Morning Report: The Fed stands pat 11/3/16

Vital Statistics:

Last Change
S&P Futures 2096.8 5.0
Eurostoxx Index 333.8 0.7
Oil (WTI) 45.5 0.1
US dollar index 87.8 0.0
10 Year Govt Bond Yield 1.82%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.64

Stocks are mixed this morning after the Fed maintained interest rates. Bonds and MBS are down.

The Fed maintained interest rates at current levels yesterday. The meat of the statement: The labor market continues to strengthen, household spending is improving while business spending remains a weak spot. Inflation is ticking up but remains below the target rate. Esther George and Loretta Mester dissented, wanting to hike at this meeting. Bonds rallied maybe a basis point on the statement.

This morning the Bank of England said that it doesn’t plan on cutting interest rates this year, which is causing a global sell-off in sovereign debt.

Announced job cuts fell 31% to 30,740 according to outplacement firm Challenger Gray and Christmas. This report looks at press announcements of job cuts, which may or may not ever materialize. Regardless, it does make the case that companies are holding onto their workers. In fact, this was the lowest October since 1999. Job cuts were most in the computer industry (largely related to HP), while cuts in the energy patch are slowing down considerably from earlier this year.

Initial Jobless Claims ticked up to 265k last week, which is still an extraordinarily low number. Separately, the Bloomberg Consumer Comfort Index ticked up.

The ISM Non-Manufacturing Index dropped to 54.8 from 57.1 in September. This means the service economy is growing, however growth is decelerating. Transportation and Construction is leading the charge, while mining and educational services are lagging.

Productivity broke out of its long slump with a 3.1% increase in the third quarter. Output increased 3.4% and unit labor costs increased 0.3%. Increasing productivity is good news as it means wages can increase without generating inflationary pressures. Productivity has been disappointing ever since the economy bottomed, however.

Both Republicans and Democrats look back wistfully on the 50s and the 60s. These years were an economic glory time, where unemployment was extraordinarily low, jobs were plentiful and high paying, and a single income was sufficient to support a family. The Third Quarter of the 20th Century basically began with the end of the Korean War and concluded with the oil shocks of the early 70s. Both parties want to bring back those times. Is that realistic? Probably not. The postwar decades were an extraordinary period where the US had no international competition, and not only had to satisfy its own demand, it had to satisfy the demand of Europe and Asia. The US earned what economists call “economic rents” and they were split between organized labor and government. By the late 70s, Europe was back on its feet and both old and new competitors were emerging from Asia. These economic rents were competed away (as they inevitably are). While this was good news for consumers and stockholders, it was bad news for union workers in general. Anyone who wants to bring back the salad days of the 50s and 60s needs to come up with a plan to get Angela Merkel to invade Poland. Donald Trump’s vision of pre-free trade America won’t get you there. Neither will the left’s vision of an “smart” paternalistic regulatory state and 90%+ marginal tax rates.

22 Responses

  1. Heh, heh, heh. . . frist!

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    • Gloat all you will. One day, I will be victorious once more!

      Have you abandoned Plum Line? Can’t blame you.

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      • Pretty much during the day, at least until after the election. Between the knotted panties, trolling, and people responding to trolls it’s pretty much unreadable until after HHR is up. That and I’ve been super busy at work. Leaving next Friday for a meeting where I’m presenting some data, so I’ve been doing the obligatory last minute experiments as well as preparing my talk.

        Liked by 1 person

  2. Your history lesson, one which I once tried to sell at PL before I gave up on the place, should be repeated to populists of every stripe, who simply are clueless.

    Meanwhile, Brent, what do you think the short term effect of this will be for western markets, including the USA?

    http://www.economist.com/news/britain/21709589-high-court-rules-parliament-must-vote-trigger-brexit-process-taking-back-control

    I thought this would happen, but I also thought the Belfast court would rule for N.I. parliamentary oversight, and it did not.

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    • What lesson do you take from it?

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      • George, this is the lesson, quoting from Brent:

        The postwar decades were an extraordinary period where the US had no international competition, and not only had to satisfy its own demand, it had to satisfy the demand of Europe and Asia. The US earned what economists call “economic rents” and they were split between organized labor and government. By the late 70s, Europe was back on its feet and both old and new competitors were emerging from Asia.

        We cannot do the populist dream, left or right, of retrieving the 50s, by raising the minimum wage or by erecting trade barriers. Or by making women stay home, or teach school, or work as scullery maids, nurses, and librarians.

        One income families doing great with little education were possible in 1955 when both capital and labor were overpaid in America because we had [quite rightly] destroyed the industrial base of our major foreign competitors.

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        • In the age of increasingly technical job skills, what’s the argument for the importation of low skill labor, whether in the US or U.K.?

