Morning Report: The FOMC meeting begins 12/13/16

Vital Statistics:

Last Change
S&P Futures 2258.6 8.0
Eurostoxx Index 356.3 2.6
Oil (WTI) 53.1 0.3
US dollar index 91.3 0.0
10 Year Govt Bond Yield 2.44%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.13

Markets are higher this morning as Italian bank Unicredito launches a restructuring plan. Bonds and MBS are up.

The FOMC meeting begins today, with the announcement scheduled for 2:00 pm tomorrow.

Despite the expectation that the Fed will hike rates tomorrow, inflation remains pretty much nowhere to be found. Import prices fell 0.3% last month and are down 0.1% on an annualized basis. Export prices were down 0.1% MOM and down 0.3% YOY.

Holiday shopping is starting out subdued, according to Redbook. Same Store Sales were up 1% for the week ending Dec 10.

Here is a comparison of the past 3 tightening cycles: 1994-1995, 2004-2006 and the current one. The biggest differences: This tightening is happening much later in the cycle (this second hike is almost 7.5 years since the expansion began), unemployment is much lower (4.9% versus 5.5% and 6.5%) and growth is much lower. Of course the biggest difference is that the prior cycles were implemented in the context of a traditional business cycle, where a buildup in inventory caused a recession. This time around, it is the context of an asset bubble, where a buildup in bad debt caused the recession. These are fundamentally different animals, and explains why the Fed is taking baby steps this time around.

fed-tightening-cycles

One thing to watch after the FOMC announcement: Donald Trump’s twitter feed. Any sort of jawboning of the Fed by Trump will almost certainly affect bonds. In the past, Trump has been hawkish, however now that he is a politician, he might adopt a more dovish tilt, as most politicians do (at least the ones in office).

Fed watcher Tim Duy believes the markets are probably too sanguine about rate hikes in 2017. The markets are looking for two 25 basis point hikes, and he believes the risk is to the upside (i.e. a more aggressive Fed).

Small business optimism picked up in November, according to the NFIB. Expectations for an improvement in the economy and top line growth drove the improvement. We also saw a big uptick in hiring plans, although capital expenditures are still depressed. Business is looking for a cut in corporate taxes and a relaxation of regulations. Remember however, these are expectations, not a description of how business is at the moment.

Zillow has its 6 big predictions for 2017 in the real estate markets. Here are the big themes:

  • Cities will focus on denser development of smaller homes close to public transit and urban centers.
  • The drop in the homeownership rate will reverse as more Millennials become homeowners.
  • Rental affordability will improve as incomes rise and growth in rents slows.
  • New home price inflation will continue, and could be exacerbated by any sort of slowdown in immigration.
  • The suburban population will increase as city-dwellers seek more affordable housing outside of the cities.
  • Home values will grow 3.6 percent in 2017 versus 4.8% in 2016.

There were 30,000 completed foreclosures in October, according to CoreLogic. Foreclosure inventory is down 32% from a year ago. 1 million mortgages were down 90 days + which is a decrease of 25% YOY and is the lowest level since August 2007. Normalcy for foreclosures is around 22,000 a month, so we still have some wood to chop.

Donald Trump has nominated Exxon-Mobil CEO Rex Tillerson to be Secretary of State. Getting this nominee past the Senate will not be a slam-dunk, given his ties with Vladimir Putin and Russia in general. This is even more sensitive given that the CIA thinks Russia might have had something to do with the Wikileaks emails surrounding the DNC.

Separately, Donald Trump cancelled a press conference scheduled for today regarding how he will handle his business interests once he takes office.

49 Responses

    • I was going to say something like “curse you, Red Baron!”, but that GIF is just too perfect. Well done, Mr Willis!

      Liked by 1 person

      • Fun fact: Kermit the Frog was recently under consideration for Whitehouse press secretary in the Trump administration. He withdrew his name from consideration after recent revelations of Trump’s ownership in a chain of fried frog legs restaurants.

        With all the Russia stuff going on, that little tidbit didn’t get much coverage. But you can totally trust it! Definitely not fake news!

