Morning Report: Consensus shifting rapidly on a rate hike 8/26/15

Green on the screen again this morning as stocks try to rebound. Yesterday, stocks traded up early only to give it all back late in the day and close with big losses. Bonds and MBS are falling again.

Durable Goods orders were strong at 2%, and June’s number was revised upward. Capital Goods Orders Non-defense, ex-air (a proxy for business capital investment) rose 2.2% versus a 0.3% expectation, while June was revised upward from 0.9% to 1.4%. These were the highest readings in a year.

Mortgage Applications rose 0.2% last week as purchases rose 1,7% and refis fell 1%. Surprising that refis fell given the 17 basis point drop in the 10 year, but it looked like TBAs (which set mortgage rates) largely ignored the move in the bond market.

Not sure what caused yesterday’s late day sell-off, but the S&P 500 made a 60 point swoon in the last hour of trading to close down 26 points.

The other interesting thing about this sell-off has been the fact that bonds have not reacted much to the sell-off. The flight to safety trade has been almost non-existent in Treasuries. Odd, since the sell-off has taken down the probability of a rate hike in September. In fact, many strategists are moving out their estimate for the first hike to 2016.

Larry Summers was arguing over the weekend that financial conditions are acting like a tightening, and therefore the Fed doesn’t really need to raise rates right now. Hotlanta Fed President Dennis Lockhart said that conditions in the financial markets have complicated the Fed’s decision. By any measure, inflation is nowhere to be found. Given the fear of replicating the 1937 mistake, the Fed is probably going to err on the side of caution. Aside from the psychological discomfort of having rates at 0%, what reason is there to raise rates?

The carnage in the stock markets in Asia have created some bargains. HTC (the cellphone maker) is trading at a discount to cash. Market cap of $39.7B, no debt, $47.2 billion of cash. Like buying dollar bills for 84 cents. In crisis, opportunity.

55 Responses

  1. “Bonfire of the Assets, With Trump Lighting Matches

    AUG. 26, 2015
    Thomas L. Friedman

    Normally, when your main geopolitical rivals are shooting themselves in both feet, the military manual says step back and enjoy the show. But I take little comfort in watching China burning money and Russia burning food, because in today’s interdependent world we’re all affected.

    I also find no joy in it because we Americans, too, have started burning our most important source of competitive advantage — our pluralism. One of our two political parties has gone nuts and started following a pied piper of intolerance, named Donald Trump.”

    Friedman is wrong. It’s not Trump who started burning the pluralism. He’s the reaction to it.

    Like

    • jnc:

      Friedman is wrong. It’s not Trump who started burning the pluralism. He’s the reaction to it.

      Bingo. It is amazing how often the left inverts reality.

      Like

  2. Indeed. Flathead has always admired the Chinese Government’s ability to run roughshod over its people for “progress.” Of course he is going to hate someone like Trump.

    Like

  3. Bingo. It is amazing how often the left inverts reality.

    because they only discuss politics with people who agree with them, with a few exceptions like Michigoose…

    Like

  4. Pluralism is awesome!

    Except for Christians, Republicans, conservatives, nativists, and heterosexual white men. If we can get rid of all of those, things would be awesome.

    Like

  5. @briangaar
    Always remember, a document written by slave owning white men is more important than human life

    Your left in action…

    Like

  6. “Always remember, a document written by slave owning white men is more important than human life”

    That’s just so ignorant. On so many levels.

    Like

  7. Good piece on a Trump focus group

    “Trump may be ‘impossible to take down,’ top Republican pollster says”

    http://www.nj.com/politics/index.ssf/2015/08/inside_the_mind_of_the_trump_supporter.html

    Originally found it here:

    http://www.esquire.com/news-politics/politics/news/a37411/gop-pollster-frank-luntz-afraid-of-donald-trump-power/

    Anecdotally, at the gym I’ve noticed that when any other politician is on the TV, they are by and large ignored. When Trump is on, especially when his speeches are being carried live, people stop what they are doing and listen.

