Morning Report: The unthinkable just happened 11/9/16

Vital Statistics:

Last Change
S&P Futures 2134.5 -4.0
Eurostoxx Index 333.0 -2.0
Oil (WTI) 44.8 -0.2
US dollar index 88.3 0.3
10 Year Govt Bond Yield 1.96%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.61

Stocks are bonds are down after Republicans ran the table last night. Volatility will be the rule of the day.

Republicans ran the table. House, Senate, and Presidency. Obviously the conventional wisdom was dead wrong.

Bonds are down surprisingly, given how they were behaving in the early Asian sessions. As a Trump victory was looking more and more likely, bond yields were falling (having hit a low of 1.72% at one point). Just after midnight, the rally reversed, and bonds sold off to where yields hit 1.96%. Interestingly, the 2 year has rallied to 71 basis points or so and has now sold off to 83 bps. So people got whipsawed big time overnight, which means we should expect some volatility in rates going forward. Volatility tends to beget volatility. Be careful with your locks.

Stocks were initially slammed on the result as well, with the S&P 500 futures down over 120 points. That has since turned around and we are looking at modest losses. Just another day at the office for the markets.

Obviously, no one saw this coming, and a lot of people are wondering what a Trump presidency means to markets. First of all, I think fears that Ted Nugent would be running Homeland Security and Jesse the Body Ventura would be running Treasury are overblown. A lot of the serious candidates who would be good choices were not in the mix for consideration because they didn’t take Trump’s candidacy seriously. That will now change, however I think we will probably see a few outsiders: guys like ex-GE CEO Jack Welch, KKR head Henry Kravis, or Carl Icahn. VP Mike Pence will have a much bigger role than a traditional VP.

Trump’s model would be Ronald Reagan, which was probably the best comparison. Reagan was scoffed at by the elites: he was an actor, went to *snicker* Eureka College, was from the land of fruits and nuts, however he beat the brainiac Jimmy Carter who the establishment liked a lot. Reagan however surrounded himself with the best of the best and brightest of the conservative movement and became a successful president. Reagan was not a detail guy either. For Trump, it all comes down to his personnel who will handle the heavy lifting while Trump points in the general direction where he wants things to go. He doesn’t have the knowledge base to get all that involved in the nitty-gritty of policy-making. All of that said, the people who worry that he is Benito Mussolini II (actually I think the better comparison is Silvio Berlusconi) forget that people change, but the US system of government doesn’t. It was designed specifically to make it impossible for a dictator to make it work. He is going to be way more restricted in what he can actually do than the left fears.

I would suspect this morning a lot of market pros are googling Donald Trump’s economic policy. He has generally been all over the place. I think he will be more financial sector friendly than Obama was. He has trashed Dodd-Frank a number of times, and I suspect that D-F will get tweaked legislatively, with the goal of providing market participants more certainty into what the rules of the road are. Provided he does this right, it could help bring back the private label securitization market, which has been largely dormant with the exception of highly overcollateralized jumbo securities. Given the thin ice that the CFPB is on Constitutionally (and now a conservative replacement for Scalia on the Supreme Court), the agency might be pulled back onto the reservation.

Trump has been all over the board with respect to tax policy. He once advocated for a wealth tax, which even FDR couldn’t stomach. Now, he wants to eliminate the estate tax, cut corporate taxes and flatten the income tax code. Corporate tax reform is ripe as both parties agree we need to do something. Carried Interest could probably go by the wayside as a bargaining chip with the left.

Donald Trump has also been critical of the Fed, and he probably will nominate a more hawkish Chair than Janet Yellen, however her term expires in late 2018 so this isn’t a front-burner issue. The action in the 2 year suggests the markets are handicapping a lower chance of a hike at the December meeting. IMO, the Fed will do what it usually does: take a cue from the behavior of the markets.

Here is what Trump might do for housing finance reform. Punch line: Housing finance reform simply isn’t going to be a front-burner issue. It wasn’t really discussed by either party during the campaign, and the current system might not be ideal, but at least it isn’t a problem.

With respect to foreign policy, remember that Barack Obama ran as the ant-GWB. He would end the wars in the Middle East, close Guantanamo Bay, and build on our alliances in Europe. After all was said and done, he pretty much continued to do what GWB was doing. Trump will have the same constraints, especially in trade.

34 Responses

  1. This is a great reread:

    “Taking Trump Seriously, Not Literally

    The Republican candidate took his case to a shale-industry gathering, and found a welcoming crowd.

