Morning Report: The Fed stands pat 10/29/15

Markets are lower this morning after a lousy third quarter GDP pring. Bonds and MBS are down small.

The advance estimate of third quarter GDP came in at 1.5%, a big drop from the second quarter 3.9% reading. The standout was gross private investment which fell 5.6% after increasing 5% the quarter before. I suspect that is dollar / commodity price driven – exporters are facing slowing demand and capital expenditures are falling in the energy sector.

The core PCE index (the inflation measure preferred by the Fed) rose 1.2% in the third quarter, well below the Fed’s 2% target rate.

Initial Jobless Claims rose slightly to 260,000 last week.

The Fed maintained interest rates yesterday, and made very few changes in the October statement. There was one dissent (Lacker) who wanted to raise the Fed Funds rate 25 basis points. In terms of language, the concern over overseas markets was removed. They noted the pace of job creation slowed somewhat, however they characterized business investment as solid. That is surprising given the big drop in business investment from the GDP print from this morning. Bonds sold off slightly on the statement, and stocks ended up reversing their losses and going out on their highs. The take seems to be slightly hawkish.

The unintended consequences of ZIRP continue as merger mania sweeps the country. The entire semiconductor industry is merging, and now Allergan is in talks with Pfizer. Interestingly many merger arbitrage hedge funds are shutting down as returns are paltry in the strategy.

The Republicans had another debate last night: The winners were Ted Cruz and Marco Rubio. The losers were Jeb Bush, CNBC, the mainstream media, and maybe John Kasich.

10 Responses

  1. So much for Pre-K education being the most effective money the government spends.

    http://www.vox.com/2015/10/26/9616196/tennessee-preschool-study

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  2. Speaking of effective uses of government money, the DOE encourages you to dress up the little munchkin as a wind turbine.

    http://www.energy.gov/articles/5-energy-halloween-costumes-you-can-make-home

    For Gaia and shit.

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  3. Vox nicely encapsulates why “political science” is an oxymoron:

    “It’s really odd that Rubio is still stuck in a distant third in Iowa and national polls. Based on how political scientists understand primary contests to work, he should be a frontrunner. ”

    http://www.vox.com/2015/10/29/9637780/cruz-rubio-winners-losers

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  4. Yesterday’s disaster number is today’s aspirational target.

    “But a new consensus is emerging that limiting warming to 2 degrees in a single conference shouldn’t be the only criteria for success. Robert Stavins, director of the Harvard Environmental Economics Program, sees 2 degrees as an aspirational target that’s “really not achievable.” If we remain wedded to that goal, he said, we risk falling into despair and apathy. “The most ambitious target that can be isn’t necessarily the best one that can be done. It is the most realistic one,” Stavins said.”

    http://www.newrepublic.com/article/123223/plan-save-world

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  5. I remember when some former numbnuts poster here said Speaker of the House Paul Ryan’s career was over after his 2011 budget rollout.

    Like

  6. U.S. Supreme Court Justice Antonin Scalia has an admission to make: Justice Ruth Bader Ginsburg is sharper at intellectual property law than he is. “My judgment is often guided considerably by Ruth,” Scalia said in a tribute video for Ginsburg shown Tuesday night at a dinner hosted by the ChIPs organization for female IP lawyers. This was ChIPs’ 10th anniversary celebrating women who work in intellectual property and technology.

    Read more: http://www.nationallawjournal.com/legaltimes/id=1202740941108/Ginsburg-Accepts-Her-Cultural-Brand-at-Dinner-Honoring-Her-Work#ixzz3q0jHmatd

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  7. A public official who cannot in good conscience enforce a law he or she thinks is morally corrupt has a duty to either resign or enforce the law, Justice Anthony Kennedy told a group of Harvard Law School students recently. Kennedy covered a broad range of topics and in doing so may have revealed a source of his concern and dislike of solitary confinement.

    Read more: http://www.nationallawjournal.com/id=1202740827841/Justice-Anthony-Kennedy-Loathes-the-Term-Swing-Vote#ixzz3q0l6Soad

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    • Mark:

      A public official who cannot in good conscience enforce a law he or she thinks is morally corrupt has a duty to either resign or enforce the law, Justice Anthony Kennedy told a group of Harvard Law School students recently.

      Notwithstanding Kennedy’s own actions to the direct contrary, apparently. Do as I say, not as I do. What an extraordinary hypocrite, Kennedy.

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  8. @jnc4p: “So much for Pre-K education being the most effective money the government spends.”

    Heh. I can tell you from witnessing it that: no, it’s not. Most of the Headstart centers are, at best, mildly intellectually-stimulating daycare. More so that any kind of pre-school from 30 years ago, or 40 years ago, or just staying at home with mom and watching Sesame Street? Eh . . . dunno.

    But I know that even if it was very effective, other mandates to waste money from the state and NCLB are easily hacking away at whatever gains, real or imagined, Headstart might have manifested. We’re actually never going to know because while nothing happens in a vacuum, with NCLB, Common Core, and an ever-growing raft of online testing mandates and constant switching of vendors for digital curriculum . . .

    I’m more worried about what’s going on with state take overs of “failing” schools and charter schools and the other gifts of NCLB. And all the testing. And reporting. And testing. And reporting.

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