Morning Report: Donald Trump “guts” Dodd-Frank!!!! 2/6/17

Vital Statistics:

Last Change
S&P Futures 2286.0 -5.0
Eurostoxx Index 362.3 -1.8
Oil (WTI) 53.7 -0.2
US dollar index 90.6 0.2
10 Year Govt Bond Yield 2.42%
Current Coupon Fannie Mae TBA 102.1
Current Coupon Ginnie Mae TBA 103.2
30 Year Fixed Rate Mortgage 4.19

Stocks are lower this morning as credit spreads widen in Europe. Bonds and MBS are up.

The week after the jobs report is usually data-light and this week is no exception. We have no data this morning, and about the only report of consequence is the JOLTs job opening report tomorrow. All eyes will be on the quits rate, which has been pretty steady. An increase would signal wage inflation ahead.

Goldman strategists are beginning to re-think their initial bullishness on the Trump administration. Instead of tackling things like tax reform, he is spending his energy on immigration and trade. There is a realization that gridlock is going to be the norm for the next two years, and that means no big, sweeping changes. Regulatory relief is still possible, but bureaucrats seem to be preparing to push back against major changes in direction. So the “Trump effect” could end up being a lot smaller than investors (and the Fed) were thinking a month ago. Which means the Fed has more room to be cautious.

MBS investors are beginning to worry about what happens to MBS when the Fed stops re-investing maturing proceeds from its QE portfolio. After all, the Fed has been the biggest buyer of MBS paper. Will the lower demand for mortgage backed securities translate into higher mortgage rates, even if the 10 year goes nowhere? It is possible, however take a look at the chart below: I plotted the 10 year yield and the 30 year mortgage rate, with the difference between the two (the spread) below. The two blue shaded regions were QE1, 2 and 3. The green line didn’t really move all that much during QE. MBS spreads are about where they were prior to QE. Since the Fed isn’t entertaining selling bonds, just not buying them anymore, the pre-QE level of something like 167 basis points is about right. Right now, the spread is 177 basis points, which probably represents some of the lag you see in mortgage rates versus Treasuries. My point is that MBS spreads vary over time, but they have historically been around these levels. I can’t see MBS spreads making or breaking a homebuying decision. They just aren’t that significant.

10 year vs mortgage rates.PNG

On Friday, Donald Trump signed an executive order which directed a review of Dodd-Frank. There were the expected breathless headlines in the business press (with a stroke of a pen, Donald Trump eliminates Dodd-Frank, he’s “gutting” Dodd-Frank), however this is just a “review and report back to me” order. A full repeal of Dodd-Frank would be impossible, and probably would not be supported by the industry: after all, they have spent the past 6 years getting compliant with D-F and the last thing they want to do is have to adopt some new system. The unintended consequences will be addressed, but the structure will probably remain in place. These will turn out to be addressing the CFPB and small banking regulation in order to get credit flowing for smaller borrowers, addressing the Volcker rule to encourage market making, and the fiduciary rule, which many financial advisors interpret as a gag order and a limitation of the investment options menu. What does this mean for the mortgage business? Probably not much, although the biggest potential is in an easing of CFPB enforcement and an increase in mortgage products as the private label securitization market returns.

31 Responses

    • The only way i even knew about it was from my liberal friends on facebook who were exercised over it.

      Liked by 1 person

      • Same here. Never heard it reported as anything but false and insane and out of touch, etc. Never once did I see it repeated as accurate. But I’ve seen it literally hundreds of times now, either being discredited or lampooned.

        Like

    • “Why the left is suddenly so fascinated with authoritarianism
      By Christine Emba
      February 6 at 9:33 AM”

      https://www.washingtonpost.com/opinions/why-the-left-is-suddenly-so-fascinated-with-authoritarianism/2017/02/06/dc8c64b4-ebae-11e6-b4ff-ac2cf509efe5_story.html

      Like

      • I’m guessing we’ll start seeing “What if someone went back to 1933 and killed Hitler” articles as further wishcasting that someone else kills Trump, so their hands are clean.

        Liked by 1 person

      • Less philosophical, but no less important, could be the fact that it’s all rather . . . fun.

        And that’s the answer in a nutshell.

        I was attending art school when the first Gulf War started. The response was immediate and prolific. Demonstrations and spontaneous art installations. Brokered talks between the few conservatives and the many leftists, as if they mattered. One northeastern lefty organized protests downtown (and notified the press, to get coverage) and was elated that Amy Carter, Jimmy Carter’s daughter, happened to be attending our school at the time. She loved having Amy Carter as a pinion for her super-meaningful protests.