          Also, what’s the benefit to the U.K.of turning over ever more soveiegnty to Brussels? What exactly does the U.K. (or, say, Texas) get from the ever more centralized bureaucracy?

          Finally, is Trump arguing for an end of trade deals or a better negotiated one?

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        • I’ll check back later, George, and try to answer as best I can without evading. Right now all I can say is that I cannot tell that DJT is arguing for any particular “better” deal, only the wholesale scrapping of deals made since RWR.

          Your first two questions, however, take more time than I have right now – meeting daughter for lunch.

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        • In the age of increasingly technical job skills, what’s the argument for the importation of low skill labor, whether in the US or U.K.?

          Is someone arguing for importation of low skilled labor? I do think the southwest needs a Bracero type program again. I’d say that from Ozona, TX, to Salinas, CA, there are not enough native farm and ranch hands. Maybe we could do a retraining program for inner city youths to do farm and ranch work. IDK. I know you like more open borders than I do. And you know I think the D’s “family reunification” based immigration system sucks. That neither party has posed rational immigration based on what the US needs but that each has embraced some fantasy of either kumbaya or nativism is pretty obvious to my closed mind. IDK anything about the UK and unskilled immigrants.

          Also, what’s the benefit to the U.K.of turning over ever more soveriegnty to Brussels? What exactly does the U.K. (or, say, Texas) get from the ever more centralized bureaucracy?

          Relinquishing sovereignty should have a BIG quid pro quo. UK is now trying to determine the balance for them. I don’t know what works there. There are many moving parts, including the potential breakup of the UK. In that case, are you English, Scottish, Welsh, or Orangeman?

          Bureaucracy is a method of organization that can be efficient and is in our experience more often inefficient. I remember when Tom Peters and Peter Drucker would write management books on this but all I recall is that because government has no profit motive it must have performance standards and reviews and rewards and punishments to make bureaucracy work. And most governments, at most levels, do not have that. If TJ was correct, that government that governs least is the government that governs best.

          I would argue that the federal bureaucracy is getting bigger in every case, but not more centralized, in every case. You cannot even find all the DHS and DoD contractors and what they do with a score of forensic specialists over years of time. These contractor moles are an example of too big, rather than too centralized, I think.

          But one size fits all thinking is prevalent in DC, so in that regard each state or municipality affected must stand up for its own interests. That is the aspect I see as “too centralized”.

          Scott and I disagree with how much of the alphabet soup in DC must GO, and also how much the Administrative Procedure Act should be amended to provide more safeguards from arbitrary and capricious bureaucratic decision making. But we agree that there is a problem.

          I have no idea whether I answered your questions, now that I look at them.

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    • TBH I think Brexit is such a long-term thing that it won’t have much of an effect.

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      • Saw your link to the Vox piece. reminded me of this from Red October:

        Konovalov Crewman: Torpedo, Dead Ahead!
        Andrei Bonovia: [to Captain Tupolev] You arrogant ass! You’ve killed us!
        [just moments later, the Konovalov explodes.]

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        • Doesn’t it perfectly explain PL regulars like Cons?

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        • i’m loathe to do it, but I had to IL that guy. constant spamming the board with “legal analysis” every 5-10 minutes. All of a sudden he’s an expert on DOJ policy and congressional-executive branch relations. STFU.

          and the pretending to make a general comment that’s obviously directed at me got old. if you have something to say, say it.

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        • Using multiple aliases tells you all you need to know about a poster.

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  3. Uh..,

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  4. Interesting that those who cite this as a good thing:

    “Political science research has found this over and over again: Women legislators are more likely to introduce legislation that specifically benefits women.”

    http://www.vox.com/2016/7/27/12266378/electing-women-congress-hillary-clinton

    are often the first to complain of tribalism, etc, when it’s the other side focusing on it’s narrow interests.

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  5. Worth a read on the Bundy acquittals. Apparently the jury didn’t think it was about nullification at all:

    ““We were not asked to judge on bullets and hurt feelings, rather to decide if an agreement was made with an illegal object in mind,” Juror 4 said. “It seemed this basic, high standard of proof was lost upon the prosecution throughout.”

    At times, the juror continued, prosecutors came off as arrogant, asking them to infer the existence of a conspiracy. That apparently irritated some on the jury.

    “Inference, while possibly compelling, proved to be insulting or inadequate to 12 diversely situated people as a means to convict,” he said. “The air of triumphalism that the prosecution brought was not lost on any of us, nor was it warranted given their burden of proof.””

    https://www.washingtonpost.com/news/morning-mix/wp/2016/11/04/a-colossal-failure-by-prosecutors-juror-defends-verdict-in-oregon-standoff-trial/

    Like

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