    Like

  8. Did these guys just forget about the blow back in 2007 to the immigration reform effort. the phones on the hill were melting down.

    Like

  9. Greg is wrong on this at PL:

    “because the problem of what to do about the 11 million is the core dilemma underlying our impasse on this issue.”

    The core impasse is no one believes that they are serious about enforcement this time and that this will be the last amnesty.

    Like

    • jnc:

      The core impasse is no one believes that they are serious about enforcement this time and that this will be the last amnesty.

      That’s a bingo! (again)

      Like

  10. Shooter ID’ed.

    http://www.washingtonpost.com/news/local/wp/2015/08/26/tv-camera-crew-caught-in-active-shooter-situation-in-southwest-virginia/?hpid=z1

    I’m trying to imagine the full fledged melt down that would occur if this incident was framed as showing the “crisis” of black on white crime vs gun violence.

    Like

  11. “The Virginia shooting shows we shouldn’t need a mass shooting to talk about gun violence

    Updated by German Lopez on August 26, 2015, 11:52 a.m. ET”

    http://www.vox.com/2015/8/26/9210625/virginia-shooting-gun-violence

    I have yet to see the media ever stop talking about gun violence. It’s the preferred framing for all of these stories.

    Like

  12. From the Austin American-Statesman, behind the paywall or I would have linked:

    COMMENTARY
    Herman: Taking a swing at Trump

    Posted: 12:00 a.m. Saturday, Aug. 22, 2015

    By Ken Herman – American-Statesman Staff
    

    Here’s something that’s sure to be a hackle-raiser among Austin’s progressive crowd. And, to avoid misunderstanding, please read this column until the end.

    What if I told you that at a recent tea party gathering in Arlington, a hotbed of tea partyism in North Texas, a popular item for sale was a President Barack Obama papier mâché likeness pitched by profiteers and gobbled up by consumers as suitable for hanging and whacking with a stick as a way to express opposition to political positions espoused by our president?

    The “Whack-a-Baracks” sold briskly at $45 apiece, said Rusty Tomlinson, a purveyor of political memorabilia and related items.

    “People are doing the obvious thing with them,” Tomlinson said. “Hang it and hit it.”

    “One guy told me he just wanted it to take out his aggression on,” he said. “Just wanted to have it near him so he can hit it with a stick.”

    Outrageous, inappropriate and, as far as I know, totally untrue. I made it up to try to make a point. You’ll decide if I succeed. And I’ll open it up to the Court of Public Opinion to let me know if I’m way off base here.

    Earlier this month, my American-Statesman colleague James Barragan wrote about the popularity of Donald Trump piñatas at a couple of East Austin stores. The proprietors of each told Barragan that the piñatas, starting at $45 each, of the unlikely current frontrunner for the GOP presidential nomination battle were big sellers in the wake of Trump’s noxious comments about foreigners who enter our nation illegally.

    “People are doing the obvious thing with (the piñatas),” Jorge Salazar, owner of the Piñata Party Palace, told Barragan. “Hang it and hit it.”

    “One guy told me he just wanted it to take out his aggression on,” Salazar said. “Just wanted to have it near him so he can hit it with a stick.”

    So let’s review here: Folks offended by Trump’s political views find it amusing and satisfying to whack a likeness of Trump with a stick, combining simulated violence with political statement and potential candy reward.

    How is that different than the example I made up involving tea party folks and the fictitious, as far as I know, Whack-a-Baracks? Such an item would be considered an outrage. But Trump piñatas are, among some, a source of acceptable amusement.

    Anticipating some potential reader feedback, I’m aware of two important points about my attempted and potentially faulty analogy. First, there’s the Hispanic tradition, which has expanded beyond that community, of piñatas as appropriate party items. I get it, even if I remain uncomfortable with the concept of hitting a likeness of a real person, just like I’m not a big fan of video games based on violence.

    And I’m well aware of the shameful history involving violence against African-Americans.

    Feel free to tell me I’m making something of nothing, but I’m uncomfortable with simulated violence — albeit merely involving a piñata — against a presidential candidate or any real human being.

