Morning Report: A historical examination of the last 3 tightening cycles 10/14/15

Markets are flattish as earnings season begins in earnest. Bonds and MBS are up.

Last night JP Morgan reported weaker than expected earnings. Mortgage originations are up 41% year-over-year and up 2% on a quarter-on-quarter basis. Charge-offs fell dramaticallyl.

Bank of America reported better than expected earnings. Originations for them were up 17%.

Mortgage Applications fell 27.6% last week as the “beat the TRID deadline” effect was unwound. Purchases were down 34% and refis were down 22.5%.

Retail Sales rose 0.1% in September, while the control group, which ignores gasoline, autos, and building supplies, fell 0.1%. Where are consumers spending their money? Cars, furniture, apparel, and entertainment.

The Producer Price Index fell 0.5% in September as the strong dollar depressed commodity prices. Ex- food, energy and trade the index is up 0.5% year-over-year. We have yet to see any sort of meaningful inflation at the producer level.

Business inventories were flat in August. Commodity prices could be playing a role in this number.

We know the Fed is going to start hiking rates soon. But does that necessarily mean that mortgage rates are going up? If you look at the historical record, at least over the past 3 tightening cycles. the Fed Funds rate increased, but the long term rate moved up much less, or not at all. If you look at the spread between long term and short term rates, the yield curve flattened dramatically and ended up inverting. The vertical blue lines are the 1994, 1999, and 2004 tightening cycles. The red line is the yield on the 10 year, which will most approximate mortgage rates, while the blue line is the Fed Funds rate. The green line is the difference between the two. The lower the green line, the more flatter the yield curve.

What are the takeaways from this? 1) Don’t necessarily fear a tightening in December – it might not affect mortgage rates at all, and 2) When the Fed starts tightening, that is the time to get people out of ARMS and into a 30 year fixed rate mortgage. LIBOR will increase with the Fed funds rate, resetting ARM rates, but if the 30 year fixed doesn’t move (or barely moves), then that switch is a great trade for the borrower.

26 Responses

  1. Frist! … that’s all I got.

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  2. There is much chatter on right wing blogs today about HIllary’s inclusion of the Republican Party on her enemies list last night. She apparently went so far as to suggest that the R party was the one enemy she was “most proud” to have. (I say apparently because, as usual, I didn’t bother watching the misnamed “debate”.)

    I hope the right demagogues the hell out of this point, and Hillary will deserve to get totally hammered on it. How can someone who views more than half of government representatives and a third of the electorate as her “enemy” be entrusted with the power of the Presidency?

    But beyond the tactical possibilities her Kinsleyan gaffe presents to the R’s, I do think it illustrates a serious and important point about the left, one that voters should really understand. Democrats’ overarching priority is domestic policy, and foreign policy is mostly just an afterthought. They either take America’s place in the world for granted, or they just don’t care that much about it. That being the case, it is not at all surprising for D’s to view those who wish to thwart their prioritized, domestic ambitions as their primary enemies, and to direct most of their hostility towards those domestic opponents.

    This understanding of the politics of the left explains quite a lot. It explains why the left has such a warped understanding of what an enemy is. It explains why 4 of Hillary’s 5 listed enemies were American organizations. It explain why the left prefers to spend tax dollars redistributing wealth rather than building America’s defense and international prestige. And it explains (or rather helps explain) why Obama has proven to be such an incompetent actor on the international stage.

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  3. of course no one except for the right wing media and blogosphere is going to pay attention to it.

    Fox should ask her directly about it though. No one else is going to..

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    • Brent:

      of course no one except for the right wing media and blogosphere is going to pay attention to it.

      True, but in this I think the media isn’t necessarily doing Hillary any favors. She may not have to deal with it now, during the primaries, because none of her opponents will press her on it, but you can bet the eventual R nominee will make an issue of it. She is probably better off dealing with it now than later, but she won’t have to.

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  4. “They either take America’s place in the world for granted, or they just don’t care that much about it.”

    or think we’re to blame. it’s all our fault.

