Morning Report: Small Business Optimism jumps 1/10/17

Vital Statistics:

S&P Futures 2264.5
Eurostoxx Index 363.6
Oil (WTI) 52.1
US dollar index 92.7
10 Year Govt Bond Yield 2.39%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.11

Stocks are flat this morning on no real news.  Bonds and MBS are flat as well.

Job openings increased to 5.5 million, according to the JOLTS report. This is at levels not seen since 2000. The quits rate has been steady at 2.1%, and that is the ultimate measure of labor market strength and a leading indicator for wage growth and inflation. As long as that number is steady, the Fed can be reasonably comfortable that inflation is going to stay low.

Small business optimism rocketed in December, according to the NFIB. The index rose 7.4 points to 105.8, the highest level since December 2004. The lion’s share of the gain was due to improving expectations, so it probably will be given back if big changes in the regulatory and tax environment don’t materialize. Job creation plans did hit a 9 year high, and capital expenditure plans jumped as well. That said, actual hiring in December was virtually unchanged from a month ago. That said, competition remains tight for skilled workers and a net 26% of respondents reported increasing compensation.

Despite the improvement for small business, some in Corporate America (the automakers) are not sure what to think. Trump’s jawboning over outsourcing has caused automakers general uncertainty, as the industry recovers from the worst slump since the Great Depression. The ultimate trade may in fact turn out that Trump will let Obama’s new fuel efficiency standards die in return for more production in the US.

Rising rates are hurting buyer sentiment, according to Fannie Mae. Their Home Purchase Sentiment Index fell for the fifth month in a row. The survey predicts that home prices will increase 2.1% next year, however the survey has been consistently lower than the professional forecasts, let alone actual price appreciation. Respondents also believe it is easier to get a mortgage than it was two years ago. Their view of the economy has improved dramatically, with roughly the same percentage of people thinking the economy is on the right track versus the wrong track. Note this optimism was reflected in the Gallup data as well.

There were 26,000 completed foreclosures in November, according to CoreLogic. The seriously delinquent rate was 2.5%, which is the lowest since August 2007. Foreclosure inventory remains concentrated in the judicial states of New York, New Jersey, and Florida. The seriously delinquent rate remains highest in NY and NJ as well, with rates of 5% and 5.6% on average.

Yesterday’s change in FHA MIP caused some strange activity in the TBA market which affected pricing. Bonds were up yesterday and pricing was generally better for most products, except for higher-coupon FHA and VA loans. That pricing actually worsened. Why? Because the change in annual MIP caused investors to bump up their prepayment assumptions for higher coupon Ginnie securities (generally those with 4% coupons and up). This makes those higher coupon mortgage backed securities worth less than last week, all things being equal. So if you priced out a FHA loan on Friday expecting to see better pricing, only to get an unpleasant surprise, the MIP change was the reason. On the bright side, refinancing just got more attractive.

Quicken CEO Dan Gilbert accused the Department of Justice of conducting a shakedown operation.

Goldman’s Dan Hatzius is handicapping a 35% of a March hike this year, while the Fed Funds futures are handicapping a 25% chance. Goldman is much more hawkish than the Fed in general, and they foresee a more linear hiking of rates while the Fed (and the futures markets) are forecasting a more gentle increase.

41 Responses

  1. Meltdown: Day 62(?)

    “How to remove Trump from office
    By Richard Cohen
    January 9 at 7:47 PM

    One remote remedy is impeachment by the House and conviction by the Senate. It is, as it should be, a laborious process and requires provable acts of treason, bribery or other “high crimes and misdemeanors” — very high bars indeed and difficult to define. In fact, no president has ever gone the whole way: not Andrew Johnson and not Bill Clinton.

    There is, however, another way. Under the 25th Amendment to the Constitution, the vice president, together with a “majority of either the principal officers of the executive departments or of such other body as Congress may by law provide” can remove the president for being “unable to discharge the powers and duties of his office.” No doubt the mere mention of incapacitation would summon a horde of lawyers to Washington to contest it or the meaning of every term.

    But it is plain that the 25th Amendment does give a role to Cabinet members that is not generally considered when they are up for confirmation. This time, however, they should all be asked whether they are aware of the 25th Amendment and, if need be, whether they would be willing to implement it. Some would say that they do not respond to hypotheticals, but a willingness to abide by the Constitution is not a hypothetical. It is, instead, a grave duty.”

    Impeachment is too hard, so lets just get the cabinet to green light declaring him “incapacitated” based on the same behavior he exhibited during the campaign.


  2. Looks like obamacare repeal isn’t happening any time soon

    At the end of the day, Republicans would be making the same mistake Democrats did, jamming something through on a partisan basis, without putting any thought into it.

    Liked by 1 person

    • Don’t give them that much credit. They just don’t have the guts to do it after talking a big game for eight years. It’s not intelligence or political sophistication or planning. It’s just a lack of courage.

      Progressives and Democrats should be thankful that it’s Trump who is president and not Cruz.


  3. Things sure have changed since Charlie Wilson’s War.

    “Trump’s National Security Pick Sees Ally in Fight Against Islamists: Russia

    JAN. 10, 2017”


  4. Clearly what’s needed for Democrats at this point is one more speech from Obama. This one will do it:

    “In the short term, though, the president has a game-changing, legacy-defining opportunity when he takes the stage at McCormick Place. Here’s hoping he seizes it.”

