Morning Report – Housing Starts disappoint 3/17/15

Markets are lower this morning as housing starts disappoint and oil continues to fall. Bonds and MBS are up.

Housing Starts fell to an annualized pace of 897k in February from an upward-adjusted 1.08 million in January. While it is tempting to blame this on the weather (and undoubtedly some of this is due to the weather), you had an 18% drop in the West as well. Building Permits rose to 1.09 million, however from an upward revised 1.06 million. While this is an improvement from the post-bubble years, we are still operating well below historical norms.

Today begins the two-day FOMC meeting. Aside from the word patient, the Street will be focusing on the Fed’s economic projections, particularly inflation. At the December FOMC meeting, the Fed was projecting GDP growth of 2.6% – 3.0%, unemployment of 5.2% to 5.3% and PCE inflation of 1.0% to 1.6%. Given that six of the last seven PPI prints have been negative, it will be interesting to see what the Fed does with their inflation forecasts. If it gets too low, will the Fed hold off raising rates? Certainly the dovish wing of the FOMC will argue for caution.

Great article on the bubblicious tech company valuations. All sorts of games are being played in order to boost the valuations of companies like Uber, AirBnb, Dropbox, etc. Mark Cuban has described the current bubble in these private companies to be bigger than the internet bubble of the late 90s. FWIW, Henry Blodgett (who would know a thing or two about bubble valuations) thinks Uber could go public at $50 – $100 billion in a few years. That makes it worth about the same as Allergan or ConocoPhillips.

16 Responses

  1. Sigh.


  2. Why are Republicans so hell-bent on increasing defense spending? Seriously.

    We are energy independent – we have no further strategic interest in the Middle East aside from helping Israel. We don’t need a carrier battle group in the Persian Gulf and another in the Med.


    • Brent:

      We are energy independent – we have no further strategic interest in the Middle East aside from helping Israel.

      It’s still a global energy market, even if the US is capable of producing its own energy. While we may be energy independent, we are not independent of the global energy market, on which the Middle East still has a big impact.

      That’s not to say that increases in defense spending are therefore justified, just that energy independence doesn’t mean we therefore have no self-interest in events in the ME.


  3. Spenders gotta spend. Only way to get defense spending up is to highlight conflict. Hence, the Republican pundit drumbeat of “Foreign Policy Election.” There’s a reason why Hugh Hewitt is moderating the first Republican debate.

    The only remaining solution is to abandon the party.


  4. We are the Saudi Arabia of natural gas, and aside from East Coast refineries’ reliance of North Sea Brent, most of our oil consumption is WTI, which trades at an almost $10 discount to Brent.

    I agree we have some interest there, but it isn’t what it was 20 years ago (or even 10 years ago).


  5. Defense is 22% of the budget, which seems plenty high. The Republicans should be focused on decreasing that number, as well as the 27% that is healthcare, which will be 40% before too long, and the 26% that is pensions. Rather than arguing that we need to be growing the already very large defense budget, where it’s not like the money is carefully line-itemed so that we have some idea of how much money is going to what.

    War? What’s it good for? Absolutely nothing! Except lining the pockets of certain individuals in the military-industrial complex.

    If this were like the old days, when Reagan wanted to spend billions on SDI, I’d be for it, as a million tech innovations could come out of that spending. I don’t see what net gain there would be for prepping for another Middle East war could possibly be.


    • KW:

      Defense is 22% of the budget, which seems plenty high.

      For purposes of deciding whether we are spending “enough” on defense, I don’t think it makes much sense to look at spending as a percent of the total budget. Personally, even while I agree that defense spending could almost certainly be cut without harming the defense of the nation, I think that spending on defense should be a much higher percentage of an overall much smaller budget.

      Given that defense is the primary function for which the federal government exists, I think it should spend whatever it takes to properly accomplish that function (with some cushion) regardless of whether it is 25% or 85% of the total federal budget. But if it is only 25%, that is a sure indication that the government is doing things it doesn’t exist to do.


    • Kev, I was nodding along about the good stuff that comes out of defense research and then I started thinking about NASA and then I was reminded of this story I heard this morning:

      At the end, someone is quoted as saying Elon Musk has made his Mars effort on a small fraction of what NASA would have spent. This is at the end of a story about someone else who is trying to get to Mars. 5:37 into the story we learn about SpaceX – Musk developed his space ship that works on 1/10th the budget in 1/3 the time.

      Musk is contracting to NASA. This seems like a major cost saving and efficiency by that Agency.


  6. @gbowden41: “The only remaining solution is to abandon the party.”

    Yup. Vote for your favorite libertarian, or candidate claiming to be from another planet. I will vote for Republicans in local and state elections where there has been entrenched Democrat hegemony for decades. A: they aren’t going to win. B: if they do, they will at least be largely new to the office, and thus not yet part of the Republican machine, which is different from the Democratic machine primarily on which rights they want to abridge and which areas of the government they wish to grow to absurd proportions.


  7. @ScottC1: “I think that spending on defense should be a much higher percentage of an overall much smaller budget.”

    I have no objection to that. As I noted, I think the Republicans should be arguing for spending less money generally, not spending even more on their favored portions of Big Government. Also, I tend to thing the argument is the same with defense as education: merely spending more does not automatically guarantee improved results.

    This is also true of healthcare, where our spending is now at 27% of the budget, and I suspect you’d agree with me that around spending there should be much lower. I can actually see arguments for some things we spend money on, such as Medicare coverage for dialysis, but spending 27% of the annual budget on healthcare (and likely to be growing yearly) is a recipe for eventual austerity when it comes to healthcare spending. And is not an area the government really needs to be in.

    @markinaustin: There’s nothing like austerity to provoke innovation. 😉 Now that NASA simply doesn’t have the money to do what it’s done the way that it has in the past, they are finding other ways by outsourcing to the private sector in ways that, hopefully, will work much better. Of course, for this to even be possible, it requires an economy that allows people like Elon Musk to become obscenely rich, so that’s distasteful but that’s the price of progress!

    My point on SDI is that there would be a lot of innovation to come from such a defense program that was pursued to fruition. Those objecting to it’s impossibility at the time reminded me of critics of the Wright bros. absurd notion of a flying machine. The process by which such innovations were achieved could have been any number of ways, including contracting out research and even encouraging private enterprise to develop solutions and thus win a lucrative government contract.

    But the objections to SDI really rankled me as a young liberal, but also technology enthusiast, and suddenly those who agreed with my belief that Reagan was a warmonger seemed more like luddites than egalitarian pacifists. 😉 Obvious goods were presented as bad things, and I did not understand it.

    Also SDI helped speed the bankruptcy of the Soviet Union which, while it could have turned out better, still seemed to me a strategy that worked pretty well. And from what I’ve read, I tend to think Reagan, while serious about SDI, knew what he was doing in regards to pursuing a technology race the Russians could not win. But I digress: sufficed to say, I was not stoked about NASAs budget getting cut, but in the long run, it may be a positive, as incentives shift and we learn to accomplish ambitious goals for less, and more folks in the private sector step up to make it happen, as it becomes clear the government cannot accomplish such goals anymore.


  8. “Vote for your favorite libertarian”

    i’ll get the paperwork started on my PAC


  9. @Scottc1: But Ayn Rand was crazy! Objectivism is nonsense! I’ve been told so by reliable authorities. Also, she was emotionally unstable, so everything she ever wrote is automatically untrue.

    They should have called “Net Neutrality” the Totally Awesome Cheap Internet and Free Porn” act. Then nobody would complain.


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