Morning Report: Uncle Sam is a huge consumer creditor 6/13/16

Stocks are lower this morning on fears over Brexit (The 6/23 vote to decide whether the UK leaves the EU). Bonds and MBS are up small.

No economic data today. The big event this week will be the FOMC meeting Tuesday and Wednesday. The markets are expecting no changes to interest rates, so any bond rally on the news of no changes will probably be limited.

Interesting chart about the Federal government’s percent of ownership of consumer debt. This is money that US citizens owe Uncle Sam. Ever since Obama nationalized the student loan sector, they have taken their percentage of consumer debt from 5% to 28%. The student loan market is a $1.3 trillion market – not exactly chump change. Expect some sort of write-down of student loan debt in the future: many graduates have degrees that will never pay enough to work this down. As a side note, more young adults aged 18-34 live at home with Mom and Dad than in any other arrangement.

Speaking of Millennials, the high student loan debt is causing lower credit scores. The average credit score for the 18-34 age cohort is 625, compared to the national average of 667. Almost a third of that age cohort have sub-600 scores. Good luck getting a loan with that. Finally, all of the new post-2008 regulations have added anywhere form 50k-100k to the cost of building a starter home, making it difficult for builders to make homes that are affordable for the first-time homebuyer.

There is now $10 trillion worth of global sovereign debt trading at negative yields. Bill Gross of Janus Capital calls that a “supernova” that will explode one day. All of the worlds’ central banks are on a mission to create inflation: one day they will succeed. What has been the best trade for bond investors lately? The Japanese 30 year bond, which now yields 28 basis points. Bill says that bond yields today are the lowest in 500 years. Not sure where he comes up with that number.

Speaking of Central Bank jiggery-pokery, ECB corporate bond buying now makes up for 1 in 5 trades. We are truly in uncharted waters with global central banking.

As a general rule, buy stocks in an election year. Election years tend to be optimistic times, and the Fed is usually on your side. That might not be the case this year.

27 Responses

  1. Frist!

    “Bill says that bond yields today are the lowest in 500 years.”

    What were bond yields in 1516? That was the year, after all, that Selim I of the Ottoman Empire declared war on the Mamluk Sultanate of Cairo and invaded Syria. That can’t have been good for bond yields. 😉

    Liked by 1 person

  2. “As a general rule, buy stocks in an election year. Election years tend to be optimistic times, and the Fed is usually on your side. That might not be the case this year.”

    Let’s see, our next president will be either Hillary or Trump. Can’t imagine why people wouldn’t be optimistic about the future!

    Like

  3. Worth a read:

    “There’s No Such Thing as Nice Trump

    As the general election gets under way, the Republican nominee is straining to rein in his outrageous persona. But is it too late to change?

    Molly Ball”

    http://www.theatlantic.com/politics/archive/2016/06/trump-at-a-crossroads/486743/

    Interesting that many in the media still don’t get that Trump being an asshole is a feature to his supporters, not a bug. It’s already discounted for every offensive thing he says:

    “In Richmond, many Trump supporters told me they didn’t approve of his comments about Curiel but were willing to give him a pass. They didn’t think the statement made him a racist. “Should he have said that publicly? No,” John Shea, a 31-year-old from Chesterfield, told me. “But he doesn’t take shit, and I like that.””

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  4. Finally, all of the new post-2008 regulations have added anywhere form 50k-100k to the cost of building a starter home, making it difficult for builders to make homes that are affordable for the first-time homebuyer.

    Brent, what was your source for that assertion? I ask, because builders around here are still mainly bitching about which local governmental entity causes the most delay [and the most unforeseen costs as a result]. Same new home, materials and labor, ignoring land cost, is much cheaper in some of Austin’s burbs than others because of
    local bureaucracy, even when all ducks are theoretically in line.

    I assume that whomever has made the claim you restated has numbers to back it up – that probably, rightfully, include some costs that aren’t readily seen by the naked eye. But as close as I am to this business, I would appreciate more detail.

    Thanks.

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      • Thanks. The article does point up the local aspect and I think emphasizes it [especially in CA!].

        Some places are inherently more costly – the market in coastal CA would demand earthquake tolerance even if the insurers and the state did not. In TX, the issues are mainly to avoid wetlands near the Gulf or the major rivers, and to avoid building on limestone caves in the Hill country, and to have enough of a septic field in the west. But land is still relatively cheap and land that avoids the toughest regulation is relatively plentiful, statewide.

