Morning Report: The Fed has a credibility problem 5/20/16

Stocks are up this morning as commodities rally. Bonds and MBS are slightly lower

Existing Home Sales rose to an annualized pace of 5.45 million in April, according to the NAR. The median home price rose to $232,500, an increase of 6.3% YOY. Total inventory is 2.14 million homes, which represents a 4.7 month supply at the current pace.

One of the Fed’s problems right now is credibility. As the minutes from Wednesday showed, the markets have been relatively complacent about the possibility of a Fed move. Part of that is certainly the Fed’s own doing, as they have tried to prep the markets for a rate hike several times over the past year or so, only to decide that the economy isn’t strong enough to withstand a rate hike. Here is the problem:

This is what the Fed’s forecast for 2015 GDP growth at all of the FOMC meetings starting in September 2013. As you can see, the Fed has been consistently high in its forecast for GDP growth. So, they begin to prep the markets for a rate hike based on their forecast that GDP will improve to a 3%+ rate of growth, and then back off when we start getting real numbers. I suspect the reason is because the Fed’s models are based on the garden-variety business cycle, where inventory build drives the process. We are in the aftermath of an asset bubble, and the problem here isn’t excess inventory – it is excess debt. And aside from the 1930s and Japan’s current experience, we don’t have a lot of experience with it.

Everyone knows auto loans are the new subprime, as low interest rates have pushed investors into riskier and riskier paper. Eight year car loans with rates around the current mortgage rate are common now. The other new issue: negative equity.

Separately, the CFPB is going after auto title loans as well as payday lenders. Is the government basically setting the stage such that the unbanked have nowhere to go to get credit? Many would like to see the post office become a bank.

12 Responses

  1. When I was a child, postal banking was still common. I think it ended when I was 7.

    Frist, and oldest.

    Addendum: Wiki says it ended when I was in my 20s. Amazing. I don’t recall anyone using it after the Korean War began.

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  2. The other day, on the back of DeBlasio’s quite literal attempt to turn NYC into a language police state, KW quite rightly suggested that it was time to leave NYC. Unfortunately it looks like we should avoid relocating to Tennessee:

    A new case in Tennessee raises these issues. In Pritchard v. Board of Cosmetology, the plaintiff is Tammy Pritchard, a woman who would like to earn some additional money working in a hair salon owned by a friend. The salon specializes in African hair braiding and what she wants to do is shampoo customers’ hair.

    But after doing that for a few months, Tammy heard from officials at the state Cosmetology Board, informing her that she could not continue washing hair because she lacks a governmental license to do so. Under Board of Cosmetology regulations, an individual “must complete not less than 300 hours of instruction on the theory and practice of shampooing” at an approved school.

    http://www.forbes.com/sites/georgeleef/2016/05/13/you-need-300-hours-of-training-and-a-license-to-shampoo-hair/#169b3fc314b3

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  3. @Scottc1: In general, I don’t think that’s new. Well, maybe the specific shampooing license is.

    To do anything with hair in Tennessee, I think, requires a cosmetology license, and has for a long while. Governmental enthusiasm for regulation, of course, but as with many such things, it’s more the private cosmetology schools agitating for such licensing (thus the “must complete not less than 300 hours of instruction” bit) rather than an original concern of politicians that unlicensed barbers and shampooers were roaming the countryside. A specific shampooing license indicates to me that the Board of Cosmetology or the various cosmetology schools have friends in Nashville, or otherwise wield too much political influence.

    even if a person were able and willing to jump through the hoops to obtain this license, she would still be unable to acquire it. This is due to the fact that no school in the entire state currently offers the course that is a mandated component of the hair washing license. That means that unless you already have a hair washing license from years ago or from another state, you are unable to wash hair in Tennessee without obtaining a cosmetology license, something that requires 1,500 hours of schooling and costs as much as $35,000 in tuition

    So, it’s about forcing everyone who works in a salon to complete beauty school. Figures.

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  4. That being said, Tennessee is, on the whole, better than New York, though I doubt the best state in the country vis-a-vis taxes and cost-of-living.

    Also, more from The Beacon:

    http://www.beacontn.org/tammy-pritchard/

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    • As do most young men. And often old men.

      “This is what the Obama administration nudged the rest of the country toward Friday. Yes, the thought of male genitalia in girls’ locker rooms – and vice versa – might be distressing to some. But the battle for equality has always been in part about overcoming discomfort – with blacks sharing facilities, with gays sharing marriage – then realizing that it was not nearly so awful as some people imagined.”

      So heroic.

      My problem with this is that when dealing with real discrimination, whether civil rights for African American’s or some other form of tangible discrimination, progressives were actually fighting against something. Now, those battles having been as largely won (or as won as they are ever going to be), they’ve moved on to battling phantoms.

      Unequal access to bathrooms is simply not a real problem. There is no “separate but equal” dodge here. There is no: oh, you can’t use the bathroom in my establishment (and, if there were, that would already be covered). There is some bizarre notion that people should get to use any restroom or changing room they want to and be celebrated for it.

