Morning Report: Confidence Up, affordability down 2/7/17

Vital Statistics:

Last Change
S&P Futures 2291.5 5.0
Eurostoxx Index 363.3 1.7
Oil (WTI) 52.7 -0.4
US dollar index 90.9 0.6
10 Year Govt Bond Yield 2.43%
Current Coupon Fannie Mae TBA 102.1
Current Coupon Ginnie Mae TBA 103.2
30 Year Fixed Rate Mortgage 4.13

Stocks are up this morning on no real news. Bonds and MBS are down small.

Job openings were largely unchanged MOM at 5.5 million, according to the BLS’s JOLTS report. On a year-over-year basis, they were up 4.2%. Hires ticked up slightly, while separations fell. The quits rate ticked down to 2.0% from 2.1% in November and 2.2% last year. This will give some comfort to bond investors as well as the Fed, as an increase in the quits rate usually leads an increase in wage growth.

Home prices rose 0.8% MOM and are up 7.2% YOY according to CoreLogic. They foresee a deceleration of home price appreciation in 2017, with a 4.7% increase. The action was in the Pacific Northwest and Mountain states, with Washington, Idaho, Oregon, Colorado, and Utah leading the charge. Here is a map of the overvalued (red) and undervalued (green) MSAs:

corelogic-overvalued

Rising home prices and mortgage rates have hit affordability, which is the lowest in 7 years, when you use the metric of mortgage payment on the median house to median income ratio. Much of the hit took place towards the end of last year as as rates spiked post-election. Tight inventory is driving the price increases, not incomes, which means current prices are vulnerable if wages don’t increase. Eventually builders will start more construction, but as of now they are still holding back.

Economic confidence improved last week according to the Gallup Economic Confidence Index. January was the highest month since 2008. More people are feeling engaged at work, but future expectations drove the index. Despite all the sturm and drang out of Washington, Americans are shrugging it off. Other indices like the VIX, as well as gold prices (despite what the article below says) are confirming this. Separately, Fannie Mae’s Home Purchase Sentiment Index improved two points last month. Most notable in that survey: the net share of people reporting significantly higher household income growth in the past 12 month increased by 5 percentage points. Also, bankruptcy filings are the lowest since 2006.

On the other hand, Washington insiders and journalists (especially) are not feeling that way. Donald Trump has upset the traditional way things are done, and that has a lot of pros spooked. That said, I think creating a confidence index based on the use of the word “uncertainty” in business articles speaks more towards the predilections of journalists than it does to the markets as a whole.

uncertainty

Fixing Dodd-Frank will take some time, along with repealing and replacing Obamacare. Democrats are vowing to go to the mattresses on both, although I think Obamacare will be where the war is going to be fought. As I have said before, I suspect there is enough bipartisan agreement to do something on Dodd-Frank, at least with regards to small bank regulation. Reforming the CFPB is expected to cleave down partisan lines, although the Courts may be forcing Congress’s hand there. Much of the change is going to be done non-legislatively, in how the agencies interpret and enforce the law. Democratic Party priorities like disclosing the pay difference between CEOs and the rank and file are simply going to go by the wayside.

39 Responses

  1. Interesting predictions:

    “Rahm Emanuel doesn’t think Democrats stand a chance in 2018.”

    I don’t think they are capable of taking his advice:

    “As he did last month at an event in Washington, D.C., the mayor expanded on what he believes is the road map back to power for his party — putting moderate candidates such as veterans, football players, sheriffs and business people up in Republican districts, picking battles with Republicans, exploiting wedges within the GOP and fighting attempts to redistrict Congress on partisan grounds.”

    for the exact reason he identified:

    “Our party likes to be right, even if they lose.”

    https://newrepublic.com/minutes/140471/rahm-emanuel-doesnt-think-democrats-stand-chance-2018

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  2. I found this comment by a tax lawyer who was “a former chief of staff of the congressional Joint Committee on Taxation” very interesting.

    https://www.washingtonpost.com/opinions/congress-has-the-power-to-obtain-and-release-trumps-tax-returns/2017/02/07/aa53254c-ea63-11e6-80c2-30e57e57e05d_story.html?utm_term=.4bc49860fd3c

    I think it is good Congress has this power although it was last used to collect half a million in taxes from Nixon [I didn’t recall that!].

    What I know about tax returns is that without having the returns of every entity that sent DJT a K-1 or similar participation in income statement that not much will be learned about potential emoluments or even ordinary potential graft. The web of Trumpian related tax returns is thick and was last poured through in depositions a dozen years ago. It would require staffing by a major accounting firm, along with tax counsel, and perhaps international tax assistance, to get a handle on this.

