obama on the issue of his immigration executive order. There are also some relaxations to Dodd-Frank, and the left is apopleptic about that. The changes would allow FDIC institutions to use derivatives to hedge their own currency and f/x risk and would relax margin requirements for non-banks that use derivatives to hedge (like airlines hedging their fuel costs, for example). That said, it looks like the left will lose this battle.

13 Responses

  1. Frist!

    Ben Edelman strikes me as a very poor scorched earth negotiator. He destroyed all pretense that he was fighting for a truth-in-advertising principle when he kept demanding ‘damages’ and future discounts. I don’t negotiate adversarially with people who prepare things I am going to ingest.

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  2. Senate Finance Rs drop tax report on tax reform: full PDF at http://www.finance.senate.gov/newsroom/ranking/download/?id=7798ca64-6955-4c9e-b6f9-9f7954b4e08e

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  3. Amusing and pathetic at the same time:

    “Elite law students want their finals postponed because of grand jury decisions. Not everyone is sympathetic.”

    http://www.washingtonpost.com/news/post-nation/wp/2014/12/10/elite-law-students-want-their-finals-postponed-because-of-grand-jury-decisions-not-everyone-is-sympathetic/?tid=hybrid_1.1_strip_2

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  4. I think David Thorne of 27b/6 should troll this Edelman… It would be epic.

    http://www.27bslash6.com/

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  5. @yellojkt: ” I don’t negotiate adversarially with people who prepare things I am going to ingest.”

    This. There is much wisdom in that statement.

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  6. @ScottC: That’s a great article. I love the quote from Tim Dickinson at RS: “But I’m appalled that people are turning a story about a public institution sitting on an explosive allegation of gang rape on campus into a conversation about ethics in gang-rape journalism.”

    I wonder if he was appalled at people turning the serious of the question of a dictator with delusions of grandeur building WMDs and supporting terrorists into a conversation about accuracy of the claims. Somehow, I doubt it.

    I am astonished that journalists believe the narrative message trumps accuracy. Just astonished!

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  7. With Senator Fauxahontas and Pelosi against the CRomnibus and POTUS for it, wonder what HRC’s position is on it?

    Think anyone will ask her?

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    • Elizabeth Warren says:

      Who do you work for—Wall Street or the American people?

      Is she really not aware that people who work on Wall Street are Americans too? She really is a dishonest, loathsome demagogue.

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  8. AFAIK, there are two provisions: The first one allows FDIC banks to use derivatives for hedging – and for a big bank, being able to hedge interest rate risk and currency risk is an integral part of the business.. Interest rate and f/x swaps are pretty vanilla products and we are talking about hedging transactions, not speculative positions. Theoretically, they are allowed to use a separate entity, but it cannot be backstopped by the bank. Which makes these sort of transactions difficult because of the huge notional amounts involved. These swaps are less risky than a plain vanilla car loan.

    I can see the point of separate entities for proprietary trading, but not for hedging purposes.

    the second provision is that you aren’t going to require certain non-banks to put up the sort of collateral that speculators and banks have to. This is mainly directed at big commercial players who hedge their production (farmers, oil companies) or inputs (General Mills, American Airlines)

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    • Brent:

      Which makes these sort of transactions difficult because of the huge notional amounts involved.

      The real issue isn’t so much the notional amounts, which are not at all necessarily reflective of the risks involved, but is rather the amount of capital required for posting collateral (which is required under D/F).

      These swaps are less risky than a plain vanilla car loan.

      True. It is really amazing how ignorant these politicians are of the things they pontificate on. So it is perfectly fine for a bank to pay a monthly rate on its deposit base of, say, $1 billion, while at the same time lending the money out on a fixed rate basis for 30 year residential mortgages, implicitly, er, speculating that rates will not rise precipitously. But it is “too risky” for that same bank to enter into a $100 million swap in which it receives a monthly re-setting rate and pays a fixed rate for 30 years, thus hedging the rate risk that Warren and her ignorant band of followers are perfectly happy to allow (nay, encourage).

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  9. @ScottC: “Is she really not aware that people who work on Wall Street are Americans too?”

    She knows that anyone who makes a dollar more than you do (to many people) is not part of your tribe, so if you want to leverage that division for your own purposes . . . that’s what you do. She always is apparently unaware that over 50% of Americans have money invested in the markets, so what happens on Wall Street is not exactly irrelevant to the vast majority of American people.

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