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  5. The media will defend her to the end. Anyone that calls her out on it will be called sexist.

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  6. @scottc1: “I hope the right demagogues the hell out of this point, and Hillary will deserve to get totally hammered on it. How can someone who views more than half of government representatives and a third of the electorate as her “enemy” be entrusted with the power of the Presidency?”

    A calculated risk. She wants to win the primary, she wants people to stop feeling the #Bern, so she has to toss red meat to the left who want to hear that Republicans are worse than terrorists more than they want to hear about free college tuition. She’s not going to go the Dubya route and talk about Compassionate Liberalism, she’s going to say Republicans are the enemy of America and make noises about the only war the left wants to actually start: all out war against Republicans. And, of course, the argument is that “Republicans started it” with all the “making Obama a one-term president” being a primary goal, all the mostly unsuccessful obstruction of the Obama agenda, etc.

    I doubt you’ll hear much about Republicans being the enemy, except directly to progressive organizations or media, once she wins the primary.

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    • KW:

      I doubt you’ll hear much about Republicans being the enemy, except directly to progressive organizations or media, once she wins the primary.

      I certainly hope we hear a lot about it…from Republicans. As I said, they should demagogue this to the hilt.

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  7. Go Cubs!!!!

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  8. Not sure why but I’ve been watching some of the debates. I wish Hillary wouldn’t have said that………I’m not a fan. That being said, it’s pretty rich to complain about it considering the mere fact that nearly every Republican National, and even some State office holders, along with most of the Republican candidates act as if our current President is an enemy of our country………….:)

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    • lms:

      Good to hear from you.

      that nearly every Republican National, and even some State office holders, along with most of the Republican candidates act as if our current President is an enemy of our country…

      Could you give an example of how you think any of the R candidates have acted as if O is an enemy of the country? I have no idea what you are talking about.

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  9. If they acted like they he would be impeached, no? Pretty sure he’s the first POTUS since LBJ not to have at least impeachment articles filed in the House.

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  10. McWing, maybe they weren’t filed but the idea has sure been suggested numerous times.

    It sounds to me like business as usual in American politics………demonize your opponent as un-American. How many Republicans jumped on the “birth certificate” controversy? Trump was certainly one……….

    Honestly………..I wish neither party or their candidates would make politics such a zero sum game……….it’s one of the reasons I’m considering not voting for the first time since I was old enough to vote……..Where are the subtleties in politics or pure policy debates?

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    • LMS, there is very little for small biz or a lawyer who represented small biz [like me] to be happy about any more.

      There should be an R we could see as “Main Street”, like Dole was, for instance. There should be a D who doesn’t sound like s/he wants to strangle small biz with stuff like “paid FMLA” and a national minimum wage that doesn’t distinguish between San Francisco and El Paso.

      There should be two parties that recognize both the problems and opportunities of immigration and agree on an immigration policy based on who we need in this country, not based on family reunification. That would even change the way we looked at illegals and undocs, because we could select them on merit, achievement, employability in need areas, and the like.

      There’s nothing here for us, it seems. You and I could both sit out the national election or write Kev in for POTUS. When the tribalism stuff seizes our politics we Americans lose. The wedge issues begin to define our parties. Smoke and mirrors. Smoke and mirrors.

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      • Mark:

        When the tribalism stuff seizes our politics we Americans lose.

        This is what comes with elevating most political issues to the federal level. The problems of tribalism are inevitable when you try to have one size fits all government for larger and larger numbers of people. And that is a function of ideology, not a bi-partisan problem. If you don’t like it, then you should oppose the ideology that produces it, not simply cast “A pox on both their houses.”

