Morning Report: FOMC minutes shock the bond market 5/19/16

Markets are lower this morning after the FOMC minutes shocked bond markets yesterday. Bonds and MBS are down.

The sentence that sent bonds reeling: Some members expressed concern that the likelihood implied by market pricing that the Committee would increase the target range for the federal funds rate at the June meeting might be unduly low.” The FOMC minutes caused a 7 basis point spike in the 10 year and a 6 basis point spike in the 2 year. The Fed Funds futures contracts (which is what the “likelihood implied by market pricing” phrase alludes to) moved from a 10% chance of a June hike to a 25% chance of a June hike and a 60% chance of a hike by September. Earlier this year, the futures were basically betting the Fed would be on hold for the rest of the year. The markets were perhaps a little too complacent about another rate hike. That said, the Fed has set up the markets for rate hikes several times over the past year or two only to get cold feet.

In terms of the economy, the members and the staff noted that the labor market continues to improve despite a deceleration in economic growth. Inflation remains well below the Fed’s target, however they attribute that to commodity price movements, which are transitory.

The minutes also mentioned that residential mortgage credit was getting a little looser on the government side, but also noted that non-traditional and credit-challenged borrowers still face tight credit conditions. The corporate bond market has improved after a slow January and February.

In economic news today, the Chicago Fed National Activity Index rose to .10 from a downward-revised -.55 in March. The 3 month moving average is still negative, meaning the economy is growing slightly below its long-term trend. Separately, the Philly Fed Business Outlook Index fell to -1.8.

Initial Jobless Claims fell to 278k from 294k last week. As a general rule, people are hanging onto their jobs these days.

The Bloomberg Consumer Comfort index was flat last week at 44.5.

The Index of Leading Economic Indicators rose from 0.2% to 0.6% in April. The FOMC minutes mentioned the Fed expects growth to accelerate into the second half of the year.

Interesting stat: The number of homes worth $1 million has doubled in the last 4 years. Of course 2012 was pretty much the bottom of the real estate market, and it has been the big urban areas like San Francisco and Manhattan that have led the charge higher. Heck, in San Francisco, the median home price is over $800k.

And that ties into….a lack of starter homes.  Homebuilders are having a tough time making starter homes work financially. Increased regulatory and compliance costs, mandated open space, lower density, higher land prices, and fees imposed by counties and cities are all combining to make affordable starter homes impossible to build. Indeed, the number of starter homes is at a historical low and falling. Here are some industry quotes: “When you start with a high land basis, it’s very hard to end up with a purchase price that the first-time buyer finds affordable,” said Stuart Miller, CEO of Miami-based Lennar. “No. 1, you see it in just the pure requirements. Those requirements can be a very lengthy list of things you maybe wouldn’t have seen 10, 15, 20 years ago. But you’re also seeing it in fees that counties and cities impose on new home construction. Fees can be anywhere from $50,000 to $100,000 per home to build,” said Taylor Morrison’s Bodem. “Things like that ultimately get passed on to the consumer and the price of housing. That’s one reason why you see the cost of housing so expensive, especially here in Southern California.” I have said it before, housing is the #1 thing keeping GDP growth around 2% instead of 3%.

Turn times increased for refis last month, according to the Ellie Mae Origination Insight Report. Time to close all loans was steady at 44 days, but refis increased from 41 to 44. Turn times are now below where they were pre-TRID.

39 Responses

  1. Frist once again!

    Liked by 1 person

    • and you’ve subconsciously (or consciously) associated Trump with winning.

      Scott Adams is dead on right.

      Liked by 1 person

      • What has he done, really, other than win? From winning the nomination, impressive, to intuitively and randomly doing everything wrong, or against the grain, or in defiance of Common Wisdom, and still winning? And he continues to do things that should kill him as a candidate, and the numbers keep looking better. I think Trump is our next president and, while being more liberal than Reagan or Bush on a lot of things, will still be the Most Reviled President Evah™.

        I mean, if I’m going to be objective, I have to admit that it’s a close election, and that the chances are eventually Trump’s strategy, so-called, will fail and HRC wins. But my gut says Trump takes it.


  2. “I have said it before, housing is the #1 thing keeping GDP growth around 2% instead of 3%.”