        Like

  1. Apparently he’s saving the best cabinet nomination for last:

    “Donald Trump meets Kanye West at Trump Tower — hours after canceling a presser on his business
    Updated by Andrew Prokop
    Dec 13, 2016”

    http://www.vox.com/policy-and-politics/2016/12/13/13936270/trump-kanye-meeting-video

    Like

  2. Cities will focus on denser development of smaller homes close to public transit and urban centers

    That never worked for me in Sim City–the sims always ended up rioting.

    Liked by 1 person

  3. To give Vox it’s due, PL would never do a piece like this:

    “At the same time, one of the administration’s central arguments against intervening has been proven false. US officials, from Obama on down, had said outside military assistance wouldn’t be enough to decisively impact the future course of the war. Once Russia started to bomb on Assad’s behalf, US officials said the Kremlin would get bogged down in a bloody quagmire without end. Instead, Russia — with virtually no losses of its own troops — has helped Assad retake vital ground like Aleppo while pushing his opponents closer toward near-total defeat.”

    http://www.vox.com/world/2016/12/13/13936350/aleppo-assad-retake

    Like

  4. I laugh at all the people who wring their hands about Trump’s authoritarian streak, but worship FDR…

    Like

    • Brent:

      I laugh at all the people who wring their hands about Trump’s authoritarian streak, but worship FDR…

      Trump has nothing on FDR when it comes to running a con. Exhibit one: Social Security “Insurance”.

      Like

  5. They have learned nothing:

    “The Democrats Screwed the Pooch Again
    This time in the Louisiana senate race.
    By Charles P. Pierce
    Dec 13, 2016”

    http://www.esquire.com/news-politics/politics/news/a51508/democrats-louisiana-senate-race/

    Like

  6. Obama is beyond parody.

    One month after declaring “fake news” a threat to democracy, he sits down for a friendly, sycophantic interview with the host of a self-declared fake news show.

    http://www.dailymail.co.uk/news/article-4030852/More-Obama-Trevor-Noah-American-NOT-overcome-legacy-slavery-Jim-Crow-not-mention-colonialism-racism.html

    And it wasn’t just the fact of the interview that demonstrates Obama’s complete lack of self-awareness.

    Obama said he realized that some people might criticize him for ‘not speaking fully truth to power’ because he approached racial issues in such a diplomatic way.

    I’d suggest that, as President of the United States, unless he is talking to himself in the mirror, it is impossible for him to speak “truth to power”. Does he even know what the term means?

    Like

    • Does it bear repeating that Comedy Central and The Onion are satire sites and admittedly fake as news?

      But the POTUS not speaking truth to power is laughable outside the context of not praying loud enough.

      Like

      • One of the problems with the “fake news” term is it’s being used as a catch-all and in some cases purposely obfuscated. And there’s so much of it.

        Some parody sites aren’t exactly The Onion. Their humor is often dry and difficult to distinguish from “real news” from Slate or Vox, though the site somewhere notes itself as parody in the tiny type.

        Shows like The Daily Show and Last Week Tonight are not strictly parody, but regarded as a kind of “humorous and ironic” delivery of real news by a lot of the viewers.

        Fake news can picked up by real news and run like real news, like WaPo’s recent pickup of the PropOrNot list of Russian-influenced media.

        And a lot of “fake news” is not much different from the “real news”—real events and people reported on, out of context, with things omitted and other things blurred or twisted to fit a narrative. Sometimes “fake news” is—like “real news”—often a poorly reported “real news” story with a completely misleading headline.

        And then you have the super-rich deep-meta irony of admitted purveyors of fake news being treated as trustworthy sources when confirming the mainstream narrative (such as the assertion that conservatives are highly susceptible to fake news, but liberals are immune to it—as told to the MSM by a guy who admits to making a living producing fake news—or the MSM-narrative-confirming assertion by a fake news guy that he accidentally won the election for Trump, which the MSM dutifully reported, with no self-reflection about treating a guy who has admitted he’s untrustworthy as a trustworthy source).

        Add to that that the MSM is often biased and that news cycle makes deep fact checking impossible and that real reporters are fooled by fake news and so on and so forth, I think everything needs to be treated as “possible”.

