Morning Report: Ben Carson travels to Capitol Hill 1/13/17

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US dollar index 92.0 -0.1
10 Year Govt Bond Yield 2.37%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.1

Markets are higher this morning as bank earnings come in. Bonds and MBS are down.

Inflation at the wholesale level remains under the Fed’s target rate, according to the Producer Price Index. The PPI was up 0.4% MOM and 1.2% YOY. Ex-food and energy, it was up 0.3% MOM and 1.4% YOY.

Retail sales increased 0.6% in December, however if you strip out autos and gasoline, they were flat. The control group rose by 0.2%, which missed expectations. For all the post-election increase in confidence, it didn’t translate into spending.

Business Inventories rose sharply (increasing 0.7%) in November, while sales increased 0.1%. The inventory to sales ratio came in at 1.38x, which is an improvement, but is still elevated. That said, inventory build is not the driver of the business cycle that it was 20 or 30 years ago.

Consumer sentiment slipped slightly to 98.1 from 98.6. This is the preliminary January reading.

We are getting bank earnings this morning. Wells missed estimates as mortgage revenue fell 15%. Issues with hedges drove down servicing revenue 73%. JP Morgan beat estimates, while Bank of America missed.

Ben Carson testified in front of the Senate yesterday. Here are his prepared remarks. He spent the a lot of time discussing the state of government housing and the role of housing to help the poor move up the economic ladder. He addressed regulations in several instances. First, he took aim at local zoning regulations that inhibit multifamily housing. Second, he mentioned that regulations have added 24% to the cost of a new house, and finally he discussed them with respect to credit.

Here are his comments with respect to origination: “Loans are now bifurcated: the well-off have their pick of loans and lenders while many others without solid credit or stable incomes are locked out – one of the reasons the economic recovery was slower than many would have liked. Homeownership rates have fallen on a year-over-year basis in every quarter for the last 10 years, and a surge in renting has dropped the homeownership rate to a 50-year low. Banks are loath to participate in low-down payment programs through FHA for fear of getting sued if the borrowers default. (emphasis mine) So we need to make sure HUD and FHA are fulfilling their missions to help people build up an asset, like a home, which will help them climb up the rungs of the economic ladder.”

On the subject of private capital, he supported more private capital in the mortgage market to displace government capital (which is a completely non-controversial sentiment). He also thinks that a government backstop is not necessary to keep a 30 year fixed rate mortgage, however he supports government involvement to keep it. Note that while the typical American considers a 30 year fixed rate mortgage to be their birthright, they are largely a US phenomenon. Everyone else has some sort of adjustable rate. Of course you could still have a 30 year fixed rate mortgage without the government backstop, however the rate will reflect the added risk.

Finally, he was asked about the recent decrease in FHA annual MIP and only said he would look at it. So, it looks like we aren’t going to see a wholesale change from the Obama administration, although GNMA may become a little more forgiving, at least at the margin. For the mortgage origination business, HUD isn’t the big driver – it is Treasury via the GSEs and the CFPB with enforcement.

NAR has a good wrap-up of the testimony. Here are the objections from the left.

Overall, Trump’s nominees have come across as relatively mainstream, so much so that Dick Durban (D-IL) commented on it. Trump’s response was that he wanted them to be themselves and to say what they thought, not what he thinks. Interestingly, the biggest difference between Trump’s cabinet and Obama’s is his lack of lawyers. Obama’s cabinet was dominated by them.

Builders are encouraged that a new administration will ease the shortage of buildable land caused by increased environmental regulations. They may be overoptimistic about what can be done, however. Many of these laws are local, which the Federal Government can’t do much about. Changing regulations takes a long time, with comment periods, and environmental groups have lawsuits at the ready if they sense the administration is no longer enforcing existing laws.

Finally, perspective is everything:

your-home

64 Responses

  1. Rex, Mattis, Pompeio: all get A and B grades on their testimony [from me].

    Carson? A marginal C. There is a lot of stuff he fudged or just did not know. The other three really were on solid ground.

