Morning Report: Chances of a rate hike back to pre-Brexit levels 8/17/16

Posted on August 17, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2176.0 0.0
Eurostoxx Index 341.5 -1.9
Oil (WTI) 46.4 -0.2
US dollar index 85.8 0.2
10 Year Govt Bond Yield 1.58%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.52

Markets are flat this morning on no real news. Bonds and MBS are down small.

The FOMC minutes come out today at 2:00 pm EST. Be careful locking loans around then since we could see some volatility.

Mortgage Applications fell 4% last week as both purchases and refis fell by 4%.

Mohammed El Arian has a good piece on what to look for in the minutes. The main things to look for: labor (and what the Fed considers “full employment), productivity (and why we aren’t seeing it), inflation (and why we don’t see it), external threats (China slowdown, Brexit), and finally why ultra-low interest rates and QE aren’t achieving the desired result (the elephant in the room). Expect the Fed to prod the government to use fiscal policy to help stimulate the economy.

For those complaining that US fiscal policy has been in austerity mode, I would remind them that the biggest post WWII deficits as a percentage of GDP are (in order) 2009, 2010, 2011, 1983, 2012, 1946, 2013.

Yesterday, William Dudley suggested that a September rate hike is still on the table and the markets may be underestimating the chance of one. The Fed Funds futures market have now back to pre-Brexit levels in terms of predicting the probability of a rate hike this year.

The lack of inventory is going to get worse, as we aren’t building enough homes to keep up with population growth, let alone obsolescence. I keep saying this, but we should be hitting 2 million starts a year given the shortage and the need to house Millennials. This is the difference between 2% GDP and 3% GDP. Unfortunately, Washington seems to think the biggest problem is that we aren’t slugging the banks hard enough.

Filed under: Economy, Morning Report |

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12 Responses

  2. Kevin S. Willis's avatar
    Kevin S. Willis, on August 17, 2016 at 9:08 am said:

    Being the opening of school, I’m very busy right now, thus my lack of participation here, and my complete avoidance of the pointlessness of PlumLine. Not that I’ll never return, just too busy for empty calories right now.

    I’ve also had the added advantage of my life recently having a atrial septal defect plugged. She had a hole in her heart the size of a quarter (has since birth) which causes an arrhythmia. Had to take her to the emergency room a few weeks ago because of exhaustion, shortness of breath, etc., etc. Turned out it was pulmonary edema and she had a lot of fluid on her lungs. They pumped her full of diuretics to drain the fluid, but they were concerned about the hole in her heart, so even if that wasn’t the ultimate cause of the edema, it wasn’t helping. So they scheduled her for a procedure to plug the hole.

    Then—and, again, this is where I love modern medicine and modern technology—the inserted a catheter into a vein in her groin, while she was awake, snaked it up to her heart, then into her heart, and patched the hole with a little umbrella-like mesh devices that pops a umbrella like patch out on either side, once in place. Not only do they not have to crack the chest or stop the heart, they can perform the procedure while you’re awake. Frickin’ amazing.

    Anyway, she’s in better shape now but still emotionally rattled and worried, as always, that it means she’s about to die and that nobody loves her enough because we’re all horrible, selfish people. Although frankly I think the procedure left her in better shape than the rest of us, probably.

    Most days I feel pretty sure she’s going to outlive me. She has too, because I’ve been hearing how she’s going to die any time now for about 25 years.

    Simultaneously, we’re having to get the oldest daughter off to college. I think this part is going as well as can be expected, but it is preoccupying. I don’t know, but I suspect the house will be more peaceful having her out of it (she’s a very lovely young woman, there’s just a lot of tension between her and my wife that makes things difficult even when things are going well, and her year-and-a-half relationship with a sociopath/psychopath/giant-f*cking-loser did not improve that). But on that front, it seems the relationship with the sociopath is, after about 16 long, horrible, interminable months is over, and my oldest daughter is about the launch into a life-changing college experience that will help mature her and possibly make her employable. And it will do her a lot of good to be out of the house. I’ve noticed ever since the problem with the sociopathic ex-boyfriend started that she was at “leave the nest” position, and that our parenting was probably doing more harm than good. She needs to get away from us and live on her own for an extended period if she’s going to have any hope of maturing as a human being.

    Last part, as I have also mentioned, is dealing with my elderly father and his affairs. One Sunday, we couldn’t even get him out of his bed to change his sheets, and he had been drinking almost nothing. So, I called the ambulance, had him put in the hospital, had that week to find a long term care facility, found one, have him transferred there, found it is not compatible (physical therapy is great there, but otherwise not so much; I had my doubts, tried to over come them, turned out I should have trusted them). So we’re transferring him somewhere else and hoping for better luck. But that’s been a f*cking nightmare. I have had to be off work constantly during school starting (basically, the worst time to be off work; I never schedule vacations this time of year), get daughter into college, spent 3 days in the hospital with wife then had two days for the procedure (we also pretty much missed her birthday, which did not go over well; gonna make it up to her at some point but I’ve learned from experience trying to do some half-assed thing now would be a total f*cking waste of time, so it’s just going to wait until I can do it right, which ain’t going to be until daughter is in college and dad if safely somewhere that can manage a half-mobile, half-immobile dementia patient with delusions of physical agility, school is open and I can get back to working out).

