Morning Report: Will the late teens resemble the early 80s? 11/10/16

Vital Statistics:

Last Change
S&P Futures 2167.5 7.0
Eurostoxx Index 340.7 0.9
Oil (WTI) 44.9 -0.3
US dollar index 89.3 0.4
10 Year Govt Bond Yield 2.09%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.75

Stocks are higher this morning as the markets come to grips with a Trump presidency. Bonds and MBS are down.

Strangely, the 2 year bond is trading at 90 basis points, while the consensus is that we should be getting 2 more rate hikes by late 2018. This is even more surprising given the action in the 10 year. A poll of economists and strategists indicates that the Fed will still raise rates in December. Given the market action since Trump won, the Fed has every excuse to do so.

Trump will not ask for Janet Yellen’s resignation. That said, she probably won’t get re-nominated when her term expires in 2018. Donald Trump has been critical of Fed policy, insisting that rates should be higher than where they are now.

After an appeals court ruling, President Trump could fire CFPB Director Richard Cordray.

Mortgage Applications fell 1.2% last week as purchases rose 1% and refis fell 3%. The average interest rate for a 30 year fixed conforming mortgage rose 2 basis points to 3.77%.

Initial Jobless Claims fell to 254k last week as employers continue to hang onto their workers.

The conventional wisdom that a Trump victory would be stock bearish, bond bullish, and dollar bearish turned out to be dead wrong, at least initially. Stocks were destroyed in the wee hours of Wednesday morning, and then had a massive turnaround during the day. Legendary investor Carl Icahn probably singlehandedly cleaned up the sellers overnight, pouring $1 billion into S&P 500 futures. He was probably up about 6% on that trade by noon.

The overall feel to the tape is “risk on” and investors are definitely selling bonds to buy stocks. Financials, Pharma, and construction stocks led the charge. Surprisingly the homebuilder ETF (XHB) underperformed. Ultimately a Trump presidency should be bullish for housing, so I am surprised at the stock action.

The more I think about it, the more I believe the Trump presidency will most closely resemble the early Reagan Administration economically. Reagan took over after a long period of economic underperformance and shocks to the economy. Early in his administration, the Fed was tightening while fiscal policy loosened. I think that dynamic is going to play out here, as the government cuts taxes, deregulates, and spends on infrastructure while the Fed methodically raises interest rates off the zero bound. Ultimately the Fed has an easier job here, as they don’t have the raging inflation problem and any recession will probably be more mild since we are already at full employment. I don’t see a deep recession like 81-82 in the cards, however we are certainly in uncharted territory with monetary policy worldwide. The biggest difference is that that the early 80s ended a secular bear market in bonds that began in the 50s. This time around, we are ending a secular bull market in bonds that started in the early 80s. Note that we are also probably at the beginning of a secular bull market in stocks, just like the early 80s.

10 year long term.PNG

66 Responses

  1. Dr. Cowbell is spitting mad… Its the end of the world as we know it…

    http://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016/paul-krugman-the-economic-fallout

    Like

  2. Q: As of Jan 21, 2017 next time one of those Iranian PT boats swarm one of our destroyers, the CAPTs of those ships have have standing orders to sink them, yes?

    Like

  3. Teh Krugman shits himself

    It turns out that we were wrong. There turn out to be a huge number of people — white people, living mainly in rural areas — who don’t share at all our idea of what America is about. For them, it is about blood and soil, about traditional patriarchy and racial hierarchy. And there were many other people who might not share those anti-democratic values, but who nonetheless were willing to vote for anyone bearing the Republican label.

    http://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016/the-unknown-country

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    • I am beginning to think that racism will end up being the Grand Unifying Theory of physics since it appears to explain everything else…

      Liked by 1 person

    • “who don’t share at all our idea of what America is about. For them, it is about blood and soil, about traditional patriarchy and racial hierarchy.”

      Or it’s what he identified before as the split:

      “But the truth is that we are a deeply divided nation and are likely to remain one for a long time. By all means, let’s listen to each other more carefully; but what we’ll discover, I fear, is how far apart we are. For the great divide in our politics isn’t really about pragmatic issues, about which policies work best; it’s about differences in those very moral imaginations Mr. Obama urges us to expand, about divergent beliefs over what constitutes justice.”

      http://www.nytimes.com/2011/01/14/opinion/14krugman.html

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  4. Hmm.