    Yeah, it will be “game-changing”. I can only imagine how different everything will be on Wednesday morning.

    Liked by 1 person

    • I guess to people who make their livings via words, his speech matters. To everyone else, no.


    • Obama should disregard the norm that holds that presidents should not take on their successors in their farewell speech. He should make his final stand against Trumpism as leader of the free world, even if he decides against challenging the president-elect by name.

      I find it unlikely that Obama is going to want to go down as the president who ineffectually railed against Trump in his farewell address. My guess is he isn’t going to want his goodbye to be about someone else, and certainly not Trump. I think these people are hoping for something he’s not likely to do.


  5. Good, if somewhat mis-titled piece by David Brooks.

    “Bannon Versus Trump

    David Brooks
    JAN. 10, 2017”


    • the “ethno-populist party” is already taken by the democrats…

      at least in the sense that they are a populist party consumed by identity politics


    • The Republican regulars build their grand strategies upon the post-World War II international order — the American-led alliances, norms and organizations that bind democracies and preserve global peace. The regulars seek to preserve and extend this order, and see Vladimir Putin as a wolf who tears away at it.

      Sorry David, we cant afford it anymore. Putin has the benefit of going through bankruptcy first.

      Let him run it for a while.


    • In this view, Putin is a valuable ally precisely because he also seeks to replace the multiracial, multilingual global order with strong nation-states. Putin ardently defends traditional values. He knows how to take the fight to radical Islam.

      Or, it could be because Putin would be a valuable ally, and it makes way more since to be friendly with Russia at this point in history than hostile to it. It doesn’t have to be a strategy to replace the “multiracial, multilingual global order”, and Putin could be a valuable ally whether or not he’s got some grand ethno-nationalist strategy,

      Liked by 1 person

  6. Interesting read:

    “America’s Show of Force Towards Russia Has Changed. Here’s How.
    And what to make of those U.S. tanks in Germany.

    By Robert Bateman
    Jan 10, 2017”


    • The way the feminist movement comes across these days, it isn’t clear they would even want men to participate.


      • “Katz attributes the more muffled support among men in part to efforts that Trump and other Republicans have made to challenge the masculinity of men who support liberal causes or women in leadership. Trump repeatedly cast himself as the strong man. ”

        or perhaps bad branding if they had in fact not wanted it to be the “Women’s March on Washington”.

        Liked by 1 person

    • As someone once wrote, “My wife and I are both feminists. But as a man, I’m a tiny bit better at it.”

      Obviously men aren’t organizing the march, hence the low participation.

      Liked by 1 person

  7. Liked by 1 person

  8. Sometimes you have to love the Marxists:

    “That I should live to see the day when Meryl Streep’s speechifying at a Hollywood awards show is admired as solemnly and discussed as fervently as Lincoln’s second inaugural address is a personal nightmare. Lectured by Streep! And about how her and all her Hollywood pals, decked out in everything that costs the earth and sparkles in the spotlight, are among the true victims of Donald Trump’s American authoritarianism!

    In Streep’s view, it seems, cultural war has been declared on Hollywood’s liberal elite, which is “full of foreigners,” she notes, and therefore doubly vulnerable.

    Yes, Trump is bad for movie stars everywhere, and Streep is truly “heartbroken” by this.”

    Liked by 1 person

  9. And the war between Trump and the intelligence agencies escalates:


    • Gotta think it was Harry Reid who dumped this on CNN, as he had already effectively leaked it when he wrote that “public letter” to Comey.

      I take the information as probably true, for now. It means to me that the Russians hacked Trump as heavily as they hacked Ds, that they told Trump through intermediaries that they had some bad shit on him, that they agreed not to release it if Trump was “respectful” of Russia. Just my take. YMMV.


      • That’s reasonable. Should have been published before the election though given how widely it apparently had been circulated.

        But now it’s out there and it will either hold up or it won’t. There’s certainly enough to justify a Congressional inquiry with subpoena power.

        Buzzfeed were the ones who posted the full document though, not CNN.


      • I’m going on record as remaining dubious as to the accuracy of pretty much everything here. I’m not entirely dismissing it but I continue to think the whole thing sounds fishy—starting with Comey, actually, and the Clinton email thing.

        Maybe Russia had something on Comey?

        I still say something’s off.


        • I think these allegations are specific enough to merit an actual investigation and testimony.


        • What is interesting to me is that, regardless of whether or not this story is true, if the Russian’s have had the goal of making Americans question the legitimacy/loyalty of their elected leaders and their information gathering more generally, they seem to be succeeding.

          Liked by 1 person

        • Better news, as far as I am concerned, is that Rex is doing very well at his hearing and I am hopeful that he will be confirmed easily, not just by the thin majority.

          Meanwhile, Scott, I certainly am not vouching for Reid, and in fact am accusing him of likely having leaked confidential material. He was not the source of same, so his reputation for truth and veracity is not relevant to the content of the allegations, which could be described as less than rock certain on their own.

          I do agree that Russia is getting its desired result here, especially in terms of sowing seeds of distrust.


      • mark:

        I take the information as probably true, for now.

        If Reid was involved in disseminating it, my default assumption is that it is false.


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