Morning Report: Populism the subject at Davos 1/17/16

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Current Coupon Fannie Mae TBA 103
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30 Year Fixed Rate Mortgage 4.08

Stocks are lower this morning on Theresa May comments about Brexit. Bonds and MBS are up.

The World Economic Forum in Davos is going on this week. There may be a slight chance of market-moving data, but it is unlikely. The big subject is undoubtedly the wave of populism and anti-corporate / anti-government / anti-globalization going on throughout the world.

Corporate America seems to have read the tea leaves as well. GM just put out a headline saying they will invest $1 billion in US manufacturing operations and create 7,000 jobs. Walmart is getting into the action too. Even foreign companies are getting into the act. Of course some companies may be publicizing old plans to get the benefit of some good PR, the fact remains that big job cutting announcements are going to be out of style for a while. Don’t forget, the job market IS getting tighter, and (hopefully) the mindset of Corporate America is shifting from cost control to revenue growth.

Manufacturing in New York State slipped slightly last month according to the Empire State Manufacturing Survey. Growth is modest, however employment is still depressed.

James Bullard believes that the Fed can begin to think about shrinking its balance sheet as rates since rates are higher now than where they were. This would probably happen by not re-investing maturing assets. At the margin, this will translate into higher mortgage rates since TBAs will lose a natural buyer.

Strategist Komal-Sri Kumar is skeptical of the Fed’s forecast for interest rate hikes. His point is that the Fed cannot really raise rates in a vacuum, when all of the other central banks are going in the opposite direction. His call is for one hike this year. I am skeptical of a big fiscal stimulus out of Washington this year because Democrats will be united in opposition, and Republicans aren’t going to stick their necks out politically for a President they never wanted and don’t trust. The minutes from the Fed said explicitly that the forecast is based on expected fiscal stimulus. Note that many Fed officials are beginning to sour on the idea of additional fiscal stimulus.

In addition, if Trump manages to impose some additional tariffs (which IMO is a political non-starter) that will weaken the economy, and probably put the Fed on hold. Separately, Donald Trump just turned decades of US policy towards the dollar on its head, saying that the US currency is too strong. At the end of the day, presidents don’t really have all that much control over the economy.

Despite all the uncertainty about the government and the Fed, economic optimism remains just off a nine-year high.

The baby boomers drove housing construction through the 1970s and 1980s, yet their offspring (an even bigger generation) are not buying homes the way their parents did. What gives? Millennials earn 20% less (inflation adjusted) than their parents did at the same age. Not only that, but the consumer price inflation index deemphasizes /ignores things like college education which has going up multiples of the CPI. When you look at wealth, the numbers are even worse. That said, in 1989, mortgage rates were 10% and the principal and interest payment for a loan on the median house was 27% of median income versus around 21% today.

18 Responses

  1. Interesting argument comparing LBJ to Trump.

    I had no idea about the piece being cited, but the comparison with the Trump dossier is spot on.

    Difference is probably the Internet in terms of impact.

    Liked by 1 person

  2. Worth a note. This is probably why the country will ultimately break up:

    “But “Divided States” argues that the same country didn’t elect such different men; it argues that two completely different countries, sharing the same borders but very divergent understandings of reality, elected two very different men.”


    • “It’s never clear what those who opposed anything and everything Obama wanted to do were hoping would happen, especially in his second term, when they could no longer stop his reelection. It’s clear they were trying to hamper his every move, but every potential explanation for their intransigence — racial, political, social, even cultural — falls short. The best explanation is also the one that leaves the most unanswered questions: They just wanted to stop the country in its tracks and force it to go backward.”

      Gee, perhaps they don’t want what the left wants… the left is so bizarre..

      Liked by 1 person

      • I resemble that remark!!

        Liked by 1 person

      • Brent:

        Gee, perhaps they don’t want what the left wants… the left is so bizarre..

        You corked me. I had selected the exact same passage to comment on before I saw this. Like most religious zealots, the left is simply incapable of considering the possibility that its premises might be open to debate.

        Liked by 1 person

        • Obama does the same thing in his farewell speech.

          “And so we’re going to have to forge a new social compact to guarantee all our kids the education they need — (applause) — to give workers the power to unionize for better wages; to update the social safety net to reflect the way we live now, and make more reforms to the tax code so corporations and individuals who reap the most from this new economy don’t avoid their obligations to the country that’s made their very success possible. (Applause.)

          We can argue about how to best achieve these goals. But we can’t be complacent about the goals themselves. For if we don’t create opportunity for all people, the disaffection and division that has stalled our progress will only sharpen in years to come.
          We can argue about how to best achieve these goals. But we can’t be complacent about the goals themselves. For if we don’t create opportunity for all people, the disaffection and division that has stalled our progress will only sharpen in years to come.”

          The only legitimate political debate he allows for is over which methods to use to achieve progressive goals. The idea that the goals themselves and the values behind them may not be shared is something he’s not willing to concede.

          If he wants to know why the country is more polarized after his term, he should start with a more critical look at his own premises.

          Liked by 1 person

        • The funny thing is that the PBS series wrings their hands over Rush Limbaugh attributing suspect motives whenever he reports on the left…. Yet Vox does the same thing…

          Self-awareness ain’t their strong suit…

          Liked by 1 person

  3. This is pretty good:

    “In American politics, nationalism used to be divided between the major parties. Democrats were the party of economic nationalism. Republicans were the party of military and cultural nationalism. Trump captured the presidency by demolishing this arrangement and seizing all forms of nationalism for himself: trade protectionism, immigration control, and peace through strength. “I won the election because of strong borders and trade. And military …” he tells the Bild and Times correspondents.”

    Liked by 1 person

    • I don’t feel the Democrats were the party of economic nationalism, or really have been since the Clinton era. Since George H.W. Bush (and before, but he of the New World Order is a great place to draw a demarcation between past and present) they’ve been parties of economic globalism. Trump just ran against that in many ways.


  4. Liked by 1 person

  5. Biden gets why Clinton lost. Not a single word about Russian hacking, WikiLeaks, or Comey. I believe this is also the first time I’ve seen the NYT use the word “fucking” in print.

    Liked by 1 person

    • jnc:

      From Zakaria:

      Today the two strands of liberal democracy, interwoven in the Western political fabric, are coming apart in the rest of the world.

      No longer just the rest of the world. Right here in the Western world, too.


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