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  11. “That being said, it’s pretty rich to complain about it considering the mere fact that nearly every Republican National, and even some State office holders, along with most of the Republican candidates act as if our current President is an enemy of our country”

    While I don’t have a read example of Democrats being put at the top of a Republican’s “enemies list”, the two tribes are at war and clearly view each other as enemies, and though there have been plenty of compromises between Dems and Republicans they are not happy ones, and the public face both tribes put on their relations is one of war. While some fraction of pundits and Internet trolls will always refer to Obama as illegitimate and “an enemy of the country” or “hating America” (things I’ve seen in various contexts about Democrats and Republicans), I’m pretty sure it’s nothing Bush (a likely eventual Republican candidate) has said about the Democrats, and not something even Trump has said about the Democrats (having formerly been one, and donated to the Democratic party, something I’m pretty sure Hillary could never say of the Republicans).

    The amplified echo chambers of Internet comment sections tend to distort the reality of such things, as you have both trolls saying things like “Obama is an enemy of America” and eel-meaning ideologues notifying their comment-friends about everything, usually with limited context, that any person of the opposition party ever said or did that can fuel the narrative (including linking to articles where the assertion is made, based on no data or data that is highly amplified, that becomes a part of the general narrative that gives the sense that ALL Republicans EVERYWHERE consider Obama an enemy of the state, or ALL Democrats EVERYWHERE consider Republicans to be the same as terrorists). Such echo chambers have the effective a defining a narrative that is only semi-conscious, and begins to become something like a received truth that feels as natural and unmistakably true as gravity. But, like the Steve Jobs movie, it only shares a few salient points in common with the truth some of the time.

    I’ve heard repeated assertions from individuals that Republicans or Democrats (or conservatives or liberals) want to destroy America in some sense, or deprive people of rights, or are conducting a “War on Christians” or a “War on Women”. People conducting a war on you are, be default, the enemy. If you are a gun owner and there is a “War on Guns” then you consider the person conducting said war to be your enemy.

    … and we come from historically tribal roots where competing for resources was a matter of genetic survival, so of course we’re going to see our tribe as the good guys and other tribes as the enemy, because if you don’t you’re not likely to compete effectively for limit resources, and thus no genetic survival for your DNA.

    I digress. Point being, we have a mental bias to filter out the positive from the other tribe and the negative from our own, and see the other tribe as our enemy (and vice versa). At the same time, the larger context tends to water-down this binary view of things (while also being emotionally unsatisfying). Has Jeb! characterized Obama as an enemy of America? How many representatives in congress have actually done so, or do we just feel like we’re certain we’ve read something or heard something where they did that. Has Hillary Clinton characterized all Republicans as enemies of America?

    It’s a relevant question because, I believe, she characterized Republicans as the top of her enemies list. In the larger context, who is she talking about? Almost certainly elected Republicans in the house and senate and her eventual GOP rival in the presidential election. Is she talking about every potential and current and former Republican voter? Registered Republicans who are going to cross over and vote for Democrats? Registered Republicans who don’t like any of them enough to show up and vote?

    And what does she mean by enemy? And those complaining about her use of the term, do they want to join hands with the Democrats and sing Kumbaya? Eager to compromise? Do they see her as a friend to be worked with? A respected peer?

    As McWing pointed out, this time around the Republicans haven’t even tried to impeach Obama. If they seriously considered him an enemy of the country, that’s what they would do.

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    • KW:

      And what does she mean by enemy?

      Well she did include Iran on the list, if that give us any clue. Of course Iran was further down the list.

      And those complaining about her use of the term, do they want to join hands with the Democrats and sing Kumbaya? Eager to compromise? Do they see her as a friend to be worked with? A respected peer?

      No to all of those, but of course there is chasm of space between “enemy” and “friend” or “respected peer”. It’s not an either/or choice.

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  12. @lmsinca: “McWing, maybe they weren’t filed but the idea has sure been suggested numerous times.”

    As it was against Dubya, and there are still those on the left (and certainly were those among the most liberal Democratic politicians) who suggest Dubya and Cheney should have been brought up for war crimes or frogmarched to jail for Valerie Plame or lying about WMDs or Katrina or whatever. Measured by a metric of both rhetoric and what has actually been done, I think a case could be made that the Democrats considered Dubya (and Cheney, of course) as much an enemy of America as anyone on the right regards Obama presently.