    Also, not working out, so find myself much more prone to anxiety attacks and panic attacks and black depressions because—hormones! And outside stress, of course, but hormones as much as anything. Again, once dad is settled and daughter is settled, I think I can get back to slipping out during lunch hours and working out. Then get shit back on track. Until then . . . yay, adulthood! It’s so awesome!

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  3. Kevin S. Willis's avatar
    Kevin S. Willis, on August 17, 2016 at 9:24 am said:

    Also, I’m interested in continuing the discussion of government spending and priorities, if @Scottc1 and @markinaustin are. I like this website:

    http://www.usgovernmentspending.com/spending_chart_1970_2021TNb_17s2li011mcn_10t

    That’s Tennessee healthcare spending, which has grown impressively since 1970. Texas has done the same, a smooth, linear progression that has to outstrip inflation by orders of magnitude. Anyway, it’s a fun site to play with, as it gives you all sorts of ways of looking at the data, much of which suggests all the hoo-rah is much ado about nothing.

    That growth in healthcare spending, just like the growth in transportation spending, went on through Republican and Democratic administrations, both local and national.

    And you can compare. Transportation has gone up more than healthcare over the time period in Texas, and has always been higher! Education spending has been lower than transportation or healthcare, but has tended to go up on the same curve:

    http://www.usgovernmentspending.com/spending_chart_1970_2021TXb_17s2li011mcn_20t60t10t

    What’s interesting is how consistent the relationships between the curves tend to be in terms of real dollars. Pick any time span, any set of budget items.

    Although continued playing around suggests one should take the comparison charts with a grain of salt. I’m not sure the graphic is always representative. But, still, an interesting site. Lots of good data.

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    • ScottC's avatar
      ScottC, on August 17, 2016 at 10:27 am said:

      KW:

      Sorry to hear about all of the health issues dogging you. Hope things get better.

      And you can compare. Transportation has gone up more than healthcare over the time period in Texas, and has always been higher!

      I think maybe you are misinterpreting the graph. According to your link, if you look at the actual number data (further down on the page), in 1970 transportation spending was $.89 bn and rose to $21.62 bn by 2016, while health care spending in 1970 was $.55 bn and rose to $50.25 bn by 2016. Which means increases in health care spending are 4 times greater than increases in transportation spending. And spending on transportation hasn’t been greater than spending on health care since 1975, and is currently only half as much. And that doesn’t even include welfare spending, which is a separate category.

      But, still, an interesting site. Lots of good data.

      Yes, I am a big fan of that site for data on government spending.

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  4. jnc4p's avatar
    jnc4p, on August 17, 2016 at 2:28 pm said:

    Latest Trump theory:

    “Michael Moore: Trump is sabotaging his campaign because he never really wanted the job
    At first, he might have been running for president to get a better deal for “The Apprentice”
    Michael Moore, AlterNet
    Wednesday, Aug 17, 2016 04:59 AM EST

    Donald Trump never actually wanted to be president of the United States. I know this for a fact. I’m not going to say how I know it. I’m not saying that Trump and I shared the same agent or lawyer or stylist, or if we did, that would have anything to do with anything. And I’m certainly not saying I ever overheard anything at those agencies or in the hallways of NBC or anywhere else. But there are certain people reading this right now, they know who they are, and they know that every word in the following paragraphs actually happened.

    Trump was unhappy with his deal as host and star of his hit NBC show “The Apprentice” (and “The Celebrity Apprentice”). Simply put, he wanted more money. He had floated the idea before of possibly running for president in the hopes that the attention from that would make his negotiating position stronger. But he knew, as the self-proclaimed king of the dealmakers, that saying you’re going to do something is bupkis — doing it is what makes the bastards sit up and pay attention.

    Trump had begun talking to other networks about moving his show. This was another way to get leverage — the fear of losing him to someone else — and when he “quietly” met with the head of one of those networks, and word got around, his hand was strengthened. He knew then that it was time to play his Big Card.

    He decided to run for president.”

    http://www.salon.com/2016/08/17/michael-moore-trump-is-sabotaging-his-campaign-because-he-never-really-wanted-the-job_partner/

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  6. jnc4p's avatar
    jnc4p, on August 17, 2016 at 4:26 pm said:

    This is the fundamental divide on Islam. Pity it’s not as clearly articulated on the campaign trail as it is here:

    “Isaac Chotiner: What precisely do you mean by “Islamic exceptionalism”?

    Shadi Hamid: I’m essentially arguing that Islam is fundamentally different from other religions in a very specific way: its relationship to law and politics and governance. I wanted to use “exceptionalism” because I felt, at least for me, that it was value-neutral: It can be either good or bad depending on the context. I also wanted to challenge the assumption—very common in the bastions of Northeastern liberal elitism—that religion playing a role in public life is always or necessarily a bad thing. That’s the idea of the title, and what that means in practice is that Islam has proven to be resistant to secularism, and I would argue will continue to be resistant to secularism and secularization really for the rest of our lives.”

    http://www.slate.com/articles/news_and_politics/interrogation/2016/08/shadi_hamid_on_islamic_exceptionalism.html

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