    So far, I see no bar to confirmation, absent background checks.

    Addendum: I have neither watched nor read Gen. Kelly’s testimony. Did any of you?

    Like

  2. I just can’t resist trolling you guys with this:

    [A]ccording to recent research from Pian Shu, an economist at Harvard Business School, the kinds of students who end up working for Goldman Sachs or Merrill Lynch aren’t always the best, the brightest — or the most innovative.

    Shu finds that MIT science and engineering majors who took their first jobs in finance had more modest academic achievements, on average, than the high-flying types who pursued research careers right after school.

    “The two groups seem very different even at college entry and pursue different activities in college,” Shu said in an e-mail. Students destined for Wall Street tended to arrive at MIT with weaker high school records, and later graduated with lower college GPAs. They were also more likely to be members of a fraternity or sorority.

    Have a lovely weekend!

    –Your Friendly Neighborhood Research Scientist

    Like

    • Probably accurate, but I also think the most well known quants on Wall Street didn’t go there straight out of college.

      Like

    • Why is this considered trolling?

      I flunked out of UofA and had to wait a year to get back in, graduated with a 2.5000000000001, the bare minimum from the Liberal Arts college.

      Seems like GS and the like are getting deleiciously played by the merely (MIT caliber) average.

      Like

    • Not surprised at all. Wall Street values sales skills immensely, even for non-sales jobs. A genius introverted research scientist would probably despise the Wall Street environment and would probably not even get there in the first place. It is a backstabbing, serpentine environment and your social skills (and political skills) matter immensely. There is so much money at stake that you better have sharp elbows. Your boss probably has an attention span of 30 seconds, if that. Most academic types are incredibly nice, albeit ponderous people who tend to be naive about people’s Machiavellian motivations. They get eaten alive.

      Aside from the sales aspect, the other aspect that would drive a research type nuts is the time constraint. As a researcher, you take your time and make sure you have it right. In a finance environment, you generally don’t have that luxury, because the trade will be gone by the time you get all your ducks in a row. Being late is almost as bad as being wrong.

      At Elliott, Paul hired the smartest guy out of Harvard Medical School. Guy was a total brainiac who graduated first in his class. The idea was that he would give us a leg up over everyone else in analyzing biotech stocks. Instead, we got paralysis by analysis.

      Paul fired him within 3 months.

      Liked by 1 person

    • Mich:

      [A]ccording to recent research from Pian Shu, an economist at Harvard Business School, the kinds of students who end up working for Goldman Sachs or Merrill Lynch aren’t always the best, the brightest — or the most innovative.

      I hope he/she didn’t get a government grant to reach that conclusion. I could have told him that for free.

      …and later graduated with lower college GPAs.

      But bigger bonuses!

      Liked by 1 person

      • I don’t know where B-school PhD types get their funding, but I’ll bet there’s a federal source. Maybe DoLabor?

        🙂

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        • financial economic research is basically just running regressions on publicly available datasets.

          how expensive could that be?

          Like

  3. Holder: Gerrymandering is the biggest scam perpetrated on the American people since 1 hour Martinizing.

    https://pjmedia.com/election/2017/01/12/holder-vows-to-fix-biggest-rigged-system-in-america/

    And DO NOT get him started on Senate seat Gerrymandering.

    Like

    • the left was in favor of gerrymandering before they were against it

      Like

      • They are definitely in favor of being in charge of Gerrymandering.

        Like

      • Maryland has gerrymandering down to an art. I’m not sure why.

        I’d personally like to see congressional districts drawn by population ignoring state lines.

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        • Mich:

          I’d personally like to see congressional districts drawn by population ignoring state lines.

          So you’d like to see the total elimination of state representation as enshrined in the Constitution?

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        • No, the Senate can handle that. But congressional districts are so altogether arbitrary now that you might as well try doing the districting by a more rational method. I’m pretty sure that far western Maryland has more in common, demographically, with West Virginia than it does with Baltimore and Annapolis. And Salt Lake City should be its own district, rather than divided into four parts simply to dilute the urban issues out by lumping them in with a population that has never even ventured into the city unless it was to visit the Temple grounds and then skedaddle back to Nephi without spending a night in a Salt Lake hotel.