    “Help Wanted: 4,000 Presidential Appointees”

    https://www.greatagain.gov/news/help-wanted-4000-presidential-appointees.html

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  5. Vox discovers the downside of executive discretion and regulation writing vs legislation:

    http://www.vox.com/2016/11/10/13578550/trump-obamacare-birth-control-iuds

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    • Is it a downside? It’s an easy way for the opposite party to illustrate their evil agenda quickly, well ahead of the next midterms. It’s a built in issue for Democrats to campaign on and motivate their base. Put us back in! And remember, if you ever elect another Republican president, they will take away all the goodies we gave you!

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      • It will be twisted into Republicans wanting to ban birth control. Probably not worth the sturm and drang…

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      • Kev, I think that selling the fact that high pay low skill blue collar jobs are gone forever when the con artist is promising they will return [“trust me”] is a hard sell to the very people who lost those jobs.

        That is the First Lesson here. And PA, MI, WI, and OH all are Exhibits.

        Another Exhibit is the surprisingly strong showing of DJT among Chicanos in TX. Lots of displaced Blue Collars here, too.

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        • Concur. Although, I feel like Trump was promising something more along the lines of: if I can’t get you those jobs back, then at least I will punish the companies that took them away. With a 35% tariff to go the benefit veterans, if I recall. Brilliant politics. And not necessarily a con, although it might well be.

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        • Some of those jobs can come back.. We have cheaper energy than the rest of the world, and that offsets some of the cheap labor arbitrage from overseas… Many of these plants will be largely automated, however it will bring back jobs. Second, construction will employ a ton of people, if we can get the credit markets working properly again..

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        • Mark:

          How are Trump’s empty promises of jobs to the down and out any different than those of HRC or Obama?

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        • I think the Ds were promising retraining, Scott, and to some extent, before they had a R Congress, funded it.

          I could be wrong. I think HRC tried to sell retraining in Appalachia. I could be wrong.

          Anybody recall differently?

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        • Mark:

          I think the Ds were promising retraining

          In 2012 Obama promised that his administration would create “1 million new manufacturing jobs by 2016”. Needless to say, he failed.

          https://www.washingtonpost.com/business/economy/obamas-elusive-promise-to-deliver-1-million-new-manufacturing-jobs/2016/05/05/717d8cd0-107a-11e6-93ae-50921721165d_story.html

          In exploiting the angst of the less educated and economically down and out by making false promises about a mythical, government-led economic revitalization, all Trump did was take a page straight out of the progressive playbook, doing exactly what they have been doing in order to get elected since, well, the dawn of progressivism.

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        • If I were Trump and the R’s, I’d find out whatever I could do to get Ford not to move their small vehicle manufacturing to Mexico. At least for the next 4-8 years.

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        • Scott – Obama’s “million manufacturing jobs” – I don’t think he had a thing to do with it,really. So you have corrected my recollection.

          However, he would probably take some sort of credit for the 700K more manufacturing jobs in 2016. So would the R Congress since then. And so it goes.

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        • Mark:

          It’s not just jobs. I highlighted that because it so closely mirrors Trump’s promises, but it is a pretty routine electoral strategy of the left to exploit the misfortunes of people, lying to them about the source of their misfortune and making unfulfillable promises to them about rectifying their misfortune in exchange for their votes.

          It is hardly a Trump invention. The left has been getting elected for years doing it.

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        • Mark:

          Here’s a couple more of Obama’s false promises about jobs, from his nomination acceptance speech in 2008.

          And I’ll invest $150 billion over the next decade in affordable, renewable sources of energy — wind power, and solar power, and the next generation of biofuels — an investment that will lead to new industries and 5 million new jobs that pay well and can’t be outsourced.

          And…

          You know, unlike John McCain, I will stop giving tax breaks to companies that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America.

          Almost Trumpesque, that one.

          Liked by 1 person

        • I believe Pelosi promised 400k new jobs would appear immediately after Obamacare passed.