        Then hostilities stopped and the war was “over”. Were they happy? Were the excited? No, they were not. They were glum and depressed. Here was their Vietnam and it was already over! The injustice of it all!

        The protests and demonstrations aren’t about changing anything, and certainly never about changing everything . . . once the protests are over, so is the party. It’s about virtue signally, moral self-licensing, and having a blast and patting each other on the back about how awesome they all are.

        Like

        • It’s the fucking baby boomers, they’ve romanricized protesting and the violence of the ’60’s now. all these idiot lefties want to duplicate it.

          Liked by 1 person

        • Hah! I remember when Reagan invaded Grenada and everyone at the People’s Republic of Madison were out protesting. I would wager 90% of the protesters had never even heard of Grenada before they started marching.

          People were like “We’re at war? Really? With who?”

          Liked by 1 person

        • “Here was their Vietnam and it was already over!”

          Worse. The results seemed to validate the other side.

          Note that they are now self identifying as members of “The Resistance”. Hopefully the people who came up with the safety pin boxes can start marketing some customized berets to them.

          As usual, South Park was way ahead years ago.

          Liked by 1 person

        • I remember when Reagan invaded Grenada and everyone at the People’s Republic of Madison were out protesting. I would wager 90% of the protesters had never even heard of Grenada before they started marching.

          I was in ROTC at Michigan State, and we had to find a map.

          Here was their Vietnam and it was already over! The injustice of it all!

          Those 100-hour wars are hell on protesters. Barely enough time for the ink to dry on their signs!

          Liked by 1 person

        • Kevin, it’s also impressive that Trump has managed to do in one year what the entire Cold War couldn’t, namely turn the left against Russia. PL now sounds like McCain when it comes to Putin and Ukraine.

          This could easily have been A101 a few short weeks ago:

          “Trump: There are a lot of killers. We’ve got a lot of killers. What, you think our country’s so innocent?”

          http://www.slate.com/blogs/the_slatest/2017/02/05/trump_says_respects_killer_putin_in_o_reilly_fox_super_bowl_interview.html

          Liked by 1 person

    • (How about a Hamiltonesque musical: “2 and 2 make 5? Don’t give me that jive!”)

      Evidence right there that the NYT has no real editorial oversight.

      Like

    • A few days before that, WJBK-TV of Detroit walked back a report about a woman who died in Iraq supposedly after Mr. Trump’s new policy blocked her entry to the United States.

      I notice things tend not to be “walked back” with same vigor with which they are originally touted, however.

      Liked by 1 person

      • Have you tried walking backwards? Whole different muscle groups–it’s hard to do vigorously!

        Like

        • Hah! Eh, nobody likes to do it. I’ve conditioned myself to correct my mistakes as vociferously as I can (if I agree that I’m mistaken . . . aye, there’s the rub). Because if you messed up and fix it, nobody cares. Better not look like you’re trying to hide something.

          Like

  1. Heh.

    Double Heh.

    Did the networks refuse to book Susan Rice after she lied about the video? https://twitter.com/mlcalderone/status/828614886825533440

    Like

  2. Advice I doubt will be taken:

    “What Effective Protest Could Look Like

    Perspective from the right on Trump’s political challenge for the left
    David Frum”

    https://www.theatlantic.com/politics/archive/2017/02/how-to-beat-trump/515736/

    Like

    • ” But it is the steady and often tedious work of organization that sustains democracy”

      well that’s no fun.

      Liked by 1 person

      • Channeling your inner Dezzie?

        Like

        • Actually NoVA is more the opposite. She tends to blame the voters for not being good enough for the party. NoVA & I think that you focus on likely voters and disregard the people who don’t vote.

          That may require adjusting the candidates and positions taking to actually assemble a winning coalition.

          Like

        • She thinks an invitation to a party is an obligation.

          I disagree. You have to get people to want to come while recognizing that not everyone is going to. But once they decline, move on and make sure your actual guests are taken care of.

          There’s been a lot of grousing about who didn’t come to the party. As a guest, that pisses me of.

          I didnt want to come but did anyway. And she spend all her time looking out the window for a car to pull up that never will

          Message heard. Next time I won’t bother either.

          Liked by 1 person

        • Also if you have to sign on to the rest of the progressive BS as a condition of opposing Trump, well then you just made a lot of people neutral, or on Trump’s side.

          Liked by 1 person

        • Frums column (I think) that you linked as good on this

          Pick one issue. Focus on that and build a coalition

          Liked by 1 person

  3. To paraphrase Tuco, from The Good, The Bad and The Ugly, “If you’re going to [beat-up] someone one, [beat them], don’t talk.”

    http://m.sfgate.com/news/article/UC-Berkeley-looking-into-staffer-s-role-in-Milo-10912523.php

    Like

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