    Salena Zito
    Sep 23, 2016

    PITTSBURGH—“Running for president is a very important endeavor,” Donald Trump said. “What is more important, right?”

    He leaned forward on his chair, separated by a heavy black curtain in a makeshift green room from the crowd waiting to hear him speak at the Shale Insight Conference.

    “I am running because, number one, I think I will do a very good job. Number two, it’s really about making American great again.” He paused, as if realizing that repeating his campaign slogan might not seem genuine.

    “I mean that; I really do want to make America great again,” he said. “That is what it is all about.”

    The 70-year-old Republican nominee took his time walking from the green room toward the stage. He stopped to chat with the waiters, service workers, police officers, and other convention staffers facilitating the event. There were no selfies, no glad-handing for votes, no trailing television cameras. Out of view of the press, Trump warmly greets everyone he sees, asks how they are, and, when he can, asks for their names and what they do.

    “I am blown away!” said one worker, an African American man who asked for anonymity because he wasn’t authorized to speak to the press. “The man I just saw there talking to people is nothing like what I’ve seen, day in and day out, in the news.””

    http://www.theatlantic.com/politics/archive/2016/09/trump-makes-his-case-in-pittsburgh/501335/

    Liked by 1 person

    • If anyone deserves it, he does.

      Liked by 1 person

    • His piece is really good:

      “Did the United States Just Elect a Monster?

      No. Clinton’s team of cognitive scientists and professional persuaders did a terrific job of framing Trump as scary. The illusion will wear off – albeit slowly – as you observe Trump going about the job of President and taking it seriously. You can expect him to adjust his tone and language going forward. You can expect foreign leaders to say they can work with him. You can expect him to focus on unifying an exhausted and nervous country. And you can expect him to succeed in doing so. (He’s persuasive.) Watch as Trump turns to healing. You’re going to be surprised how well he does it. But give it time.

      I’ll be doing my persuasive best to help our new president unify the country. I’m not a monster either – just a little bit deplorable when the situation calls for it. And I would ask other Trump supporters to step up and be useful as well. If you helped elect Trump, you have a responsibility to calm the nerves of Clinton supporters who also have their country’s best interests in mind. Let’s all be worthy of our decisions.”

      Liked by 1 person

  2. Non-election news worth noting. Scooter Libby gets his law license reinstated:

    http://dailycaller.com/2016/11/06/scooter-libby-gets-law-license-back-by-d-c-court-of-appeals/

    Like

    • I thought there was no greater national security sin on the planet than outing a desk jockey at Langley…

      Like

      • Brent:

        I thought there was no greater national security sin on the planet than outing a desk jockey at Langley…

        Perhaps, but not only didn’t he do that (that was the unpunished Richard Armitage), he apparently didn’t even do what he was convicted of, ie perjury. Turns out the testimony that put him away was subsequently recanted.

        Like

    • Scooter Libby was thrown under the bus in a purely political move that Rove and the Bush admin should have been deeply ashamed of, and Bush should have “pardoned” him for the crime of being exploited by a cynical husband-and-wife team of ultra-partisan liberals.

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      • KW:

        Scooter Libby was thrown under the bus in a purely political move that Rove and the Bush admin should have been deeply ashamed of…

        I am sympathetic to the notion that Bush should have pardoned him, although I am not sure that it was feasible given political realities at the time. But I don’t understand why you think Rove and Bush threw him under the bus. It wasn’t anything they did or said that got him in trouble. It was an independent prosecutor bent on getting someone for something, and what now appears to have been mistaken testimony regarding a single notebook notation by a reporter that put him in jail.

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        • I may be mistaken. It has been a long time. But I recall that Libby helped to end the prosecution, although Rove was initially the target. If it wasn’t a “thrown under the bush” maneuver, it certainly looked like that to me. But I may be incorrect.

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        • KW:

          But I recall that Libby helped to end the prosecution, although Rove was initially the target.

          The media was all hyped up about the possibility that Rove was the leak, but the independent prosecutor found out almost immediately that in fact the leak was Richard Armitage, and that the leak was not a violation of the relevant law. Nonetheless, instead of ending the investigation, the prosecutor continued to interrogate administration and press members, over the course of which he became convinced that Libby was lying about a particular conversation with a NYT reporter – the one he had jailed in order to compel her testimony. So he turned the investigation from one about whether or not someone had illegally outed a CIA agent into one about whether Libby had lied to investigators.

