Morning Report: FOMC day – what to watch 12/14/16

Vital Statistics:

Last Change
S&P Futures 2264.8 -3.0
Eurostoxx Index 345.1 -1.4
Oil (WTI) 52.2 -0.8
US dollar index 91.3 -0.1
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 flat this morning as we await the FOMC decision at 2:00 pm EST. Bonds and MBS are up.

What to look for in the Fed statement: The biggest thing to watch will be the dot plot, which shows the forecasts that various members have for the Federal Funds rate. This is different than the 10 year, which determines mortgage rates. Market participants will compare the September 2016 dot plot with the December 2016 one and look for a shift in the general trend, either up or steepening.

Generally speaking the dot plots have been heading downward over the past several years as the Fed has been consistently high in its estimate for GDP growth. If the new dot plot is more aggressive (say it predicts 3 hikes for 2017, when before it was 2 hikes, then you could see a bond sell-off, which would send rates higher.


Janet Yellen will have a press conference at 2:30, and will probably do her best to dodge questions about Trump and his influence on the economy.

FWIW, the MBA believes the 10 year will stay below 3% and the mortgage rate will stay below 5% through 2018.

Retail Sales for November disappointed this morning, with the headline number up 0.1% and the core number (ex autos and gas) up 0.2%. November retail sales can be noisy, as more and more shoppers procrastinate. Still, this goes along with the weak Redbook same store sales number yesterday.

Inflation at the wholesale level is on the upswing, according to the Producer Price index. The PPI rose 0.4% MOM and is up 1.3% YOY. The core index is up 0.2% MOM and 1.8% YOY. Inflation remains below the Fed’s target which gives them the room to go slowly with rate hikes.

Mortgage Applications fell 4% last week as purchases fell 3% and refis fell 4%.

First time homebuyers face a shortage of real estate going into 2017, according to Redfin. For starter homes, the problem is acute. Over the past year, prices have risen 7.5% as inventory fell 12%. This increased the percent of income needed to buy a median home in that segment to 38.5%, an increase of about 2 percentage points. They are hopeful that the bottom is in with respect to tight inventory, however some of that will depend on regulatory policies of the new administration. On the plus side, credit will probably ease a bit as the financial system gets more clarity on regulation. On the negative side, immigration limits will exacerbate the construction labor shortage we currently are experiencing.

88 Responses

  1. PL Meltdown, Day 37.

    Liked by 2 people

    • And shows no signs of letting up…

      Liked by 1 person

      • It really doesn’t. It will take a while, anyway, because the election isn’t going to truly be over until Trump has lasted a year without being impeached. Until he’s sworn in, they will hope that the electors choose Hillary, directly or by Republican electors choosing other Republicans, thus giving Clinton a majority of electoral votes (even though under 270).

        They are keeping unrealistic hope alive! And so, can be disappointed anew every day.


    • The more they run around like clowns the better. Blame everyone and everything else and don’t ever change.

      The Democratic Party and its affliates like the PL exist to win the meme of the week and maybe an SNL sketch.

      Meanwhile we’ll be on a beach earning 20%


    • The truly pathetic thing is I don’t thing Sargent or Waldman has written a single piece on the Louisiana Senate election and how the Democrats didn’t even bother. It’s like an NFL team just deciding to concede the extra point after a touchdown.

      They should also cover Aleppo and what it means for Obama’s foreign policy legacy, but that really is a bridge too far.


      • how the Democrats didn’t even bother

        This is why I desperately miss Dr Dean.


        • Man, and how has the world changed? Dean basically got nuked because of an enthusiastic scream. And also because he may have been too young and dynamic for the Democratic establishment.

          Dean has his opinions about Trump, I know, but one of them has to be: “WTF? I let out a little primal scream and I’m out, and this dude is on tape repeatedly being a lunatic . . . and he’s president? I mean, dude. WTF!”


        • Depends on if you mind having non progressives in the party.


        • This is the part where we note that it’s important to have two competitive parties for the two party system to work, so Democratic weakness is actually bad for the country.

          i.e. just like every piece of fake advice that was offered to the Republicans on PL for the last four years after the autopsy.


      • It’s interesting. On the one hand, they are writing for clicks. PlumLine gets reliably front-paged and is obviously a traffic-attractor at WaPo. So, it makes sense they are catering to the audience. The audience, by and large, wants to wring their hands over Trump or attack the crazy liberals because they can’t accept Trump . . . it’s all click-bait, in other words.

        I’m sure WaPo occasionally floats stories that cover Aleppo or Louisiana, but they aren’t the draws that Trump is. So the next article is also about Trump.

