Morning Report: Markets at odds with Fed forecasts 3/1/16

Green on the screen this morning as oil and emerging markets rally and the Chinese act to boost lending. Bondsd and MBS are flat.

The ISM manufacturing Index improved to 49.5 from 48.2 last month. Still below 50, which indicates a slowdown, but better than expected. The Markit US Manufacturing PMI came in at 51.3, better than expected.

Construction Spending rose 1.5% in January, much higher than the 0.3% forecast. Public construction drove the increase. Private residential construction was flat for the month.

The turmoil in the financial markets and the global economy have cooled the market’s forecast for further rate hikes. The Fed Funds futures contracts are now forecasting only a 10% chance of a rate hike at the upcoming March meeting and a coin toss for one by December. This is at odds with the last dot graph from the December FOMC meeting, where the median forecast was 1.25% by the end of 2016.

Vehicle sales are coming in strong this morning. Ford Feb sales were up 20%, while Fiat Chrysler sales were up 12% on strong Jeep sales. SUVs were the big gainer overall, as lower gasoline prices entice drivers to switch to bigger cars. Much of this growth is being fueled by cheap credit, however there is so much pent-up demand for new cars (the average age of a car in the US is 11.4 years) that this growth is probably sustainable for the near term and isn’t just a cheap credit story.

Today is Super Tuesday, where 12 states are holding primaries. So far, it looks like Hillary Clinton and Donald Trump will emerge as the winners.

Elmer Fudd warns of “distortions to savings and investment” due to negative interest rates. As the primary architect of the Great United States Housing Bubble, it would have been nice if he had worried about monetary policy-driven distortions to savings and investment say, 15 year ago.

Home prices continue to rise according to CoreLogic. Prices rose 1.3% MOM and are up 6.9% YOY. According to Corelogic, prices remain about 7% below their April 2006 peak. Overvalued markets include many in Texas, Washington DC, and Florida. You can see in the map below, which areas are cheap and expensive (green=cheap, red=expensive).

NAR is predicting existing home sales of 5.38 million in 2016, with average home price appreciation of 4% to 5%. It looks like the Northeast is finally starting to pick up a bit, with contracts up 11% in January.

38 Responses

  1. So I ended up going with Kasich in the primary, with apologies to Michi. Seemed to be the last responsible candidate left.


    • I went with Cruz as a semi-spite vote.


    • jnc:

      Seemed to be the last responsible candidate left.

      What is wrong with Cruz?


      • Cruz may actually mean all his war threats in the Middle East. Who knows? If he does, he qualifies as irresponsible.


        • Mark:

          Cruz may actually mean all his war threats in the Middle East.

          Which war threats do you have in mind?


        • In early December, Sen. Ted Cruz, R-Texas, began saying that his military approach to ISIS would be “carpet bombing.” He said during a speech in Iowa on Dec. 5 that “we will utterly destroy ISIS. We will carpet bomb them into oblivion. I don’t know if sand can glow in the dark, but we’re going to find out.”

          Cruz said he would “rip to shreds” the agreement approved by Congress, and he threatened to kill Iran’s leader if he did not give up his nuclear ambitions.

          “If the ayatollah doesn’t understand that, we may have to help introduce him to the 72 virgins,” Cruz said, as the audience cheered loudly.

          Scott, this stuff is part of his stump speech so he repeats it often.


        • Thanks Mark.

          Obviously it is a matter of military strategy, but it doesn’t strike me as beyond the pale irresponsible to want a more aggressive air campaign against ISIS, coupled with arming locals on the ground (for which Cruz has also advocated).

          Nor do I think promising to rip up Obama’s non-treaty treaty with Iran is all that crazy.

          On the other hand, it does strike me as a tad Trumpesque to be publicly advocating the assassination of foreign leaders.


      • I see a Cruz administration as completely dysfunctional vis-a-vis other Republicans. I think his judgement in staffing would probably be a disaster. Kasich did a pretty good job in the House back in the day.

        I’d love to see Cruz’s philosophy grafted onto another actual person.

        I also think that Cruz would make a much better SCOTUS appointment than an executive.


      • He annoys me. The pulpit preacher shtick turns me off. Also a bit hawkish for my taste.


    • Still debating whether to vote Kasich or vote in the D primary because of the DA’s [local] race.

      In a 6-2 opinion [Lockhart], a criminal case decision announced by the Supremes today, Kagan, in dissent, quoted from Scalia’s book.


  2. The entire basis for the progressive definition of “authoritarianism” is apparently this BS:

    “Feldman developed what has since become widely accepted as the definitive measurement of authoritarianism: four simple questions that appear to ask about parenting but are in fact designed to reveal how highly the respondent values hierarchy, order, and conformity over other values.

    Please tell me which one you think is more important for a child to have: independence or respect for elders?

    Please tell me which one you think is more important for a child to have: obedience or self-reliance?

