Morning Report – Q1 GDP comes in negative 5/29/15

 Stocks are lower after first quarter GDP was revised downward. Bonds and MBS are up.

The second revision to first quarter GDP came in at -0.7%, a little better than expected. The port strike and a harsh winter are affecting the results somewhat, so take the number with a grain of salt. There are also questions regarding the seasonal adjustments BEA puts on GDP data – the first quarter has been unusually weak the past two years.

Personal consumption came in at +1.8%, a small drop from the first revision and a touch lower than expected. The headline inflation number was negative, however the core was up 0.8%. Inflation is still running below the Fed’s target of 2%.

In other economic data, the University of Michigan Consumer Sentiment survey improved in May to 90.7 from 88.6. The Chicago Purchasing Manager Index fell.

Wall Street is a young person’s game for the most part – by the time you are in your 30s you are old and if you are in your 40s, you are a senior citizen. Right now, Wall Street is staffed with people who have never seen a rate hike. I keep saying it, but the stock market is assigning a 100% probability that the Fed can raise rates without anyone blowing up. The last 3 times rates rose, we blew up the MBS market, the stock market and the residential real estate market. And we have a sovereign debt bubble on our hands right now.

20 Responses

  1. I bet it surprised economists!

    Like I’ve said, we’re just bouncing on the bottom.

    What I don’t understand about the MMT crowd is the dismissal of the evidence that debt overhang inhibits the economy.


  2. Well, there are some funky things going on with the port strike. If the goods are sitting on a ship somewhere offshore, they are treated as imports, and therefore subtract from GDP. However, once they end up in someone’s warehouse, they are considered inventory and add to GDP.

    Not sure how much that matters overall, but it is a reason to take that number with a grain of salt.


    • From deep in the historical files of the Unconstitutional Regulatory State:

      In 1943, Claude R. Wickard, the head of the War Foods Administration as well as the Secretary of Agriculture, got the bright idea to ban pre-sliced bread in America, which he did on January 18, 1943. The specific reasons behind this aren’t entirely clear, though it was about conservation of resources, particularly generally thought to have been about conserving wax paper, wheat, and steel…

      Wikipedia adds:

      According to the New York Times, officials explained that “the ready-sliced loaf must have a heavier wrapping than an unsliced one if it is not to dry out.” It was also intended to counteract a rise in the price of bread, caused by the Office of Price Administration’s authorization of a ten percent increase in flour prices. In a Sunday radio address on January 24, New York City Mayor LaGuardia suggested that bakeries that had their own bread-slicing machines should be allowed to continue to use them…

      On January 26, however, John F. Conaboy, the New York Area Supervisor of the Food Distribution Administration, warned bakeries, delicatessens, and other stores that were continuing to slice bread to stop, saying that “to protect the cooperating bakeries against the unfair competition of those who continue to slice their own bread… we are prepared to take stern measures if necessary.”

      I assume this the same Wickard from Wickard v Filburn infamy.


      • I assume this the same Wickard from Wickard v Filburn infamy.


        Regulation of both markets and personal conduct was never so great in America as it was during WW2.

        As a farm kid in the 40s, I was fascinated by our maintenance of gasoline and diesel tanks with pumps and hoses on the farm. They were there because farms got gasoline allowances during WW2. Ours was 80 gal/month. We kept the tanks after the rationing went away, of course.


        • Mark:

          Regulation of both markets and personal conduct was never so great in America as it was during WW2.

          More generally it is probably fair to say that it was never so great as it was under FDR’s reign.


        • The ‘Financial Speed Trap’ in the
          Case Against Dennis Hastert
          Zoe Tillman, The National Law Journal
          May 29, 2015
          Former House Speaker Dennis Hastert wronged an unidentified “Individual
          A” years ago, according to the indictment federal prosecutors brought this
          week against the Illinois Republican. But Hastert isn’t being prosecuted for
          that “prior misconduct,” as prosecutors called it in charging documents.
          Instead, he’s accused of violating federal laws against “structuring”—making
          purposefully low cash withdrawals to avoid regulations that require banks to
          report transactions larger than $10,000 to the feds.
          Congress made structuring a crime in the late 1980s to help prosecutors
          bring down drug dealers, who were making small­currency transactions to
          avoid the bank reporting rules in place since 1970. More recently, defense
          lawyers and civil liberties advocates have accused prosecutors of pursuing
          the charge as a stand­alone offense in a way that goes beyond what
          Congress intended.
          “The reason it’s become controversial is that prosecutors in recent years
          have strayed further and further from the original goal and the old­fashioned
          cases,” said Patrick O’Donnell, a white­collar defense lawyer at Harris,
          Wiltshire & Grannis in Washington. “They’re relatively easy cases to make,
          although they often irritate judges who take the long view and remember
          why we have structuring charges.”