        My guess is that CA is extreme high side and TX is near low side on these compliance type issues – but urban TX, especially Austin, can be tough. Many home builders just will not build in Austin, and the ones that do concentrate on the high end.

        One trick with new construction within the city limits of Austin is that if you find an old house on a good lot you can avoid the whole site plan/environmental impact statement/traffic study/hydrological determination of drainage merry-go-round by leaving the original slab and one [1] wall standing. It then becomes a renovation/remodel, which only has the traditional hoops for green tags on each process. The 1200 sq.ft. cottage from 1947 can then become a 2500 sq. ft. post modern or whatever at a reasonable cost.

        TMI? I thought you might be interested.

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        • “One trick with new construction within the city limits of Austin is that if you find an old house on a good lot you can avoid the whole site plan/environmental impact statement/traffic study/hydrological determination of drainage merry-go-round by leaving the original slab and one [1] wall standing. It then becomes a renovation/remodel, which only has the traditional hoops for green tags on each process. ”

          That’s also how I got around rebuilding my deck attached to my house. As long as it’s the original ledgers that are attached to the walls, no new building permit needed.

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        • In Richmond, or a ‘burb?

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  5. I suspect ISIS is down with having the official response to their attacks be lectures on guns and racism

    http://www.slate.com/articles/news_and_politics/politics/2016/06/trump_s_response_to_orlando_is_exactly_what_isis_wants.html?wpsrc=sh_all_dt_tw_top

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  6. Good point,

    The other part was devoted to gun control, of course, and the idea that law-abiding Americans should learn to do without “assault weapons” in the interest of limiting terrorists’ access to them too. Why that same principle doesn’t apply to social media and the First Amendment, I sincerely don’t know. Internet propaganda has been more useful to ISIS in spreading terror than any single lone-wolf terrorist has. If you’re going to take AR-15s off the shelves to make life harder on terrorists (never mind that Mateen didn’t use an AR-15), logically you should take global platforms like Twitter and Facebook off the shelf too. You still get to keep your revolver. And your printing press.

    http://hotair.com/archives/2016/06/14/video-semi-retired-president-wants-you-to-stop-asking-him-to-say-radical-islam/

    Like

    • In speaking about Orlando, Obama called ISIS a “radical, nihilist, vicious organization”.

      Nihilist? Really? What more evidence is needed that Obama is in over his head and has literally no idea what ISIS, and radical Islam more generally, is all about?

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      • true, a dude willing to die for his religion sure as hell isn’t a nihilist…

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        • I strongly disagree with both of y’all. Both the Taliban and the ISIS express nihilist views. Continually.

          You could call what they preach religion because they do, but they reject the notion that human life has value. They even reject the notion that the artifacts of western civilization have value, even Islamic relics. Everything is for sale. Or to be destroyed.

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        • Mark:

          Internet Encyclopedia of Philosophy: Nihilism is the belief that all values are baseless and that nothing can be known or communicated. It is often associated with extreme pessimism and a radical skepticism that condemns existence. A true nihilist would believe in nothing, have no loyalties, and no purpose other than, perhaps, an impulse to destroy.

          The Basics of Philosophy: Nihilism is the philosophical position which argues that Being, especially past and current human existence, is without objective meaning, purpose, comprehensible truth, or essential value. It asserts that there is no reasonable proof of the existence of a higher ruler or creator, that a “true morality” does not exist, and that objective secular ethics are impossible. Therefore life has, in a sense, no truth and no action is objectively preferable to any other.

          Merriam Webster on nihilism: the belief that traditional morals, ideas, beliefs, etc., have no worth or value

          None of these definitions accurately characterizes ISIS, al Qaeda, or radical Islam more generally. These people imbue traditional morals and ideas with so much value that they think anyone who rejects those morals and ideas should be killed. The killing they engage in does not derive from a simple, purposeless impulse to destroy. It derives from a very specific purpose, i.e. the establishment of a Caliphate and the implementation of sharia, in accordance with a text they consider sacred and the perceived wishes of higher being. That is not nihilism.

          A nihilist would have no reason to target specific kinds of people, like homosexuals, because there would be no special meaning or import attached to homosexuality. ISIS is throwing gays off of buildings because it views homosexuality as objectively wrong and an affront to true morality, not just because of a senseless urge to kill. And the destruction of Islamic artifacts is not a mindless, purposeless act of destruction. It has a specifically stated purpose, namely opposition to “shirk”, the sin of practicing idolatry.