        Which is funny for a career choice that is commonly made so they “can change the world”. Of all the things going on the world they are likely to have any influence on, the president is probably least likely. Of all the topics where they could potentially say something new or unique or educational, reporting on Trump is the least likely area to produce anything novel or beneficial. But it gets clicks.

        I’m sure there are incentives inside the WaPo, too. Could be Paul and Greg know what gets front-paged, and they more they get front-paged, the better things are for them.


  2. How to repeat the same mistakes because they are incapable of learning:

    “Democrats fear the DNC race will become a rehash of the Bernie vs. Hillary fight
    Updated by Andrew Prokop
    Dec 14, 2016, 9:02am EST ”

    It’s also great that a guy who refuses to identify as a Democrat can cause so much trouble for the party. He’s their Trump.

    Liked by 1 person

  3. Meanwhile, back at the ranch…

    “The Campaign Hallucinations Are Lifting

    Posted December 14th, 2016 @ 9:40am in #Trump

    About half of the citizens of the United States think they elected a president who will “drain the swamp” in Washington DC and negotiate good trade deals for the public. But the other half believes they are living in 1930s Germany and the next Hitler just came to office. Those are very different movies, yet we all sit in the same theater at the same time. It’s trippy.”


    • From Adams:

      I think the better explanation is the second one.

      I think the best explanation is a third, unstated one: Their rhetoric and actions are not a reflection of what they actually believe, and they are getting bored (not to mention that the weather is getting too cold to protest!)

      Calling Trump Hitler and protesting against him is not an indication that they actually believe they are living in an analog to 1930s Germany. It is just an indication that, for various reasons, they really don’t like Trump. The evidence to support this explanation is experience….protesting, calling people they don’t like “Hitler”, and over-the-top, hyperbolic characterizations of things they object to is what the left does all the time, about everything.

      Bush was Hitler, Romney was Hitler, now Trump is Hitler. The right has “hated” women, gays, and blacks since Reagan’s era. On and on. None of this is particularly new.

      The left is no more “hallucinating” that they are in 1930’s Germany than is a screaming baby hallucinating that it is being tortured. It is simply doing the only thing it knows how to do in order to get attention. And eventually it gets tired of screaming.


      • I actually think it’s the first one.

        It’s just that Democrats/progressives/liberals are too lame to actually stop Hitler.

        Good thing Trump isn’t Hitler.

        Liked by 1 person

      • They believe they’re in ’30’s Germany and that they can get away with calling righties Hitler is because Righties love being compared to Hitler, so in that regard they’re safe.

        And dumb, I’ll add.


      • “is not an indication that they actually believe they are living in an analog to 1930s Germany.”

        But they could believe it. I don’t think they really have much of an idea of what living in 1930s Germany was like. So it could be easy for them to believe “this is exactly the same!”


        • KW:

          But they could believe it.

          Sure, they could. They could believe almost anything. But as I said, I don’t think they do.

          The left’s protests and shouts of “Hitler” and “White Nationalism” are not attempts to express actual ideas or any coherent thought. They are simply predictable expressions of emotion.

          Liked by 1 person

  4. I just fail to understand why, as a conservative / libertarian, I am supposed to care that Podesta clicked on a phishing email, which leaked info that confirmed what I have always suspected: that the MSM and D party are on the same team, and Hillary had to cheat to beat a septuagenarian pinko.

    The DNC is the fundraising arm for a political party. It is not the government.

    Would the outcry be different if it turned out that the hacker came from Iowa, Israel, or Indonesia?

    No national security related info was disseminated. Nothing of any value was compromised. The Democrats had some embarrassing info released about them.

    That’s it.

    So why should I care?

    How is this any different from having Jimmy Carter’s grandson surreptitiously tape a Romney fundraising event?

    Liked by 1 person

    • If they had actually planted fake E-mails then I would be more concerned, but that’s never been alleged. Anonymous sources release material like this all the time and it’s usually not with pristine motives.

      I agree with the comparison to Mitt Romney’s leaked donor audio footage. I put the hacked DNC E-mails in the same category as that and Trump’s leaked tax returns.

      Besides, any organization that let Reid get away with flat out lying about Romney without paying a price doesn’t have any credibility now.


      • An unaffiliated Hillary supporter actually did plant fake emails, to discredit the obvious factual Wikileaks emails, and started circulating them around as if they came from the Wikileaks release, when they didn’t.

        Because that’s where we are at now. Everything that actually happens will immediately have a huge dose of fiction injected into it. Because it’s easy and getting much, much easier. Trust nothing and no one.