          The Financial Speed Trap in the Case Against Dennis Hastert | National Law Journal
          Hastert, according to the indictment, was approached in 2010 by Individual
          A about “prior misconduct” that Hastert committed against him or her.
          Hastert offered to pay Individual A $3.5 million to conceal that misconduct,
          prosecutors allege, and made a string of $50,000 withdrawals from various
          banks. The indictment does not reveal the nature of the alleged misconduct
          but the Los Angeles Times reported Friday the impropriety was sexual in
          After the banks questioned Hastert about the withdrawals in 2012, according
          to the indictment, Hastert began making withdrawals of less than $10,000.
          Prosecutors say he did so to avoid the bank reporting requirements and
          further attention. If that’s true, it didn’t work: in December, FBI agents
          questioned Hastert about the withdrawals. Hastert told them he kept the
          cash. In addition to the structuring charge, Hastert was also indicted on a
          single count of lying to the FBI.
          Hastert, who did not return an interview request, resigned from his lobbying
          job at Dickstein Shapiro on Thursday. It was not immediately known whether
          Hastert, who is not a lawyer, had retained counsel. A federal magistrate
          judge in the U.S. District Court for the Northern District of Illinois set
          Hastert’s bail at $4,500. A court date for his arraignment has not been
          scheduled yet.
          “In most cases, the government alleges that the reason the defendant
          engaged in structuring was to hide criminal conduct. What is extraordinary in
          this case is that the premise may be that what Speaker Hastert was trying to
          hide was that he was the victim of extortion,” Barry Pollack, a white­collar
          criminal defense lawyer at Miller & Chevalier, said in an email to the NLJ.
          Prosecutors have faced scrutiny in recent years for seizing otherwise legally
          obtained money in civil asset­forfeiture cases based on alleged structuring
          offenses. In March, the Justice Department announced new policies
          restricting asset seizures in those types of cases (The new policy does not
          apply if there are criminal charges involved.) The IRS announced similar
          reforms in October, according to The New York Times.
          David Smith of Smith & Zimmerman in Alexandria, Virginia, who represents
          defendants in structuring cases, described the offense as a “financial speed
          trap.” Smith was a federal prosecutor in Virginia and managed asset­
          forfeiture litigation for the U.S. Department of Justice before he went into

          The Financial Speed Trap in the Case Against Dennis Hastert | National Law Journal
          private practice.
          “The banks don’t tell their clients about structuring, they don’t put signs in
          the lobby, they don’t send them letters,” Smith said. He added that he had
          represented clients in structuring cases in which a bank teller advised the
          client to make smaller deposits or withdrawals in order to avoid the extra
          One recent high­profile structuring investigation involved former New York
          Gov. Eliot Spitzer. Federal prosecutors looked into whether Spitzer
          committed any financial crimes in connection with his patronage of a
          prostitution ring, including making small cash deposits to the escort service
          to skirt the bank reporting requirement. The U.S. attorney’s office in
          Manhattan announced in late 2008 that it would not bring charges.
          Stand­alone structuring cases are on the rise, according to O’Donnell, but
          it’s still more common to see the charge brought alongside allegations of
          some underlying criminal activity.
          According to BuzzFeed News, details about Hastert’s alleged “prior
          misconduct” were withheld from the indictment at least in part at the request
          of Hastert’s lawyers. The report did not identify the attorneys.
          Pollack said that if that’s true, one explanation might be that prosecutors are
          still hoping to reach a deal.
          “It looks like the government recognizes that the speaker was being extorted
          and must have accepted the argument that it would be inappropriate for the
          government to reveal the very fact that Individual A was threatening to
          disclose,” Pollack said. “If there is a public trial, that fact will likely come out.
          The government may feel that the speaker may be incentivized to enter a
          plea that does not disclose the prior misconduct.”
          Smith agreed that prosecutors might be using the threat of exposure as a
          bargaining chip, but he said he also suspected Hastert received special
          treatment as a public figure.
          “If it was the average snook,” Smith said, “they wouldn’t have agreed to it.”

          The Financial Speed Trap in the Case Against Dennis Hastert | National Law Journal
          Contact Zoe Tillman at On Twitter: @ZoeTillman.
          Copyright 2015. ALM Media Properties, LLC. All rights reserved.


        • It seems crazy to me that a person can go to jail for withdrawing his own money from a bank. It makes sense that “structuring” might be used as an indication of some other wrong doing, but to have it declared illegal in and of itself is stupid and unjust, and any prosecutor who pursues it as a standalone charge is abusing his power.

          BTW, the article doesn’t specify the prior misconduct but another article I read yesterday suggested it related to his time as a high school wrestling coach 35 years ago. You can guess what that misconduct might have been.


        • The world seems focused on DH’s old misconduct. I am focused on the continuing abuse of the “structuring” statute. Scott, I agree that “It makes sense that “structuring” might be used as an indication of some other wrong doing,…” but I do understand what a powerful tool it became against drug traffickers and in RICO cases. There, it was an add-on count, of course. I think whenever it is used “stand alone”, and where it did not evidence a crime by the accused, it is an abuse, and I think if the statute must be in the AUSA’s arsenal it should be limited to “structuring to avoid detection of a crime committed by the accused.”