    Please tell me which one you think is more important for a child to have: to be considerate or to be well-behaved?

    Please tell me which one you think is more important for a child to have: curiosity or good manners?

    Feldman’s test proved to be very reliable. There was now a way to identify people who fit the authoritarian profile, by prizing order and conformity, for example, and desiring the imposition of those values.”

    “Reliable” in the sense of giving him the results he wanted.


    • See also how Vox measures racism:

      “Poll: Donald Trump’s supporters are less racially resentful than Marco Rubio’s

      Updated by Dylan Matthews on March 1, 2016, 2:30 p.m. ET”


    • “Please tell me which one you think is more important for a child to have: to be considerate or to be well-behaved?”

      well that’s a false choice. i’d suggest that being considerate is part of being well-behaved.

      Liked by 1 person

    • Reliably bullshit. The questions themselves are meaningless. And the structure obviously designed to force specific answers. Not real answers.

      It’s just as important for a child to have curiosity as it is for the child to have good manners. It’s not an either or thing. It’s like asking if it’s more important to breathe in or breathe out. It’s important to do both. A child who is considerate is a well-behaved child. What a load of garbage.


      • Keep in mind that these questions are literally the benchmark that’s been used since 1992 to measure “authoritarianism” in the American electorate.


        • So, essentially, since 1992, we haven’t been measuring anything, we’ve just been propagating falsehoods and claiming irrelevant data says something meaningful about the electorate, when any common-sense observation would tell you that it’s not so. Yay, social sciences. The most not-actually-scientific-at-all of all the sciences. The science is in!


  3. Axelrod agrees with you NoVA:

    “Axelrod’s surprise is itself a bit surprising, because Trump perfectly fits a theory that Axelrod has long nurtured about American politics. Presidents, he believes, tend to be followed by their opposites. The careful, aloof, patrician George H.W. Bush was succeeded by the charismatic, brilliant, relatable Bill Clinton; Bill Clinton’s successful but seedy presidency gave rise to the disciplined, religious, and decidedly non-bookish George W. Bush; W’s blunt, divisive nationalism led to Barack Obama’s hopeful, cerebral cosmopolitanism.

    And Trump? “He is the antithesis to Obama in the race,” Axelrod says.

    Axelrod’s first rule, then, is to “take him seriously. Don’t look at him through the lens of the elites. Recognize that he’s a salesman, and a very good one. He’ll say whatever it takes to get you in that car.”

    To attack Trump effectively, Axelrod argues, you need to understand his appeal. “There are a lot of folks out there who want to deal the system a punch in the face, and Donald Trump is the clenched fist.”


    • ““There are a lot of folks out there who want to deal the system a punch in the face, and Donald Trump is the clenched fist.”

      Where “the system” = obama and the left.


      • There’s a fair amount who want to do the same to the Republican establishment as well.


        • Yep. i think Trump voters are just that. nothing more or less.


        • Brent/jnc:

          There’s a fair amount who want to do the same to the Republican establishment as well.

          I get the sense that most Trump supporters are primarily angry at the Republican establishment. After all, R’s expect the D establishment to be feckless and dishonest, so it is not as though the Obama admin has somehow been a disappointment. If there is frustration boiling over it is with continuing Republican impotence against (if not perceived collaboration with) Obama’s abuses.


        • Jonah Goldberg agrees with you, Scott.


      • The system is too generalized a concept. Everybody doesn’t like “the system”. Trump is popular because he wants to fight/change the system. Same for Sanders.


    • Axelrod has a point. I also think Trump is drawing out non-voters, ala Perot, and that the left’s many depictions of a successful businessmen who has the balls to express his opinions as Hitler and a KKK supporter may be motivating some of the “jeeze, I gotta vote against these boneheads” crowd.


  4. Breaking: Men are even better at menstruation than women.


    • Not really. Reading the question, it also describes Trump’s positions as well.

      ““That candidate is considered a political outsider by all of the pundits. He’s tapping into the anger of voters, delivers a populist message.

      “He believes everyone in the country should have healthcare [and] he advocates for hedge fund managers to pay higher taxes, he is drawing thousands of people at his rallies and bringing in a lot of new voters into the political process. Who am I describing?””

      Trump wasn’t confused at all. The interviewer was just an asshole. He should be proud of himself, as he probably just increased Trump’s support.


  5. Washington Post Front Page today:

    “A nightmarish Super Tuesday for GOP establishment”

    They just endorsed Trump again.


    • jnc:

      They just endorsed Trump again.

      What kind of reporting wouldn’t be an endorsement of Trump? “Good news for the establishment as Trumps cleans up on Super Tuesday”?


      • The kind that doesn’t frame the results as Trump being their worst “nightmare”.

        That’s exactly what the base is looking for.


        • Exactly. Including a chunk of the ideological base that is often non-motivated when it comes to showing up on election day. Some of these folks on the left are just conducting their own covert GoTV effort for Trump.


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