    Which gets back to that tribal thing. Other tribe is, ultimately, regarded as *your* enemy, thus an enemy of some ideal state for your nation, however you define that. How you characterize the other sides obvious villainy may vary (usually in a way that seems perfectly reasonable to you, while however the other side does it is outrageous and beyond the pail) but it’s not unique to one side or the other to regard political enemies and real and hostile as any other kind of enemy. Although most folks don’t actually tend to announce the other political party is on their “enemies list” when they are the likely nominee for their party.

    Which is where yello would complain it’s the “Both Sides Do It” defense, but it’s not a defense, and what “both sides” are doing is applying a fairly heavy-handed and selective narrative to events, thus the GOP finds Obama an enemy of America and a Kenyan Marxist Muslim while the Democrats are merely public servants attempting to do the work of the American people in good faith.

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  13. @lmsinca: “How many Republicans jumped on the “birth certificate” controversy? Trump was certainly one……….”

    More than I would have thought, but then more people than I would have ever thought believe the moon landing was staged, or that Bush was Cheney’s puppet, or that Iraq was responsible for 9/11, or that the Y2K bug was going to shut down the power grid and launch nuclear missiles and airplanes would be falling from the sky. Oh, and more people than I would have thought believe that the 2000 election was stolen, and that the 2004 election was stolen, and that people who are skeptical about apocalyptic climate change hate clean water and clean air and actively desire to kill the planet.

    And so on. Also, Trump was a “birther” (at least, put on a show) but how Republican he is, outside of his party registration, remains to be seen. He’s also been a registered independent and a registered Democrat, and may turn about to be about as Republican as Michael Bloomberg.

    “I wish neither party or their candidates would make politics such a zero sum game”

    Incentives and human nature. Good luck changing it! I think it’s just something we’ve got to live with, like ants at a picnic or rain when you want it to be sunny. Some things are unavoidable.

    “Where are the subtleties in politics or pure policy debates?”

    Vote 3rd party. They tend to be as subtle as you can get! And tend to be more focused on policy because they don’t get to play in the InfoGraphic + Stinger Sound Bite world of contemporary American politics.

    If Trump can get Oprah Winfrey as his VP, I’m definitely voting Trump. That would be a heck of a presidency. And I’m looking forward to Trump walking back the impossible rounding up and deportation of 11 million illegals. “Eh, you know, we looked at it, and it’s not happening. What can I say? We have more important problems to deal with.”

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  14. @scottc1: “I certainly hope we hear a lot about it…from Republicans. As I said, they should demagogue this to the hilt.”

    Well, I’m dubious you’ll hear much about it from Bush, if he gets the nod. You might. I’m pretty sure Trump will hammer it if he sees a serious weakness there.

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  15. @ScottC: “This is what comes with elevating most political issues to the federal level. The problems of tribalism are inevitable when you try to have one size fits all government for larger and larger numbers of people.”

    I think this is largely true. While you can certainly have tribalism at the local level, it’s a different experience when you have most of the facts on the ground and its happening in your backyard and the other tribe members are your neighbors.

    Addressing it means devolving a lot of power to the local level, however, and there just aren’t enough people serious want to do that, especially once they seize the reigns of power in DC.

    “And that is a function of ideology, not a bi-partisan problem.”

    But it is. The GOP rarely tries to decrease the size and scope of government, promises to the contrary not withstanding. They do little that would undermine their own political power. Airport security was nationalized under Bush and the GOP. DHS was thusly created. Bush also gave us Medicare Part D and No Child Left Behind (with the help of the Democrats, of course). The problem is, we can’t seem to elect anybody who is seriously trying to or at least capable of doing anything to move issues back to a local level. While there are individual libertarians and small c-conservatives who would embrace such a devolution of state power, they are not in national politics in sufficient numbers to make it happen. There’s not even that many in the GOP, when the rubber meets the road.