          Like

    • McWing:

      I love this.

      You would think that an organization named Human Rights Watch would actually have some coherent idea of what a human right is. Alas, if you did, you would be wrong.

      Like

      • that’s the beautiful thing about human rights – you can make them whatever the fuck you want.

        IMO beer is a human right, and I demand my free beer now!

        Like

  4. Interesting timing. The 4th Amendment is dead.

    “Obama Opens NSA’s Vast Trove of Warrantless Data to Entire Intelligence Community, Just in Time for Trump
    Alex Emmons
    January 13 2017, 1:37 p.m.

    With only days until Donald Trump takes office, the Obama administration on Thursday announced new rules that will let the NSA share vast amounts of private data gathered without warrant, court orders or congressional authorization with 16 other agencies, including the FBI, the Drug Enforcement Agency, and the Department of Homeland Security.”

    https://theintercept.com/2017/01/13/obama-opens-nsas-vast-trove-of-warrantless-data-to-entire-intelligence-community-just-in-time-for-trump/

    https://www.theatlantic.com/technology/archive/2017/01/obama-expanding-nsa-powers/513041/

    No need for the DEA to get warrants to tap phones anymore. Just ask the NSA to do it.

    Like

    • jnc:

      Interesting timing. The 4th Amendment is dead.

      Worse, I think, is that if Obama can do this unilaterally with the stroke of a pen, Article 1 of the Constitution is dead.

      Like

    • I thought this was supposedly metadata, not anything specific to individuals.

      Like

  5. This is pretty funny.

    Like

    • McWing:

      This is pretty funny.

      Hard to see how Trump can be considered such a unique menace to a political system that has had Harry Reid as a primary figure in it for so long. When it comes to saying and doing outlandish things, Trump has nothing on Reid.

      Like

  6. Dude’s got balls, yo

    Like

  7. How could a hung stud say no?

    Like

  8. Like

  9. Speaking of skeptics, Taibbi is still right:

    “The Russia Story Reaches a Crisis Point

    If Donald Trump really is compromised, we need immediate action, not media overreach

    By Matt Taibbi

    Have we ever been less sure about the truth of an urgent news story?

    Three days into the “Russian dossier” scandal, which history will remember by a far more colorful name, we still have no clue what we’re dealing with. We’re either learning the outlines of the most extraordinary compromise to date of an incoming American president by a foreign power, or we’re watching an unparalleled libel and media overreach.”

    http://www.rollingstone.com/politics/features/the-russia-story-reaches-a-crisis-point-w460806

    Of the two, the second still seems the most likely.

    The piece Taibbi links is worth a read too:

    http://www.nybooks.com/daily/2017/01/09/russia-trump-election-flawed-intelligence/

    Like

    • JNC – Sometimes the second seems possible, as when he suggests the EU and NATO are not important to the USA and are obsolete, and then Putin echoes the sentiment.

      His impeachment, on whatever grounds the R majority chooses, and the ascension of Pence, would neither surprise nor dismay me.

      Like

      • Sure, but I don’t actually think he’s a Russian agent. He’s been articulating those views for years.

        “In sum, Trump believes that America gets a raw deal from the liberal international order it helped to create and has led since World War II. He has three key arguments that he returns to time and again over the past 30 years. He is deeply unhappy with America’s military alliances and feels the United States is overcommitted around the world. He feels that America is disadvantaged by the global economy. And he is sympathetic to authoritarian strongmen. Trump seeks nothing less than ending the U.S.-led liberal order and freeing America from its international commitments.

