Morning Report: The markets and the Fed are on different pages 10/5/15

Markets are higher this morning on overseas strength. Bonds and MBS are down.

The Labor Market Conditions Index fell from a downward-revised 1.2 to zero. This has been the average since 2000.

The Markit US Composite PMI came in at 55, while the services PMI came in at 55.1. The ISM Non-Manufacturing Composite fell from 59 to 56.9.

Aftermath of the weak jobs report on Friday: Fed fund futures assign a 10% probability of an Oct hike, 30% probability of a December hike and 50% probability of a March hike. The markets are increasingly out of sync with what the Fed members are actually saying in the press. Note we get the FOMC minutes this Thursday. That will be the highlight of the week.

The Bernank weighs in on raising rates. His Rx: don’t. Separately, DoubleLine’s Jeffrey Gundlach thinks we have further downside in risk assets like junk bonds, US equities and emerging markets stocks and bonds. His point: people are holding and hoping these assets rebound. That isn’t the psychology of a bottoming process. That happens when people throw in the towel and sell.

It is looking like the Trans-Pacific Partnership free trade deal is pretty much done. It still has to get through Congress, although he did get fast-track approval. I suspect it won’t move the needle that much for the US economically. It is mainly about intellectual property protection for US firms.

Sometimes bad ideas get implemented, fail, become forgotten, and then come back, like Freddy Kreuger. One such idea is the financial transactions tax, also known as the Robin Hood tax. It is back in vogue in Europe, and Bernie Sander wants a 50 basis point tax on all stock trades, a 11 basis points on bonds and 5 on derivatives will be able to fund a slew of new government benefits. Don’t believe it. While leftist politicians love to promote ideas like this as new, they aren’t. They have been tried and discarded. Sweden implemented on in the 1980s, only to see most stock trading in Swedish stocks flee to London. The UK in fact did implement one for stock trades, and all it did was drive institutional investors to use swaps to sidestep it and retail investors to go to betting parlors like City Index. They will sell it as raising a lot of revenue – it won’t simply because it will kill high frequency trading, and volume will dry up. They will sell it as reducing volatility – some (not all, but some) of HFT is actually market-making which is stabilizing. We don’t really have market-makers or specialists on the floor of the New York Stock Exchange like we used to. You could make the argument that it will increase, not decrease volatility. Anyway, #FeelTheBern is big on this idea – he should take a look at how it has (not) worked in the past.

15 Responses

  1. Transcript of the press conference from Friday. It will be interesting to see if this holds:

    “That’s why I want to be very clear: I will not sign another shortsighted spending bill like the one Congress sent me this week. We purchased ourselves 10 additional weeks; we need to use them effectively.”

    & oh the horror:

    “Keep in mind that a few years ago, both parties put in place harmful automatic cuts that make no distinction between spending we don’t need and spending we do. We can revisit the history of how that happened — I have some rather grim memories of it. But the notion was that even as we were bringing down the deficit, we would come up with a sustainable, smart, long-term approach to investing in the things that we need. That didn’t happen. And so now these cuts that have been maintained have been keeping our economy from growing faster. It’s time to undo them. If we don’t, then we will have to fund our economic and national security priorities in 2016 at the same levels that we did in 2006.”

    https://www.whitehouse.gov/the-press-office/2015/10/02/press-conference-president

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    • jnc:

      & oh the horror:

      It’s like the guy who weighs 350 pounds lamenting about how he’s going to have to survive on the same paltry diet that sustained him when he weighed 325 pounds.

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  2. fuck him.. he bluffed and got called..

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  3. So, send him a budget that totals 2006 spending. Win/win.

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  4. We can compromise at 2007 levels.

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  5. Oh, the irony is hilarious:

    “Another Democrat from the Massachusetts delegation, Barney Frank, was even more blunt. “Bernie alienates his natural allies,” he said. “His holier-than-thou attitude—saying, in a very loud voice, he is smarter than everyone else and purer than everyone else—really undercuts his effectiveness.””

    http://www.newyorker.com/magazine/2015/10/12/the-populist-prophet

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  6. barney is still pissed that he lost out to bernie in the “most disheveled democrat” contest

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  7. What portion of the electorate does he think is with him?

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    • McWing – from your link:

      In Part I(D), I propose a new path forward, whereby present-day intellectuals take on a useful social function by spreading truths that help to alleviate the crisis of suffering outlined in Part I(A).

      I am trying to imagine how “spreading truths” could possibly alleviate the (presumed) crisis of suffering.

      There is fundamental contradiction in trying to be an anti-intellectual intellectual.

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  8. @mcwing: “What portion of the electorate does he think is with him?”

    The portion that thinks America should be the world’s policeman, I suppose, however big that is. The defense industry is probably with him, which might be an issue if he feels his SuperPACs could use some more spending money.

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  9. @jnc4p: “Oh, the irony is hilarious:”

    No, that’s not possible. Only the Republicans are being torn apart by Trump (because racism). Bernie is just helping set the dialogue amongst unified Democrats as they plot reasonable policy directions for their inevitable, total victory.

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  10. “Keep in mind that a few years ago, both parties put in place harmful automatic cuts that make no distinction between spending we don’t need and spending we do.”

    Did he identify any spending we don’t need? If so, why are we still spending it? Couldn’t we avoid automatic cuts if we had already gotten rid of all the spending we don’t need?

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