Morning Report – Parsing the FOMC statement 1/29/15

Stocks are higher after yesterday’s bloodbath. Bonds and MBS are down.

Germany’s inflation rate turned negative in January for the first time in 5 years. QE is coming just in time. The German Bund yields 35.3 basis points, or about 6 basis points more than the Japanese Government Bond. It is amazing to think a country that didn’t experience a massive real estate bubble has interest rates that low.

Initial Jobless Claims fell back below 300k. Looks like the usual post-seasonal layoffs are done. The Bloomberg Consumer Comfort index rose last week to 47.3.

Pending Home Sales fell 3.7% month-over-month in December. They are up 8.5% year over year.

The general take on the FOMC statement was hawkish, at least the way they characterized the economy. They said the economy was improving at a “solid pace” with “strong job gains.” Quite the change after a half decade worth of terms like “subdued,” “modest” and “moderate.” Actually the only weak spot was housing, where the recovery remains “slow.” One change from December involved the acknowledgement of overseas economic issues. “International developments” will now help shape monetary policy. I think bonds keyed off that statement. If Europe is indeed heading for a recession with rates already at the zero bound, then the Fed may choose to stand pat in June, or only make a symbolic increase to get off of the zero bound.

Speaking of the Fed, Bill Gross thinks the Fed is moving this year, and delves into some of the unintended consequences of ZIRP. The biggest problem with ZIRP is that it skews the risk / reward of investment – the upside is limited by low rates, but the downside is the same as ever before. This encourages people to keep their money in the mattress. Money quote: “Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return. Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates.” This is why Bill thinks the Fed moves this year, even though European weakness gives them the perfect excuse not to.

PulteGroup reported better than expected earnings and revenues. Orders were up 1% in units and 2% in dollars. Average selling prices are down 10 basis points on a YOY basis. Management comments on the state of the housing market:

“We are optimistic heading into 2015 as buyer sentiment began improving in late November supporting stronger traffic and signup levels throughout December and into January. We believe the positive factors of an improving economy with declining energy costs, rising employment, lower mortgage rates and related fees, beneficial long-term demographic trends and a generally healthy supply of inventory, will continue to support a slow and sustained housing recovery.”

The stock is up about 150 basis points this morning.

15 Responses

  1. @jnc4p: Because, ultimately, the Republicans want some folding money to spend, too.


    • An interesting debate yesterday over at NRO between Ramesh and Kevin Williamson on SS tax credits for people with children. In short, Ramesh claims that additional children represent a net benefit to the financial well-being of SS, even though they will also be eventually beneficiaries themselves, because those children will have their own children that will pay for their eventual benefits. Williamson says that as long as per capita benefits outpace per capita contributions (as they do now), it can never be the case that adding more contributors/beneficiaries will be a net positive.

      You can follow the posts backwards from Ramesh’s last, here:

      Personally I think that people with children should get a rebate on their SS taxes, but only in return for decreasing their eventual benefits, under the assumption that families, not society, should be responsible for taking care of people in retirement/old age. So as your own expected costs become de-socialized, the less responsibility you have to fund the socialized costs of others. Thus childless couples who continue to rely on taxpayers rather than children to manage their retirement/old age costs will end up bearing the burden of each other.


  2. Kevin,

    See, everybody wants a nipple and will acknowledge the only tax that can get passed will be a VAT.



    study finds that free-to-receipting care less costly to recipient than alternatives. also, water is wet.


    • nova:

      study finds that free-to-receipting care less costly to recipient than alternatives. also, water is wet.

      LOL The “study” was probably funded with federal dollars, too.


  4. @McWing: “See, everybody wants a nipple and will acknowledge the only tax that can get passed will be a VAT.”

    It’s just that after Republicans sign on for a VAT, they won’t be in a position to spend any of that money. At least, not after the next election.


  5. Oh this will go over well. They must really want to leave the euro:

    “Greece’s new prime minister wants Germany to pay for Nazi war crimes
    By Ishaan Tharoor
    January 26”


  6. As the architect in the second Matrix says, There are losses we are willing to accept. The return will be increased spending on CoC constituents. They won’t finance campaigns against the pro-tax Congress members.


  7. I still say they get some massive write-offs.


    • Mcwing:

      I don’t know if or how often the Fed Chairman has held private meetings with political groups in the past, but I would want to know exactly what she actually said before getting too worked up. If all she said is that rates won’t be raised “immediately”, as suggested by your link, then she wasn’t revealing anything that wasn’t already known.


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