          Eventually Libby was tried and convicted on the basis of testimony by the NYT reporter. Subsequently, however, the NYT reporter wrote a book in which she claimed to have totally misinterpreted a key part of her notes from her conversations with Libby, and it was on the basis of this misinterpretation that Libby was convicted.

          I don’t believe Rove or Bush played any role in Libby’s troubles.

          Liked by 1 person

        • Thanks for the refresher. Then I amend my comments to: Bush should have pardoned Libby. And end it there.

          Like

      • Cheney endorsed Trump a long time ago and I always thought it was a big fuck you to GWB for not pardoning Libby.

        Liked by 1 person

  3. “All of that said, the people who worry that he is Benito Mussolini II (actually I think the better comparison is Silvio Berlusconi) forget that people change, but the US system of government doesn’t. It was designed specifically to make it impossible for a dictator to make it work. He is going to be way more restricted in what he can actually do than the left fears.”

    I’ve been saying this since early in the campaign, when the idea that Trump was running for dictator and his election would be an end to Democracy first emerged.

    I just don’t get that the people who sincerely believe they are the smartest people in the room, all the time, don’t understand that. Or that so many don’t. “They laughed at Hitler, too” is an implicit comparison completely devoid of meaning. Post WWI German was literally nothing like the United States in 2016, in any way. He can put some hard-åsses or crazy people in important positions, and he can issue executive orders out the wazoo, but that’s about it.

    I was listening to NPR while the director of CAIR was bemoaning how world leaders were all laughing at as now, because Trump was president, and how that’s perhaps the worst part of this whole tragedy. I really don’t get this. This can’t be a universal position among liberals, it must strictly be the globalist. Voting based on who we might think might make European socialists and totalitarian dictators and despots laugh is perhaps the worst criteria I could possibly think of voting on, and the last thing I would ever consider. That’s like if Apple had decided not to make the iPhone because it might have hurt Samsung’s feelings.

    “After all was said and done, he pretty much continued to do what GWB was doing. Trump will have the same constraints, especially in trade.”

    I say either you’re right, and it’s pretty much business as usual, or he does more to disentangle us from our military misadventures that Obama did. And will get called a monster by liberals and Democrats for delivering on some of the promises Obama failed to. Or, if it’s so good from their point of view they have to give him props, credit will go to Obama for having set the table. That nothing changes is most likely, but I think there is a possibility.

    I continue to expect that, for the most part, neither party will learn the actual lessons that are clearly here to learn, and we’re in for 8 years of Trump (for good or ill) and a messy campaign season every 2 years, with more people trying out Trump’s style of rudeness and “plain spookiness” without getting that what worked for Trump might not work for him, while folks on the left double-down on “my opponent is a racist-bigot-sexist and you probably are, too, but vote for me”.

    Like

  4. NoVA, from that Atlantic piece:

    “Crazy, but he’s a winner, and I’m tired of America losing.”

    “Crazy, but he can’t be worse than what we got.”

    “Crazy, but he’s punishing the establishment.”

    “Crazy, but he’s driving the media nuts.”

    “Crazy, but he says what I can’t say.”

    This coincides with some of the exit polling I saw on CNN this morning, people who were afraid of him, didn’t like him, didn’t think he’d make a good president etc. etc were voting for him anyway.

    I belong to a non-political activity group that suddenly became political as hell this morning and I’m staying away until it dies down. One guy said he didn’t want to vote for Trump but this morning he was proud to be standing with the rest of America…..uggghh.

    Most of the women were having trouble getting out of bed and had been crying all night and morning, including my daughters. One friend of mine, an ex Army officer dentist in Atlanta said she really might have to leave the country. Most of women in this group seem to believe he really is a sexist pig and they can’t understand how other women could have voted for him. They were all depressed.

    I already lost one friend there because of his racist comments this morning and I had no idea he believed half the stuff he was spouting. It’s very interesting being part of a non-political blog that suddenly becomes political…..LOL

    I decided to keep my mouth shut except for a quick PM to the friend I no longer have….hahaha

    An interesting morning!

    Like

    • “ost of women in this group seem to believe he really is a sexist pig and they can’t understand how other women could have voted for him.”

      I can totally believe he’s a sexist pig when it comes to how he personally treats women he’s attracted to. There’s every indication of it.

      I can easily see how many women don’t particularly care how he treated those women they don’t know, and don’t expect it to have any bearing on how he governs as president, which it probably won’t.