        Although rather than “fake news” I’d regard The Daily Show as an Op-Ed show. Admittedly, it has the trappings of a news show, but it’s less “fake news” and more “opinion/propaganda” made more palatable with relatable millennial humor.

        Like

        • All this emoting is about there not being a MSM filter anymore.

          Liked by 1 person

        • KW:

          Although rather than “fake news” I’d regard The Daily Show as an Op-Ed show.

          Jon Stewart himself called it a fake news show, although to be fair he did so primarily when he was donning his clown nose in order to ward off the same criticism of him that he was directing at other people.

          Like

      • Mark:

        Does it bear repeating that Comedy Central and The Onion are satire sites and admittedly fake as news?

        Given that the host of The Daily Show was once feted as the most trusted man in America, and that more than 10% of millenials designated the show as the most trustworthy source of news around, I’d say that it does bear repeating to some people.

        And given that, by inviting the host into the White House for a one-on-one interview, Obama is actually lending precisely that kind of credibility to the show, I’d say it probably bears repeating to him most of all.

        Like

  7. @jnc4p:

    Just finished the Coates piece–that was a good read. Thanks!

    Like

    • What Coates piece? Why don’t I ever know what’s going on?

      Like

      • 🙂

        Here you go!

        Like

        • Holy moly! That’s like a short book. Thanks!

          Like

        • I’ll give you a summary: Whitey sucks.

          Like

        • McWing;

          I’ll give you a summary: Whitey sucks.

          Just read the Coates article. I find it so depressing when a person seems utterly incapable of seeing the world except through the lens of race. Its pathetic, really.

          And it is inexplicable to me that people who are all up in arms about the supposed mainstreaming of White Nationalism will embrace Coates’ racialist tripe.

          Like

        • I’m fascinated by the left’s embrace of it, specifically and of Coates in general.

          What do I know. Now, if you’ll excuse me, I have to go oppress people due to my very existence.

          Like

        • The same reason white identity politics is met with horror and cries of “Nazi” while every other complexion of identity politics is greeted with acceptance, sympathy, and understanding.

          There always has to be a “bad group”. One who has no claim to the moral high ground. One who exists to be judged but has no right to judge.

          Really, whose narrative about the “bad group” dominates is about majority control. If whitey is ever thoroughly marginalized and swept to the sidelines, you will find that a new “bad group” has to be introduced. There always has to be a bad guy.

          Like

        • Trust me, Whitey will one day have a boot heel on its neck and NOTHING it does, or could do, will relieve that boot heel.

          There is no Whiggian history. Sorry.

          Like

        • I think you may be reading something I’m not specifically saying. Even so, I’m dubious we’re going to get to that point. I do not believe (I may be crazy) that I’m racially doomed.

          There are worse things than being marginalized over the course of history.

          Like

        • Racial subtyping is the norm, egalitarianism is the exception. Other than economic considerations (i.e., it’s economically stupid to discriminate). Real Capitalism is the only social construct that has resulted in a reduction in racial sub-typing.

          Like

        • “I’ll give you a summary: Whitey sucks.”

          Everyone has an opinion. And it’s fair enough. Whitey does suck, generally. Of course, so does everybody else.

          It’s interesting, though. The world he lives in seems like such a constructed narrative to me, as representative of any kind of objective reality as a picture of a single building is to the entirety of the world. Which makes me wonder if I’m even more in my own constructed reality than I think I am. Because if this dude seems to view everything through such heavily distorted and tinted lenses, what’s my distort and tinting? Probably with perspectives is we cannot accurately see or assess our own. It’s kind of like trying to face forward and look inside your own eyeball. Or consciously think about the mental mechanisms that turn a blur of data into a visual representation.

          Like

        • KW:

          Because if this dude seems to view everything through such heavily distorted and tinted lenses, what’s my distort and tinting?

          Your apparent belief that if one person or group manifests some limitation or tendency, all people or groups must have that limitation or tendency. As displayed by your very question.

          Like

        • I’ll give you a summary: Whitey sucks

          I think we read different articles.

          Like

        • I’ve no doubt you believe that.

          Like

        • I’m not making any such assertion, fyi. I think “it’s all about racial identity, and also Obama was awesome” might be a little closer, maybe? It’s a valid point of view.

          Like

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