          ISIS et al are the exact opposite of nihilists, and we do ourselves no favors in refusing to take them at their word and understand them for what they are, especially when, as I think is the case with Obama, this refusal comes from a politically correct urge to disassociate the actors from the religion that inspires them.

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        • Concur with Scott. There may be superficial similarities to nihilistic thought, and there may be a similar despair, but the difference is between the nihilistic idea that nothing matters and the extremist religious point of view that nothing else matters. They are not killing out of a sense of anarchistic nihilism, they are killing infidels. Although I understand the confusion, given the similarities, and without an underlying analysis of the driving religious belief, you could certainly see this dude as a nihilist:

          But he was trying to kill people for Allah. This is an awful idea, and it might be fair to suggest that in this respect radical Islam is nihilistic in regards to human life, but it’s a term better saved for thoughtful, granular discussions than wholesale condemnations. I don’t see much reason to use the term in this context except to disguise the role that radical Islam plays in the nihilistic terrorist acts of folks like the Orlando shooter. Compare Obama on this to Hillary:

          http://www.politico.com/story/2016/06/hillary-clinton-radical-islam-224255

          Clinton’s team understands what the problem is politically.

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        • the difference is between the nihilistic idea that nothing matters and the extremist religious point of view that nothing else matters.

          This distinction is easier for me to see then Scott’s reliance on selected dictionary definitions. It seems to me that once an individual or a group determines that human life is so cheap that it can be randomly taken, that torture is remedial, that suicide bombing or suicide by cop is as good a way to die as any, that it is so close to nihilism as to be a distinction without a material difference. But I will accept the distinction.

          I agree that the Atlantic article was the best insight into ISIS and that only when we began to treat their need for territory as essential to their theology did we start getting it right.

          I also like the phrase “Jihadi terrorists” as a shorthand descriptor better than “radical Islamist terrorists”
          because Jihad as an excuse for terror within Islam has a long history and covers many other subsets of Muslim thought beside “radical Islamist”. Terror against civilians has been used by radical Jihadists as a revolutionary tactic, similar in genesis to the IRA, as well as a conquest tactic, as by ISIS. Some “radical Muslims” eschew terror, so “radical Muslim terrorist” is a bit misleading – although it describes Jihadi terrorists in each case, the group of radical Muslims is far bigger than the group of radical Muslim terrorists. We can safely say that mere Jihad in Islam does not equal terror because it includes the changing of one’s world view by any means,including negotiation and persuasion and usually eshewing violence. But calls for violent Jihad are often radical. I think we can say that virtually all terrorism in the Muslim world is radical Jihadist.

          Put into the language of the criminal law, being a radical Muslim is a state of mind, while being a radical Jihadist requires an action or actions by a Muslim. Clerics preach different Jihads each Friday, but most Jihads are not radical, they are merely calls to action similar to Christian and Jewish calls to action for acts of charity and the like.

          By definition the call to violence against civilians is the radical Jihad, I think.

          So for shorthand, I like Jihadi terrorist; it necessarily implies both the Muslim element and the radical element. It does not distinguish between or among terrorists who hate each other of course. And it does not distinguish degrees of terrorism. But shorthand descriptors are like that.

          Like

        • Mark:

          This distinction is easier for me to see then Scott’s reliance on selected dictionary definitions.

          I would imagine that, when characterizing something as X, pretty much everyone is necessarily relying on a particular definition of X. I just think it makes sense to specify upfront exactly what definition I am utilizing. I also like to check to make sure I am not relying on an odd or particularly unique definition, which is why I cited several sources giving largely the same definition.

          It seems to me that once an individual or a group determines that human life is so cheap that it can be randomly taken, that torture is remedial, that suicide bombing or suicide by cop is as good a way to die as any…

          I don’t think your description accurately characterizes these individuals or groups. Their targets are not at all random, and their chosen methods of dying are actually infused with deep meaning and not simply as good as any other way of dying.

          This is why I think they are the exact opposite of nihilists.

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        • They aren’t nihilists. They aren’t “thugs and criminals covering themselves with the mantle of religion” either.

          Still the best piece on ISIS

          “What ISIS Really Wants

          The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.

          Graeme Wood
          March 2015 Issue ”

          http://www.theatlantic.com/magazine/archive/2015/03/what-isis-really-wants/384980/

          Liked by 1 person

        • jnc:

          Still the best piece on ISIS

          Yes, I remember when you first posted that. Great piece.

          Like

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