          Liked by 1 person

  6. Worth a read:

    “I’m a Muslim, a woman and an immigrant. I voted for Trump.
    By Asra Q. Nomani November 10 at 1:13 PM”

    https://www.washingtonpost.com/news/global-opinions/wp/2016/11/10/im-a-muslim-a-woman-and-an-immigrant-i-voted-for-trump

    Liked by 1 person

  7. Dumb bitch alert!

    Liked by 1 person

    • OMG. These people. Anyone else here think the uptick in hate crimes is mostly angry liberals faking it, or committing real vandalism and adding a bunch of epithets and “Trump” to drive the point home? I gotta keep an open mind but I’m having a hard time believing a Trump victory led to a wave of racist hate crimes. It doesn’t feel legit.

      Like

  8. Hawt blue on blue action

    “You are part of the problem,” he continued, blaming Brazile for clearing the path for Trump’s victory by siding with Clinton early on. “You and your friends will die of old age and I’m going to die from climate change. You and your friends let this happen, which is going to cut 40 years off my life expectancy.”“You are part of the problem,” he continued, blaming Brazile for clearing the path for Trump’s victory by siding with Clinton early on. “You and your friends will die of old age and I’m going to die from climate change. You and your friends let this happen, which is going to cut 40 years off my life expectancy.”

    The dying from climate change is a nice touch.

    http://m.huffpost.com/us/entry/us_5824cb95e4b0ddd4fe7954e8

    Liked by 1 person

  9. Will Rahn at CBS News basically agrees with me on the press and Democrats self-defeating attitude toward Trump supporters does not serve them and is hypocritical and disingenuous.

    http://www.cbsnews.com/news/commentary-the-unbearable-smugness-of-the-press-presidential-election-2016/

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    • It’s a globalist orientation. People who are globalist, the same people who looked in horror at the Brexit as if it signified the end times, are the people who wring their hands over what foreign leaders will think about how we are running our country. Also the same people whose primary concern over the Iraq war was a totalitarian dictator’s “sovereignty”, ironically.

      Same folks who want us to pay global taxes, have US politicians they don’t like tried for crimes at the Hague, have the UN supervise our elections, etc., etc.

      I feel fairly confident that our founding fathers weren’t worried if England or France would approve of our decisions when writing the constitution. “Well, I’d like it if we had a president instead of a king, but the French and the Prussians would laugh at us! So, monarchy it is!”

      There are lots of reasons to be concerned about Trump, but how he gives foreign leaders the feels is not one of them.

      Like

  10. This “it’s the end of the world” nonsense has to stop.
    people think we’re literally going to be underwater in 4 years. WTF.

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  11. This might sting a bit.

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  12. So in Colorado, Hillary won 46% to 44%. Gary got about 5%

    but look how the single payer ballot initiative went:

    Amendment 69 (ColoradoCare)

    Yes: 20.3%

    No: 79.7%

    boom.

    Like

  13. Moreover, they have noticed how dissenters from dominant political orthodoxy have been treated in these institutions — they are ridiculed, ostracized, sometimes harassed and occasionally punished for their political views. They have seen that progressives have organized to deprive dissenters of their jobsand their livelihoods. The more politically aware among them may have even noticed that the Obama administration has been distinctly unwilling to accommodate religious dissenters. For example, the Obama Justice Department has refused to rule out the possibility that the government would seek to deny tax exemptions for religious institutions that refuse to recognize same-sex marriage.

    https://www.washingtonpost.com/news/volokh-conspiracy/wp/2016/11/11/maybe-the-irrational-election-related-fears-of-college-students-arent-so-irrational/

    Like

  14. Shaming as a way to convert the electorate works

    But it also can backfire.

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    • The left simply cannot understand that politics is ultimately a sales business and insulting your potential customers is not a winning strategy…

      Buy my product, you simpleton troglodyte!!!

      Liked by 1 person

      • I thought this was an interesting tidbit, noted by James Taranto, from a NYT post-mortem on the Hillary’s campaign:

        Last year, a prominent group of supporters asked Hillary Clinton to address a prestigious St. Patrick’s Day gathering at the University of Notre Dame, an invitation that previous presidential candidates had jumped on.