    I’m no fan of Trump, who is as unprepared for the presidency as past “outsider” candidates like Ross Perot and Jesse Jackson. But I’m troubled by symbolic simulated violence — even through the use of something as traditionally playful as a piñata — against a politician. It’s just not us at our best.

    Court of Public Opinion, what say you? I’m a bit concerned about being labeled anti-piñata, but I just wanted to lob this out there to see if everyone thinks I’m nuts on this one. If so, feel free to procure a Ken Herman piñata and whack away. This could be a good opportunity for me to test my ability to accept criticism — constructive, destructive or otherwise.

    And here’s hoping some of those folks whacking at Trump piñatas will, if eligible and registered to vote, find their way to the ballot box next year and utilize the best and most peaceful way ever devised to make a political statement.

    Like

  13. “with a few exceptions like Michigoose…”

    there’s still a libertarian in her. i can feel it.

    Like

  14. I’m in Austin, TX today and due to a (moronic) city ordinance stores don’t have plastic grocery bags. As a result everybody walks around carrying their own grocery bags,it feels like I’m in an eastern bloc country in the ’80’s ready in case State Store has toilet paper or moldy beets.

    Like

    • The bag rule is only for out of towners to piss them off so they won’t move here.

      I would have bought you lunch!

      Like

  15. Sorry Mark, I had to do a luncheon or I’dof hit you up!

    Like

  16. DC charges 5 cent a bag. Naturally, i pay a man to carry my grocers for me.

    Like

  17. I hope you make him do so w/out bags and fine him every time he drops something.

    Like

  18. As a result everybody walks around carrying their own grocery bags,it feels like I’m in an eastern bloc country in the ’80’s ready in case State Store has toilet paper or moldy beets.

    Nothing says Low T like a reusable shopping bag…

    Like

  19. there’s still a libertarian in her. i can feel it

    You are not luring me to the dark side!

    Like

  20. yes. he can carry two bodegas without a problem.

    Like

  21. I’m thinking homeless people Mark.

    At least he doesn’t make them stand around to provide him with WiFi.

    http://www.npr.org/sections/thetwo-way/2012/03/13/148506762/turning-homeless-men-into-wifi-hotspots-at-sxsw-ignites-debate

    Like

  22. i see that Megyn Kelly is having Jorge Ramos on tonight. what could go wrong!

    Like

  23. Just because I know he has so many fans:

    Like

  24. there’s still a libertarian in her. i can feel it.

    It’s all the midichlorians.

    Like

  25. GOP Loyalty Oath Proposal? Oh, yay. The GOP clearly wants me to waste all my votes on libertarians and 3rd party candidates.

    Like

  26. I wonder if the other reporters agreed a head of time that Ramos would go first? If not,wonder if they condone his, er, flaunting of convention?

    And the Trump lets him come back and gives him the most time! I’m sure no one resented it!

    Like

  27. “A man who claimed to be the gunman sent ABC News a 23-page letter on Wednesday morning saying he was motivated by the mass shooting at a Charleston, S.C., church last month, according to the network.”

    So the shooting was the fault of white gun nuts, at the root. I knew white people were too blame.

    Like

  28. @yellojkt: “For most people, the definition of an “objective” journalist is someone who agrees with them.”

    Concur! You are 100% percent accurate. Because accuracy, like so many things, depends on how much the accurate person is in the process of accurately agreeing with me.

    Inaccuracy is disagreement with me. 😉

    Like

  29. I would say most journalists will resist printing anything that might make a reader want to vote (R).

    Like

  30. @brentnyitray: Except for National Review. The editorial pages of the Wall Street Journal. Washington Times.

    Speaking of the Washington Times, I just saw this bit there on Solyndra:

    http://www.washingtontimes.com/news/2015/aug/26/solyndra-misled-government-get-535-million-solar-p/

    Astonishing! Where is 12BarBlues to tell me how conservatives just don’t understand how venture capital investing works, otherwise I’d know that it’s natural that the government waste tax payer dollars in investing in sketchy green technology companies?