        Trump has been airing such views on U.S. foreign policy for some time. He even spent $100,000 on a full-page ad in the New York Times in 1987 that had a message remarkably similar to what he is saying today.”

        http://www.politico.com/magazine/story/2016/01/donald-trump-foreign-policy-213546

        Like

      • Mark:

        Sometimes the second seems possible, as when he suggests the EU and NATO are not important to the USA and are obsolete

        Have you read beyond the “obsolete” headlines to his specific criticism of NATO? This is what he actually said:

        http://www.thetimes.co.uk/article/brexit-will-be-a-great-thing-you-were-so-smart-to-get-out-09gp9z357

        “I said a long time ago that Nato had problems. Number one it was obsolete, because it was designed many, many years ago. Number two the countries aren’t paying what they’re supposed to pay. I took such heat, when I said Nato was obsolete. It’s obsolete because it wasn’t taking care of terror. I took a lot of heat for two days. And then they started saying Trump is right.

        “And the other thing is the countries aren’t paying their fair share so we’re supposed to protect countries. But a lot of these countries aren’t paying what they’re supposed to be paying, which I think is very unfair to the United States. With that being said, Nato is very important to me. There’s five countries that are paying what they’re supposed to. Five. It’s not much . . . from twenty-two.”

        So, beyomd the fact that, far from suggesting that NATO is unimportant he explicitly says it is important, which part is he actually wrong about? And which part do you think is indicative of possibly being compromised by the Russians?

        Also, do you think the EU as a political entity is important to the US? If so, why? I certainly don’t, and I don’t see why thinking so would be indicative of being compromised by the Russians.

        Like

        • Scott – “obsolete” b/c it doesn’t deal with terrorism? Who the fuck does he think deals with terrorism? Obsolete because it was designed many years ago? WTF, Scott? What keeps Russia from moving into Poland, the Poles? He contradicts himself in the same paragraph all the time, so i suppose that gives you a lot of comfort.

          You are too smart for that.

          EU as an economic entity is important to the USA. If you don’t agree, then I guess we can just agree to differ on that. EU is also better able to withstand stuff like Russian oil cutoffs to specific nations than any of them can stand alone.

          That the small countries – not USA, UK, FR, Ger, and Canada – under contribute is worth attention. Throwing the baby out with the bathwater is insane.

          Like

        • How many Americans would you sacrifice to keep Poland out of the Soviet sphere.

          Country’s war weary and its Bush’s fault.

          Didn’t he also say he thinks NATO is important? Can he think it’s imperfect and need of improvement?

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        • George – we either have an all for one and one for all alliance or we do not. Where would you draw a line? We all thought BHO failed on his line drawing in Syria. In hindsight, line drawing over Iraq was at best a mistake.
          But would you draw the line at the Rio Grande? Or at the Oder-Neisse? Alone, or with allies?

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        • Mark:

          You are too smart for that.

          Well, however smart I actually am, I tend to ignore the sensational, provocative, and over-the-top manner in which Trump expresses virtually any idea, and to try to understand what really lies beneath the rhetoric. I take Trump to be suggesting two basic things with regard to NATO. First, he is saying that the international order and security risks that it was originally designed to protect against have changed, and that the role of NATO needs to be adjusted to reflect that reality. Second, he is saying that a lot of NATO members are getting a free ride on the back of the US, and that situation needs to change too. I don’t think either of those ideas is necessarily crazy.

          Certainly if one was inclined to think the very worst of Trump’s motives and desires, then I suppose his provocative rhetoric leaves himself open to such interpretations, not least because of his lack of rhetorical consistency on virtually anything. But when trying to figure out what Trump might really mean when he says things, my first reaction is not to assume the worst and that he is secretly working against the US’s interests and for the Russians’. If there is a conceivable interpretation outside of that frame of reference, that’s the one I go with.

          He contradicts himself in the same paragraph all the time, so i suppose that gives you a lot of comfort.

          No, but what does give me comfort is that he has surrounded himself with guys like Tillerson and Mattis, which doesn’t strike me as something that a dupe for the Russians would have done.

          EU as an economic entity is important to the USA.

          I would say that Europe is important to the US for economic reasons, in the same way that Asia is important to the US. But the European Union is a political organization, and as such is not at all particularly important to the US. For example, whether the UK is inside or outside of the EU is not something that the US should particularly care about.