        Trump is the leading edge here. He says one thing and then another. He says something and then denies saying it, probably because he doesn’t remember saying it. Soon, there will be so much hard-to-tell fake video and audio of real people saying things they never said that “I never said that” “That was faked” “That’s fake news” “Sure, they say they saw me saying that, they’re probably paying the people who made the fake video” is going to be pretty much every politician until it just gets boring.


    • “So why should I care?”

      Because it’s Russia trying to influence our election, presumably to their ultimate benefit. Which is bad now that it’s Russian and Republicans rather than the Soviet Union and Democrats, in which case it was “important but delicate”.


    • Credit to the Times for acknowledging this:

      “Though Mr. Assange did not say so, WikiLeaks’ best defense may be the conduct of the mainstream American media. Every major publication, including The Times, published multiple stories citing the D.N.C. and Podesta emails posted by WikiLeaks, becoming a de facto instrument of Russian intelligence.”

      Liked by 1 person

    • How they lost, lesson #147

      ““What was really surprising to me?” Ms. Tanden said. “I could not believe that reporters were covering it.””

      Liked by 1 person

  5. Interesting piece and response:

    “My President Was Black
    A history of the first African American White House—and of what came next
    By Ta-Nehisi Coates”

    “The Problem With Obama’s Faith in White America
    The president’s optimism about race blinded him to the pervasiveness and stubborn persistence of racism.
    Tressie McMillan Cottom Dec 13, 2016 ”

    It seems to me to primarily being an exercise in rewriting history to explain how “racist” America could elect Obama twice and then elect Trump. I expect it to become conventional wisdom on the left.


  6. The problem with adopting alarmism as an ideological orientation is that it spreads to everything.

    “There is a fine line between being paranoid and being prepared, and scientists are doing their best to be prepared. . . . Scientists are right to preserve data and archive websites before those who want to dismantle federal climate change research programs storm the castle.”

    To be clear, neither Trump nor his transition team have said the new administration plans to manipulate or curtail publicly available data. The transition team did not respond to a request for comment. But some scientists aren’t taking any chances.

    It’s complete fantasy on every level. There no circumstance in which publicly available data isn’t already duplicated everywhere. The idea that Trump is going to order them to destroy climate data . . . I mean, I understand, if you’re a college student who has never been required to do anything but participate in victims studies how you could think this way. But accredited scientists?

    I mean, I guess. But it’s just alarmism over something that is complete fantasy.


  7. Vox on Kanye Trump:

    Kanye West is a rapper whose politics, when they come up, tend to be unapologetically progressive. Donald Trump is the president-elect who has appointed multiple white nationalists to senior roles in his administration. What were they talking about?

    I realize Vox is not “mainstream”, but the whole “words mean things” gets to me. Also, it’s the normalization of white nationalism, to be perfectly honest. It’s like saying: “This regular guy who seems perfectly fine and never says anything overtly racist? White nationalist.” It can work on Steve Bannon because he looks really creepy. But asserting that Trunmp’s cabinet is full of white nationalists makes the whole concept meaningless.


  8. My opinion of Trump just went up considerably:

    “Then, by happenstance, Trump welcomed into his office a man who has served presidents of both parties, Robert M. Gates. Trump asked his guest, a former CIA director and former defense secretary, what he thought of the four candidates. After Gates ran through his thoughts, it seemed that Trump was “looking for a way out,” a person familiar with the session said.

    Trump asked whether there was someone else to consider.

    “I recommend Rex,” Gates told Trump, referring to Rex Tillerson, the chief executive of ExxonMobil. Gates said in an interview that he had not gone to the meeting intending to recommend Tillerson, and he did not recommend anyone else. Separately, on the previous day, former secretary of state Condoleezza Rice had proposed Tillerson to Vice President-elect Mike Pence. Rice and Gates, who run a consulting firm that counts ExxonMobil as a client, had jointly concluded that Tillerson might give Trump a fresh alternative.”


  9. Why do democrats invariably frame people not voting for them as acting out of fear and not something else?


    • Brent:

      Why do democrats invariably frame people not voting for them as acting out of fear and not something else?

      Perhaps because that is what motivates Democratic voters. We keep hearing, after all, about how “afraid” HRC voters are as a result of Trump’s win. And the standard DNC campaign book revolves around creating fear…fear in blacks about being put back in chains, fear in women about contraception being outlawed, etc. Fear is a powerful tool and the Dems wield it well. Perhaps they think this is the primary motivation for any vote.