    Like

  31. “ScottC, on August 26, 2015 at 2:43 pm said:
    jnc:

    If the Republicans want to ensure that Trump runs third party this is the way to do it.

    I just saw this, linked at NR: Trump telling GOP brass he will forego third party run”.

    http://www.huffingtonpost.com/entry/trump-telling-gop-brass-he-will-forego-a-third-party-run-sources_55de06eae4b04ae4970577d3?oypn9udi

    He thinks he can win the nomination then.

    Like

  32. Wonder where the loyalty oath for Lisa Murkoski is?

    Like

  33. I suspect politicians will give the same amount of respect to Loyalty oaths as they do pledges to serve out their whole term and not run for a higher office.

    Like

  34. Eugene Volokh is so amusing:

    “Of course, all this is likely practically moot, since if Hillary Clinton is guilty of violating the law, and is convicted for violating the law, such a trial would be a political disqualifier even if not a legal disqualifier;”

    https://www.washingtonpost.com/news/volokh-conspiracy/wp/2015/08/26/no-hillary-clinton-wouldnt-be-legally-ineligible-for-the-presidency-even-if-she-had-violated-government-records-laws/

    A conviction wouldn’t hurt her support among Democrats at all, if PL is any indication. Trumped up right wing conspiracy, Clinton Rules, etc.

    Like

  35. Cue unintended consequences:

    “In an effort to combat disciplinary bias, the federal government has warned every school district in the country that they face legal action if their discipline policies have a “disparate impact”—“a disproportionate and unjustified effect”—on students of a particular race.”

    http://www.theatlantic.com/education/archive/2015/08/teachers-say-no-disparate-impact-discipline/402144/

    Like

  36. I’m surprised that Hillary is popular at PL, I’d figure she’s not far left enough. Kinda how the Right treats Bush and Kasich.

    Like

  37. OT: Just discovered this. Little did I know how racist it was to let gays serve in the military:

    http://www.c-span.org/video/?c4443719/akiko-carver

    I swear, there is no winning with these people.

    Like

  38. If you can’t win, don’t play.

    Like

  39. Sooper Mexican link’s to another hot take from numbnuts.

    Reporters should be allowed to scream and yell like babies as long as they represent minorities: http://t.co/H5wCOC57b8

    Like

  40. I’d figure she’s not far left enough

    She isn’t. We’re just worried about SCOTUS (and I’m not a fan of HRC)(or, really, Bernie Sanders).

    I wish we had some candidates in, say, my generation again.

    Like

  41. “Cue unintended consequences”

    foreseeable consequences are not unintended.

    Like

  42. “I wish we had some candidates in, say, my generation again.”

    the entire D platform is warmed over New Deal stuff. it’s almost 100 years old. a dinosaur. you need to look elsewhere for new ideas.

    Like

  43. @novahockey: “the entire D platform is warmed over New Deal stuff. it’s almost 100 years old. a dinosaur. you need to look elsewhere for new ideas.”

    Where? The Republican platform is remarkably similar on a lot of points (although the details would, no doubt, differ), but the platform usually doesn’t tell us much about the presidency to follow (and neither do the candidates, except in the most general terms). Politicians that make sense generally seem to be extinct. Certainly on the national stage. Yet Warmed Over New Deal and Warmed Over Morning in America seem to be the only things the parties offer, and when in power spend more time on (a) securing their persona fiefdoms and (b) legacy-building.

    The only solution is to have all policy written by ultra-advanced AI and voted on by random number generators. I guarantee you that would result in a better government!

    Like

  44. “Where?”

    outside of politics.

    Like

  45. @novahockey: “outside of politics.”

    That would be nice. Solve problems in some other way that casting a vote for one politician or another and then saying “well, that’s it, I’m done” is probably a good idea!

    Like

  46. We all agree the bureaucracy is in charge now, correct?

    Like

  47. @mcwing: without a doubt.

    Like

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