      The main difference between Bill Clinton and Donald Trump on the sexist pig scale might well be how relatively attractive Bill Clinton is, compared to Donald. But Bill was younger when he was president, too.

      I’m guessing Donald will avoid inappropriate relationships with interns half his age. Not out of an internal moral compass but out of a cognizance of what could happen. But you never know.

      Like

      • I do find it interesting how quickly some women have forgotten about Bill and Monica………..LOL. I never found him attractive and also didn’t vote for him but that was before Monica. I just didn’t trust him, that’s the year I campaigned for and voted for Ross Perot I think.

        Regardless, there were lots of tears and moving to Canada comments this morning but they’ll settle down when the sun rises again tomorrow. In a group of really fit people I’m generally the oldest and have a different perspective on the long game than most of the group do, especially the women.

        Liked by 1 person

    • “I already lost one friend there because of his racist comments this morning and I had no idea he believed half the stuff he was spouting.”

      Lost how? You dumped him or he dumped you for disagreeing?

      On the whole, I think ending friendships over ideological or political differences is “doing it wrong”, but I understand when certain people become nothing but non-stop political propaganda machines, or their views just go too far beyond the pail. I can’t imagine anybody worth knowing unfriending you, though!

      Like

      • Well let’s just say he was being an intentional jerk and I wasn’t in the mood this morning so I just unfriended him. Life is too short to surround myself with jerks.

        He was making a lot of crazy racist comments about Obama and how my white son should be proud of his white heritage and other nonsense. No time for that crap.

        My days are numbering down so I’m trying to surround myself with people and activities that make me happy and feel fulfilled, not a bunch of crazy nonsense. Plus he was always trying to get something started with me anyway which just added to the impulse to unfriend him……LOL

        Liked by 1 person

        • Yeah, sounds like he was pushing it far too far. Too bad. Some people are just goobers. And you’re better off without them!

          Like

        • lms:

          My days are numbering down so I’m trying to surround myself with people and activities that make me happy and feel fulfilled, not a bunch of crazy nonsense.

          Ah…so that explains your sudden return to ATiM!!!

          Liked by 1 person

        • No sorry Scott, it was actually the election. You guys are funny though sometimes.

          Liked by 1 person

    • Has there been any correlation of DJT’s and Bernie’s performance in the rural counties of PA, OH, WI, and MI?

      Like

      • Hmmmm, that could be an interesting thing to know. I’ve heard from several democrat and progressive friends today that Bernie should have been the candidate. I couldn’t have voted for him but I get what they’re saying.

        Like

    • I don’t understand his equation. Globalization does not = republic. There is nothing about being a republican that requires globalization. Thomas Jefferson, as republican a man as there has ever been, was also an isolationist (as much as possible, at any rate). Let France keep to their own knitting!

      He will seek unforgiving revenge on those who dared to oppose him.

      Meaning, he won’t put them in his cabinet. Vindictive!

      The House and Senate will fail to resist anything he proposes — and those who speak up will be primaried into oblivion

      Because the Teapers will take his command unquestioningly, and he will naturally be able to select charismatic candidates capable of unseating popular incumbents because he has magic powers.

      They will likely build a propaganda machine more powerful than Fox and Breitbart — and generate pseudo-stories and big lies that, absent any authoritative or trusted media, will dominate the new centers of information, Facebook or its successors.

      Now I think I understand where his real concerns lie. People won’t trust him as the Word of God anymore! There will be competing spinners and pundits cutting into his ad revenue.

      He cannot “destroy ISIS”; his very election will empower it in ways its leaders could not possibly have hoped for.

      I think we’ll hear this a lot. It is possible, but it is far from guaranteed.

      Read a few more paragraphs into it, and I’m done. He doesn’t want to write political commentary, he wants to write a near-future dystopian sci-fi novel. He just doesn’t realize it.

      Like

  5. Favorite Twitter quote so far:

    BRITAIN: Brexit is the stupidest, most self-destructive act a country could undertake.

    USA: Hold my beer.

    Liked by 1 person

    • Heh. That’s funny. Although, pedantically, I have to point out I could think of many more self-destructive acts that Britain could undertake. Opening the borders to hundreds-of-thousands of religious zealots who hate the western way of life might be one way. Another way might be constructing a nuclear device and detonating it. Or releasing a zombie-creating pathogen, that would also be worse than Brexit.

      Like

    • Trump won the hold my beer bet.

      Liked by 1 person

  6. I’ll be in my bunk.

    Like

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