          Like

        • “First, he is saying that the international order and security risks that it was originally designed to protect against have changed, and that the role of NATO needs to be adjusted to reflect that reality. Second, he is saying that a lot of NATO members are getting a free ride on the back of the US, and that situation needs to change too. I don’t think either of those ideas is necessarily crazy.”

          And Obama and much of the US foreign policy establishment is on record making the same criticisms, but in much more measured tones.

          See quotes about “free riders”, updating NATO to meet new threats, etc.

          The difference is that with Trump, there’s a risk that he will actually do something about it. And his general disdain for alliances colors how the comments are interpreted too.

          “Throwing the baby out with the bathwater is insane.”

          That’s the key difference and the best retort. It took decades to create the institutions. They shouldn’t be discarded cavalierly.

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        • jnc:

          It took decades to create the institutions. They shouldn’t be discarded cavalierly.

          You could be mistaken for a conservative talking about marriage! 🙂

          Like

        • jnc:

          Still like this piece vis-a-vis that argument:

          Great article.

          Like

        • JNC, don’t you think that the entire same sex marriage argument was joined over the wrong issue? I am talking here about the politics, not Justice Kennedy, whose opinion was weak as water.

          It seems to me that even in states where domestic partnerships were given all the legal rights the state could grant to marital partnerships, advocates wanted their arrangements to be called “marriage” while opponents did not want their arrangements to be called “marriage”. That allowed a whole range of arguments about child bearing, and the purpose[s] of marriage, and child rearing, that were circular on either side.

          Once a state had conferred legal recognition on domestic partnerships the next political step should have simply been a discussion of whether the federal government would bestow the domestic partnership with tax and social security options, etc., that marriage partnerships have.

          In the CA case, the counsel on appeal opposing SSM admitted that he was only concerned with the appellation given the relationship. Hardly any opponent of SSM was arguing against domestic partnerships with the right to adopt, inherit, etc.

          I just think the extreme arguments missed the boat, as did the cited article, and as did Anthony Kennedy.

          Like

        • Mark:

          Once a state had conferred legal recognition on domestic partnerships the next political step should have simply been a discussion of whether the federal government would bestow the domestic partnership with tax and social security options, etc., that marriage partnerships have.

          That assumes that the goal of the SSM lobby is the attainment of certain legal rights/benefits. I don’t think it is. I think the ultimate goal is cultural, not legal, ie it wants same-sex relationships to be viewed and understood, both philosophically and culturally, as indistinguishable from opposite sex relationships. That is why the effort revolved around redefining a word rather than simply changing the law (as you recommend). Redefining the word “marriage” to include same sex couples erases from our language, and thereby eventually from our thinking, the notion that opposite-sex couples are distinguishable from same-sex couples in any way.

          Like

        • I’m pretty much agreeing with that take Scott.

          Like

  10. color me shocked….

    http://observer.com/2017/01/the-clinton-foundation-shuts-down-clinton-global-initiative/

    edit… i guess this was old news… only for the election

    Like

  11. Like

    • Inclusivity is not about including people who think differently.

      Like

      • As hard as it is to believe, I think the modern left is even more off-putting than the Moral Majority was in the 80s.

        Like

      • The more they load up an anti-Trump train with the rest of the left’s agenda, the easier it will be to derail it.

        A lot of people will sign on for protesting Trump. Much fewer will for all of the baggage that they are trying to tack on to it.

        Like

    • McWing:

      I laughed at the “look, we weren’t serious” remarks of the NT’s.

      It’s a good indication of how utterly phony Washington is. You can’t take anything they say seriously.

      Like

    • “Many Republicans who had signed public letters that called Donald Trump’s candidacy a danger to the nation believe they have been put on an “enemies list” as the president-elect, who has virtually no experience in national security and foreign policy, fills positions in his administration.”

      You mean that Trump may have actually taken them seriously and doesn’t think that they would execute his agenda in good faith now?

      Like

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