    And even individual constituents who are ostensible small-c conservatives will rebel against seriously rolling back SS or Medicare or some other government program they feel is necessary or within the proper role of federal government. Even though healthcare now eats up the largest share of the federal budget.

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    • KW:

      Addressing it means devolving a lot of power to the local level, however, and there just aren’t enough people serious want to do that, especially once they seize the reigns of power in DC.

      Agreed, it won’t happen. And national politics will get more and more contentious and hostile until the nation fractures.

      The GOP rarely tries to decrease the size and scope of government, promises to the contrary not withstanding.

      That’s because the corrupting ideology has begun to infect the GOP, too. But if there is any hope of reversing the trend (I don’t think there is) then the effort must begin with purging our politics of the worst offenders, ie those who are unabashed progressives.

      And even individual constituents who are ostensible small-c conservatives will rebel against seriously rolling back SS or Medicare or some other government program they feel is necessary or within the proper role of federal government.

      Correct. The left has been very successful in corrupting the culture, and hence the political debate, such that even those who fancy themselves conservatives have adopted progressive premises. Which is why I think there is no turning back, and doom is inevitable.

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  16. @Scottc1: “Well she did include Iran on the list, if that give us any clue. Of course Iran was further down the list.”

    The American Taliban!

    “No to all of those, but of course there is chasm of space between “enemy” and “friend” or “respected peer”. It’s not an either/or choice.”

    I don’t disagree, and I think it’s a bad idea to conflate political enemies with enemies of the state, and she’s vulnerable to being hammered on the list but I expect she’ll be able to nuance the statement to the satisfaction of all except those who were never going to vote for her anyway.

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    • KW:

      I expect she’ll be able to nuance the statement to the satisfaction of all except those who were never going to vote for her anyway.

      Maybe, but Hillary is not Bill. I think it has the potential to put off a lot of “undecideds” if the GOP uses it properly.

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  17. @markinsaustin: ” and a national minimum wage that doesn’t distinguish between San Francisco and El Paso.”

    I’ve long been for abolishing the minimum wage entirely, but a federal minimum wage that took into account local cost of living would make a lot more sense than one that treats the poorest parts of the country the same as the richest (and most expensive) parts.

    “There should be two parties that recognize both the problems and opportunities of immigration and agree on an immigration policy based on who we need in this country, not based on family reunification. That would even change the way we looked at illegals and undocs, because we could select them on merit, achievement, employability in need areas, and the like.”

    Or two parties that can talk about issues like immigration like that. The hyperbole is, I think, not helpful. Immigrants, even illegals, aren’t mostly rapists and violent criminals, and the Republicans, not even Trump, are talking about putting them in box cars and otherwise treating illegals the way the Nazis treated the jews (and, presumable, illegal immigrants). Those seeking more restrictions on firearms are not trying to take away everybody’s guns, and those agitating against gun control do not endorse mass shootings, nor do they think the answer is to arm toddlers with semi-automatic weapons. Also, gun violence is down over the past 20 years and its down even further if you don’t count gang violence (which I don’t think you should) … not to mention, I think there’s a high degree of likelihood that SSRIs play a role in occurrence of mass shootings but nobody wants to talk about that, because it doesn’t fit the narrative (and every major news organization is sustained by pharmaceutical ads, but that’s another issue).

    “You and I could both sit out the national election or write Kev in for POTUS.”

    If nominated, I will not run. If elected, I will not serve!

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    • KW:

      Those seeking more restrictions on firearms are not trying to take away everybody’s guns

      I don’t know how you can possibly think that when those who are seeking more restrictions tout the UK and Australia, where they have confiscation and bans on ownership, as their models.

      “We know that other countries, in response to one mass shooting, have been able to craft laws that almost eliminate mass shootings. Friends of ours, allies of ours — Great Britain, Australia, countries like ours. So we know there are ways to prevent it.” – President Barack Obama

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