      Ultimately, I don’t care. If a transgendered dude who looks like a dude is in my bathroom, I’m not going to notice or care if I did, which I won’t. If a legitimately transgendered woman is using the ladies room, I’m sure someone would care but if they are presenting as women . . . I dunno, I don’t see how it’s different from lesbians using the ladies room.

      But I don’t see why this is something that has to be fought over, editorialized over, and why the only answer has to be, essentially: your preferences are trumped by our preferences. Obey and be silent!

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      • KW:

        Ultimately, I don’t care. If a transgendered dude who looks like a dude is in my bathroom, I’m not going to notice or care if I did, which I won’t.

        Ultimately, the controversy isn’t really about generic public bathrooms. It is about locker room, shower and residence facilities in high schools and colleges. And I suspect most people really do (and should) care about that, for good reason.

        The trans lobby has tried to frame the issue in terms of general public bathroom usage, and some people have fallen for the trap, resorting to defending traditional, sex-segregated facilities by raising the specter of dirty old men going into bathrooms to spy on 8 year old girls. But the real and immediate impact of the principle that is being set by the trans lobby is that it will make teenage girls much more vulnerable in high school and college settings.

        But I don’t see why this is something that has to be fought over, editorialized over, and why the only answer has to be, essentially: your preferences are trumped by our preferences.

        Because the various governments own a lot of bathrooms and shower facilities, and so it is unavoidable that those governments must establish policies regarding the use of those facilities. And it is the very nature of government ownership of things that results, inevitably, in the preferences of some citizens being trumped by the preferences of others.

        I’m all for keeping the feds out of this issue and letting states or localities establish their own policies, but with the rising incidence of openly transgender teenagers in school, this is not an issue that can simply be wished away or ignored.

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        • “so it is unavoidable that those governments must establish policies regarding the use of those facilities.”

          I don’t know that it’s unavoidable, in that if had never been made an issue in the first place, it wouldn’t be an issue. I suppose it’s inevitable everything has to become a battle, but still—transgender folk have existed for awhile now, and this has only now become an issue?

          “I’m all for keeping the feds out of this issue and letting states or localities establish their own policies, but with the rising incidence of openly transgender teenagers in school, this is not an issue that can simply be wished away or ignored.”

          I wish it were! Anyway, I wish I could ignore it. 😉

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        • KW:

          transgender folk have existed for awhile now, and this has only now become an issue?

          Yes, precisely because transgender individuals are 1) increasingly coming out publicly, 2) doing so at an earlier age (impacting schools) and 3) demanding treatment at odds with longstanding tradition/policy.

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  5. What I find most interesting about the comments is the earnestness of those that weep for Gaia.

    http://www.dailykos.com/story/2016/5/22/1526758/-Americans-are-better-off-than-we-were-eight-years-ago#comments

    I had no idea people preened so.

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  6. In many ways, America was better off after 4 years of Carter, 12 years of Reagan Bush, 8 years of Dubya, 8 years of Clinton . . . the reality is time moves in one direction and if you can pick and choose your metrics, we are always better off by some measures and worse off by others, and have always been so. At the outset of the Clinton administration, we didn’t have the Internet. By the end, we did. Also, I had no cell phone in 1992 by I did by 2000. At the outset of the Dubya Bush administration, I couldn’t get the Internet on my cell phone, and I didn’t have an iPhone—there was no iPhone! By the end, I had both!

    And I’m pretty sure if you get into more traditional metrics, you will find ways in which people are better off—more folks in the upper class, for example, or the GDP growth better here, interest rates down over there—for pretty much ever 4 to 8 to 12 year span of a particular president.

    The problem being, the president doesn’t invent iPhones, or the Internet, or new markets in general. The president has very limited control over GDP and employment, and something pretty much gets better and something else gets worse no matter what they do, and perhaps if someone else was in charge different things would get better and worse but the whole “we’re all better off than we were 8 years ago” is counterfactual emotional bullshit. I am both better and worse off than I was 8 years ago, and I could say that for pretty much every 8 year period in my life I have passed through, including from ages 0 to 8.

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  7. … my point is covered in the DailyKos article, or at least was by Obama:

    ““In fact, by almost every measure, America is better, and the world is better, than it was 50 years ago, or 30 years ago, or even eight years ago.“
    And he’s right.”

    Because, generally, many things improve, decade-over-decade. Not everything, and some things get worse, and if you focus on what’s worse then you can argue we’re worse off for any given period. Obama may have given himself some credit with the 8 year number, but he basically admitted things have been improving, by and large, for the past 50 years. And, in fact, they’ve been improving for pretty much all of human history, just much more rapidly with fewer and smaller downslides since the 1500s.

    More women are in the workforce. (Applause.) They’re earning more money — although it’s long past time that we passed laws to make sure that women are getting the same pay for the same work as men. (Applause.)

    So, natural cultural shifts have led to more women in the workforce, and any honest assessment would suggest their pay is largely equal to that of men, but we need to pass laws because, you know, real progress only happens through government legislation.

    Marriage equality is the law of the land.

    A law was passed? I missed that.

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