    • From the article:

      …he wrote that Donald Trump’s rise was another predictable result of white Americans’ preoccupation with racial group identity

      These people are truly unbelievable. All of the identity groups that the left caters to, and this guy is saying that white Americans have a preoccupation with racial group identity? Is he f-ing kidding?


  10. How to solve the issue of whether or not Uber drivers count as employees or independent contractors under California law.

    “Uber Expands Its Self-Driving Car Service to San Francisco

    DEC. 14, 2016”


  11. What we need at full employment is more cowbell:

    “At this point, the evidence does suggest that we’re close to full employment. It’s not so much the headline unemployment rate, which is questionable given low labor force participation. But wage growth has accelerated, and the quit rate is back more or less to pre-crisis levels, suggesting that workers feel pretty good about job prospects.

    Does this mean that the case for easy monetary and fiscal policies is over? No, but it’s subtler now: it hinges mainly on the precautionary motive. Right now the economy looks OK, but things may change.”


    • Krugman no longer believes in counter-cyclical policy, just deficits all the time. At some point, already past, that became cartoonishly ludicrous. It is almost as if he is knee jerking in advance of DJT’s Inauguration to the equally cartoonish idea of ever more Laffer. Polemics instead of economics.

      Probably should have cited the seating of the new Congress, not DJT. DJT’s idea seems to be that debt is always good, too. I remember when I was taught the notions of leverage and OPM. Works better for real estate than for federal policy. Duh.

      Liked by 1 person

    • IMO, the freshwater economists are ascendant at the Fed, which will annoy Dr. Cowbell to no end…

      Liked by 1 person

  12. Why not provide evidence?

    Pretty important right? importantt eneoufh to reveal sources and methods, right?

    If it’s not released can we then assume its horseshit?

    If Obama has evidence why doesn’t he prosecute?


  13. I think it’s time I come clean…

    I’m a Ruskie spy.

    They had me pegged at PL a long time ago.

    McCarthy was tighter than anybody will ever know

    The Venona paper? Tip.Of.The.Iceberg.

    Me and Trump, we’re fucking commies, yo.

    Liked by 1 person

  14. The left is batting what, like 0-8 for these supposed “hate crimes” aren’t they..


    • The only potentially legitimate pro-Trump “hate crimes” have been primarily crimes of yelling racist stuff by people who are ostensibly “pro Trump” but more significantly just mentally ill:

      And some of the pro-Trump, pro-Nazi graffiti (which has apparently stopped, but in 2016 I believe all graffiti crimes are hoaxes, but the SPLC doesn’t agree) which can (probably) never be verified or discredited.

      The “I was attacked in the subway” story was just stupid. I noticed a lot of outlets who could have covered it decided not to touch it, and they were the smart ones because it was obviously fake. And stupidly so. In that she placed it on a location where the on-and-off, at least, is well documented, in a city where every skirmish is documented by cell-phone, and in an urban area that’s 80% (or thereabouts) populated by self-righteous liberals. The idea that some redneck racist pro-Trump dudes were harassing a Muslim woman in the subway and assaulting her while several New Yorkers turned away and ignored an assault on a Muslim by a loudmouthed racist Trump supporters . . . the whole idea was insane. Phones would have come out, some people would have been recording it while others would have jumped to defend the Muslim victim from the Trumpian attackers. The proposed scenario would not have been more unbelievable had she included that one of her attackers had horns and defied gravity and shot lasers from his eyes.

      I’m almost less offended by the lie than how awful it was, and that anyone took it seriously.


    • Of, FFS, what is the left going to do? Send in an army of beta-males and feminazis armed with dildos?

      Liked by 1 person

      • Don’t under estimate the lethality of an assault dildo.

        Liked by 1 person

      • First, the author describes rugged and dedicated individuals willing to sacrifice their lives for a noble cause. The #NotMyPresident crowd can’t be bothered to stand out in the cold for more than a day or two, so . . . not gunna happen.

        Second, this story ends, as do all “second amendment solutions” stories, with the nascent rebellion being crushed by a militarized police state and the National Guard. There is a very, very small likelihood of anybody prevent Trump from taking power, violently or not. Although the attempt would certainly do more to marginalize the left in a lot of areas.


        • How much you wanna bet the author jacked-off after hitting “publish”?


        • I thought the article was lame. Honestly not 100% sure what he hoped to accomplish. Was he intentionally proposing something, or just trolling Trump-haters, or . . . what?

          I’m gonna say he took care of himself beforehand. His prose seemed unfocused, and the process described is not a remotely credible-strategy. National Treasure‘s “steal the constitution” plot was more sensible.


  15. BTW, WP isn’t letting me add a new post this am… not sure what is wrong…


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