          When the USA for SDNY did not choose to indict the former AG of NY for structuring to pay his bimbos it was because they didn’t need the coercive effect. Here, they don’t need any coercive effect either, because DH was the victim of blackmail/extortion. Yet they assume he will plead guilty rather than go public with a trial, so they are going after him. Of course, as the article states, you and I would have had even less consideration than DH. No cheap bail for us. No agreement to call the homosexual contact with a student “prior misconduct”.

          It is a statute that currently invites this kind of abuse, and if it could not be changed to limit the abusive invitation then I would agree it ought to be repealed.


  3. I’m happy this is happening and have zero sympathy for any of the subjects.

    I hope these type of investigations continue.


    • McWing;

      I’m happy this is happening and have zero sympathy for any of the subjects.

      I don’t know anything about this woman in particular, but the academic left in general is most definitely responsible for the campus atmosphere she bemoans, along with the more general political atmosphere that elects someone like Obama and invites further federal intrusion into university governance via things like expanding Title IX. And it is certainly galling to see her lament this stuff as “conservative notions about sex, gender, and power…becoming embedded in these procedures.” What a joke. These cases are the epitome of radical feminism and progressivism.


      • Very interesting article on how the rise of administrative and judicial power poses a unique danger to religious liberty.

        The legislative tendency toward compromise and accommodation is exemplified by the Religious Freedom Restoration Act, which requires, as President Clinton remarked at its signing, that “the Government should be held to a very high level of proof before it interferes with someone’s free exercise of religion.” To that end, RFRA establishes a balancing test to mitigate laws’ burdens on religious freedom. The legislative process is no panacea, of course​—​as the religious communities in Sherbert, Yoder, and Smith saw firsthand. But its inherent checks and balances reduce the risk that religious groups will be gratuitously burdened, and thus the legislative context gives judges reason to presume, at least initially, that the resulting law is justifiable.

        During Obama’s presidency, by contrast, the collisions between progressive policy and religious liberty are not the result of legislative compromise or political give-and-take. Rather, they come from administrative agencies pushing a specific agenda as aggressively as possible, or from courts announcing new rights in absolute terms, leaving little apparent room for religious freedom. In this respect, the threat to religion comes not from popular majorities, but from minority factions that succeed in capturing either administrative or judicial power and leveraging it against religious minorities who stand in the way of their policy agenda.

        Administrative absolutism was illustrated perfectly in Hobby Lobby and subsequent cases. The contraceptive mandate that the Obama administration wants to enforce against religious employers, and now against religious organizations, is found nowhere in the Affordable Care Act itself. However partisan the act itself may be, however rushed and ideological the act’s promulgation may have been, it does not seek to impose such controversial requirements on religious believers. (It probably would not have passed either chamber of Congress if it had.) Indeed, at oral argument Justice Anthony Kennedy voiced doubts that an agency could plausibly be trusted to restrain its own policy agenda in order to protect religious liberty: “What kind of constitutional structure do we have,” he asked Solicitor General Verrilli, “if the Congress can give an agency the power to grant or not grant a religious exemption based on what the agency determined?”

        But regulators are not the only unelected officials prone to writing new laws in absolutist terms. To the extent that same-sex couples’ right to marry ultimately results from judicial decisions (at the administration’s behest) rather than legislative compromise, judges’ expansive vision of such new rights may leave legislators little room to exempt religious institutions, organizations, and persons from direct involvement with same-sex weddings. As Harvard’s Dean Minow acknowledged in her remarks, “adversarial litigation leads to black and white, yes and no, win and lose answers.” The legislative process, by contrast, often facilitates the inclusion of “accommodations [for religious liberty] that can be worked out on a much more nuanced level than win-or-lose when there are two parties,” especially when there are “third parties, fourth parties, and fifth parties affected by the resolution between two parties [in court].” In the present Supreme Court litigation over same-sex marriage, religious persons, organizations, and institutions are among the third, fourth, and fifth parties who may be directly affected by the Court’s eventual decision in Obergefell v. Hodges, either in terms of their tax-exempt status or in terms of their freedom, under state law, to decline to participate directly in same-sex weddings.


  4. I love this person’s perspective.

    Democrats (not all of them of course, but enough of them) enabled the Bush administration in some of the worst crimes against humanity in modern history: the illegal invasion of Iraq, the shameful atrocities at Abu Ghraib, Bagram, Guantanamo and elsewhere, kidnappings, torture, murders, assassinations, double-taps such as that shown in the Chelsea Manning video and on and on.


  5. The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue.

    Click to access PIIS0140-6736%2815%2960696-1.pdf

    But trust us on the AGW stuff, it’s Rock.Fucking.Solid.


  6. Isn’t the real issue, besides the govt.’s prosecutorial abuse, how a Hastert could afford over 3 million in hush money when he never made more that $200 k a year in his life?


    • Funny you should think that, George. When I first heard the news, half listening, I assumed this indictment had been built around a mountain of bribes.

      Addendum: He has been a lobbyist for years – a well paid one.


  7. For some, the reason why is a real head scratcher.


  8. Totally doable.


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