        Barack Obama and Joseph R. Biden Jr. had each addressed the group, and former President Bill Clinton was eager for his wife to attend. But Mrs. Clinton’s campaign refused, explaining to the organizers that white Catholics were not the audience she needed to spend time reaching out to.

        Catholics make up nearly a quarter of the population, but we don’t need to “reach out” to them? And this is the woman touted as uber-competent?

        Liked by 1 person

        • Idiots. I understand that “demographics is destiny” and I think that’s ultimately true, but right now, like you say, Catholics make up nearly a quarter of the population. White people still make up the majority of the population. This is not the time to start courting only the minority groups mostly likely to vote for you anyway.

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      • Brent:

        Buy my product, you simpleton troglodyte!!!

        Given that the progressive “product” is premised on the fact that most people are simpletons, it does at least have the benefit of being truth in advertising.

        Liked by 1 person

    • “as well as the sheer difficulty of renegotiating a Pacific pact that was seven years in the making, entailing compromises among a dozen countries including Australia, Canada, Chile and Japan, but excluding China”

      I gotta say boohoo on that. They let media companies write insane international copyright laws that were pure crony capitalism. Among other things. Far too many consumer-unfriendly, general-public unfriendly sops to corporate special interests. It essentially eliminated the concept of any copyrighted material ever entering the public domain, among other things that had no place in a trade agreement.

      https://www.eff.org/deeplinks/2015/10/final-leaked-tpp-text-all-we-feared

      Like

  15. http://www.rollcall.com/news/politics/republicans-expand-domination-of-state-legislatures

    Here’s Obamas legacy. The GOP one state short of being able to control 3/4 of the states in an constitutional convention

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    • It’s not just Obama’s legacy. The entire Democratic party and their most vociferous supporters, and certainly every campus creating safe spaces for college students so they are never exposed to anything they don’t agree with, should be credited with this. They gave it away.

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    • Can you imagine re-writing the commerce clause so that it isn’t a “get out of jail free” card for the left?

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  16. Liked by 1 person

    • Godwin Law Violation: Too many Hitlers on the field.

      15 yard penalty, replay 2nd down…

      Liked by 1 person

    • I wonder if the same folks who were comparing Romney and McCain to Hitler are the same people who always tell me that suggesting Democrats and Republicans both have corrupt and hypocritical politicians in their ranks is a “false equivalence”. I’m pretty sure I’ve gotten a sarcastic “Both Sides Do It™” from the Adolph Romney crowd.

      Of course, I mean Adolph Romney then. Now, Romney is an earnest guy who was well-intentioned if mistaken on policy, unlike Trump, who is a Nazi.

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  17. So what’s the over/under for how long the progressive performance art meltdown goes on ?

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  18. The really interesting and entertaining part of this clip is Vandenhueval’/ earnestness over climate change.

    http://www.realclearpolitics.com/video/2016/11/13/mary_matalin_demands_van_jones_retract_whitelash_remarks.html

    Gaia weeps! She’d sell it better if she wore waders all the time.

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    • I like George: “STEPHANOPOULOS: You guys will talk about it outside. We are going to come back with The New York Times columnist Tom Friedman.”

      I think most people are utterly clueless about how to communicate or persuade. Everybody preaches to the choir, almost everybody lives in their own insular bubble. Matalin and Van Jones were either talking past each other or being personally offended (of course, these shows are not the place for extended discussion, anyway).

      Facebook as been full of it. Seth McFarlane’s missives on climate change have been typical: you’re idiots, it’s science, now why don’t you just accept it, idiot. What, I’m being nice about it!

      Lots of that. Have many very liberal friends, and their depression over the Trump win is about all some of them seem to talk about (when, earlier, reflecting they couldn’t wait for the election to be over so they could talk about what people were having for dinner again; of course, that’s when an HRC win was just assumed). One of them announced they don’t understand it, but of course they don’t have any conservative friends or know any conservatives so they really don’t know what real people actually think about it . . . because why would you have any friends that don’t agree with you lockstep on politics? Those people aren’t even human!

      The climate folks are freaking out because Trump will pull us out of the worthless, self-flattering, nothing-but-preening Paris Climate Accords. Look, that stupid photo-op was never going to make a difference in the climate no matter what you believe.

      Like

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