    Sounds to me like the government needs to step in and impose more fees.


  3. OT: Interesting observation

    “But Mr. Junger’s most powerful — and surprising — argument is the one he makes about the military’s epidemic of post-traumatic stress disorder, which in many cases he suspects may not be PTSD at all. Why, if you think about it, would roughly 50 percent of our Iraq and Afghanistan veterans apply for permanent PTSD disability when only 10 percent of them saw combat? “The problem doesn’t seem to be trauma on the battlefield,” he concludes, “so much as re-entry into society.” And, he suggests, this problem might deserve its own diagnostic term.”


    • “(In the six months after Sept. 11, Mr. Junger writes, the murder rate in New York dropped by 40 percent, and the suicide rate by 20 percent.)”

      Affluence and ease are poisons, at least without concomitant changes in lifestyles and priorities. Ergo: we have to have meaningful goals aside from survival, when moment-to-moment survival is virtually guaranteed.

      “War, too, for all of its brutality and ugliness, satisfies some of our deepest evolutionary yearnings for connectedness. Platoons are like tribes. They give soldiers a chance to demonstrate their valor and loyalty, to work cooperatively, to show utter selflessness. Is it any wonder that so many of them say they miss the action when they come home?”

      Yup. I think that’s dead on, but we can’t really blame the rest of the country for not having that experience, either.

      “As a former anthropology major, Mr. Junger takes a special interest in tribal life. He notes that a striking number of American colonists ran off to join Native American societies, but the reverse was almost never true. He describes the structure and values of hunter-gatherer groups, including the ones that lasted well into the 20th century, like the !Kung in the Kalahari.”

      Basically, my argument for our modern social media and blog-comment cliques in a nutshell.

      “But his arguments about how “detribalized” we’ve become are undeniably strong. It’s not just that our personal loyalties have shrunk to a universe the size of a teacup. (Our immediate families, maybe a few friends.) It’s that we have so little regard for what’s collectively ours. We litter. We fudge on our taxes. Medical providers defraud Medicare; bankers perform sleights of hand with the markets and destroy the commonweal.”

      I think the idea that any of that is new is absurd, though. Tribal societies where nobody skimmed off the top in some form or fashion were one’s where skimmers were immediately and brutally put to death, and sometimes suspected skimmers.


  4. Apparently Trump needs a trigger warning now every time he’s on TV.


    • “But conservative Democrats in western and central Pennsylvania had been making that switch for more than a decade. What surprised Republicans was Trump’s dominance in the Philadelphia suburbs, along the old “Main Line” of wealthy towns and the increasingly liberal Bucks County. Trump won Montgomery County by 19 points over Ohio Gov. John Kasich and won outright majorities in Bucks County, Delaware and Philadelphia.”


      • That’s stupid, there’s no way he can win, all Democrats are like the people at PL, dedicated to beat Trump at all costs.

        The argument, made by Thomas Franks, that the Democrats have abandoned populism and it could end up hurting them, is correct. The lack of a populist message on the part of the Democrats gives Trump an inroad to Democrats who are Democrats mostly because of Democratic populism on the early 20th and late 19th century, now broadly abandoned by both parties. Except for Trump!


    • Remember the offers of free counseling to people should George Dubya Bush win in 2004? I remember a lot of stuff going on to help Democrats and liberals suffering from depression or PTSD related to Bush winning the election. Today it would be a need to create “Safe Spaces” for Democrats emotionally abused by Donald Trump’s victory. Which I expect we’ll see.

      The writer makes a big deal about calling Donald Trump an “abuser”. Which sounds about right, but I fail to understand why that would disqualify him from being president. You want a guy who can be abusive in relationships with foreign powers, an intransigent government bureaucracy, etc., etc. People aren’t going to elect him Friend for Life or Trusted Confidante or Significant Other. I think he’s probably not a good fit for those roles. President? Eh, probably not for that either, but not because he isn’t a sensitive, soft, caring sort of guy.


    • The left is doubling down on the misogyny stuff. It is their best card to play…

      Liked by 1 person

      • I feel like we’re at a point where both left and right think their wackiness is popular enough and globally accepted enough that it can win for them in a national election. I just think the left is wrong.

        Tangent: I live in an urban environment and work for a school district. Went to a work lunch yesterday—only cliche privileged white guy there. All of them were lamenting the craziness of the Obama admin’s bathroom guidelines, at least one of them (1st generation Chinese immigrant) was still flabbergasted about same sex marriage. I do not bring up political topics—the lovely Chinese lady I work with did.

        I think the echo chambers people live in insulate themselves to the reality that certain things are a step too far if you’re goal is to capture a majority of people. There’s a sense that SJW have that same sex marriage was an unambiguous win for them, and the silent majority loves them for it, and that micromanaging bathroom access is a similar win. I think there is very little sense as to how such things impact reluctant Democrats and Independents who feel that they want more Jimmy Carter and FDR and LBJ, but not Sanders or a complete deconstruction of old-fashioned social mores. Ultimately, in any election it will be a combination of factors, but I suspect some of the left’s victories on same sex marriage and the present battle over the bathrooms will hurt them far more than they help them, where other, arguably more important things—such as the recent executive order on OT pay—could be helpful to them more universally, because it’s closer to traditional populism. But such things will be eclipsed by social positions still not as popular with a majority of Americans as they believe.

        Could be wrong, of course.


  5. There’s no hope when even the Libertarian candidate is opposed to freedom of association.


    • At least he was called on it. Wonder if it leads to him not getting the nomination this year.


      • jnc:

        Wonder if it leads to him not getting the nomination this year.

        It probably should. I doubt there is much reason for the L party to make any ideological compromises. The beauty of being the third party in a two-party system is that you have nothing to lose in telling it how it is, so you might as well have a candidate that is going to.


    • Can’t read it, but really? In the sense that a Jewish baker should have to sell a cake to a Nazi, or in the sense that a Jewish baker should be forced to decorate a cake with swastikas, even though they don’t sell swastika cakes as a product they make?


      • The former. He was being consistent with supporting the idea that the state can make the bakers bake the wedding cake for the gay couple.

        So he’s basically taken the anti-libertarian progressive position there.


  6. This should be a great trial:

    “The data from Yahoo that Eramo’s lawyers acquired via subpoena shows that the e-mail account “” was created on Oct. 2, 2012 while connected to U-Va.’s computer network. The next day, Duffin received an e-mail from “Haven” passing on a letter Jackie had written to “Haven” about Duffin. In the letter, Jackie confesses her love for Duffin.

    After filing the lawsuit, Eramo’s lawyers asked Jackie and her legal team to hand over all documents in their possession related to “Haven.” In multiple responses, Jackie’s lawyers wrote that they had already given Eramo’s legal team everything they had.

    “We have taken the necessary and appropriate steps to collect, maintain and produce documents consistent with our discovery obligations,” wrote Rebecca Anzidei, one of Jackie’s lawyers from the Stein Mitchell Muse Cipollone & Beato law firm. “To be clear, Respondent is not withholding any responsive documents relating to the category identified in your letter.”

    In the most recent court filing, Eramo’s lawyers note, however, that the data from Yahoo shows that someone on the Stein Mitchell law firm’s network accessed the e-mail address on March 18, 2016. Four days later, Eramo’s lawyers assert in court filings, Jackie’s lawyers sent another letter indicating “that Jackie was not in possession of these emails.””

    “Jackie” should absolutely not be able to claim victim status to get out of publicly testifying.


    • chilling effect on actual victims. barf.
      if anybody should publicly shame jackie, it’s the feminists.


  7. This is pitch perfect:

    “If Sanders supporters complained about other things the way they complain about election results”


  8. More PC hilarity, it’s not the song’s lyrics that are offensive, because that would be judgemental of another culture presumably. It’s the fact that white kids are singing along.


  9. How dare they? Cultural appropriation! White people should not be allowed to listen to or purchase rap, or any music performed by an artist of another color.


  10. Vox has another great idea, right up there with the Federal Reserve taking money out of people’s bank accounts to stimulate demand:

    “In Norway, you can look up your neighbor’s income on the internet. That’s a great idea.

    Updated by Dylan Matthews on May 19, 2016, 12:10 p.m. ET”


    • What is wrong with those people? “In Norway, you can look up the wealthiest people whose children will be profitable to kidnap in your area! That’s a great idea!”


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