    Although I am for doing it, my thought is the process would take a very long time to unwind.

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    • Congress has all kinds of power if they choose to exercise it, but unfortunately it seems that they only care to do so when the President is of the opposing party.

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  3. I had no idea that school choice leads to suicide

    Now that’s power.

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  4. Cause being confirmed is a Huge.Fucking.Victory! For The Resistance.

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  5. I wish people would give Maxine Waters a break.. Korea does sort of sound like Crimea…

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  6. Like

  7. I watched the orals. Too many rabbit trails run by each attorney, but I can predict that the Establishment argument will not carry weight in the panel’s decision.

    If the panel can fashion a modified remedy, I think they will. The EO can apply to refugees. It can apply to new applicants for visas from the Seven Nations in Trump Hell [SNiTH]. But it must not apply to visa holders, green card holders, and citizens. Persons lawfully here or otherwise lawfully entitled to come here cannot have their travel so restricted that they can be barred on return because they visited the SNiTH.

    This is a procedural nightmare because there is no evidence record. If I were the Supremes I would refuse to hear any of it until after a merits trial and appeal.

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    • mark:

      This is a procedural nightmare because there is no evidence record.

      I don’t really know that much about the suit, so I am genuinely curious about what kind of evidence would be relevant to whether the order is Constitutional or not. What might come out during a merits trial that would/should influence the Court one way or the other?

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      • 1] As to standing, the actual impact, from statistical evidence and testimony, to show whether or not states [and intervenor businesses and conceivably intervenor individuals] would be harmed in their proprietary interests – if harm cannot be shown then there would be no case to rule upon.

        2] As to the Establishment cause, the testimony of the authors of the EO – finding an unlawful intent from Giuliani’s weird public statements will not do for evidence on the merits, although it could suffice for a TRO.

        3] As to the INA, a detailed analysis of the EO’s interaction with the statute – much of which would be ascertained from the results of the implementation of the EO. If the Stay remains in effect either as written or as modified as I suggested, there will be no additional evidence here because there will no EO in force from which to measure the result.

        4] As to reliance on existing law for those caught in transit, evidence that they each were legally vetted and had relied to their detriment [in, say, selling all their possessions and coming to America only to be turned away after the five year vetting process for their visas]. That this has happened might be assumed from one isolated affidavit for a TRO but would take investigation, discovery, and evidence to show on a widespread scale. This could be determinative on whether a Court says the EO can only be prospective and not retrospective as to a refugee who already had a lawful visa.

        5] The passage of 90 days itself will affect a decision on the merits. This is a temporary EO. If it not extended, the case is moot.

        The general FRCP sets out a time line for these stages of litigation: T.R.O., Preliminary Injunction, discovery, settlement conference, pretrial order defining the issues to be tried on the merits, trial, and appeal.
        Appeals from TROs and P.I.’s granted are called “interlocutory” and are not favored by the courts because they come up on virtually no evidence record.

        BTW, Giuliani is a former US Attorney who shocked the hell out of me by saying in public he was asked to draft a Muslim ban that would pass muster. If he is still licensed that could be cause for suspension, if it turns out he was the draftsman of the EO.

        Addendum: I was not an immigration lawyer, although in my capacity of representing employers I once fought for a PhD immigrant’s refugee status all the way to a State Department hearing in DC, and won. There could be cases where the EO’s conflict with the INA rises to the point where an equal protection argument has merit. One could argue for an individual that his refugee status under the INA was assured but for the EO, and that he was thus being denied equal protection under the INA. One must be a citizen to raise privileges and immunities, but not equal protection of American law.

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        • Does a non-citizen (like a green-card holder) have equal protection of American law when they’re not in the US?

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        • I think that depends on the circumstances. I think a green card holder has all the rights of a citizen except voting, as I recall. I could be wrong. A foreigner with a lawful visa to enter the USA surely has many fewer rights. As immigration law applies to one, it should apply to another, but if a local authority, like the Ankara police, demand that the State Department turn over a visa holder in the Embassy I don’t think the visa holder is in as good a shape with the US as a citizen. I am just using my imagination here, of course.

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        • Mark:

          Thanks for the analysis. BTW, on this:

          BTW, Giuliani is a former US Attorney who shocked the hell out of me by saying in public he was asked to draft a Muslim ban that would pass muster. If he is still licensed that could be cause for suspension, if it turns out he was the draftsman of the EO.

          Did you ever read his full explanation of events, beyond the headline making suggestion that Trump asked for a “Muslim ban”? In full context, I don’t see what the big deal is.

          1) Trump publicly calls for a “Muslim ban”. This was well known before Giuliani’s comments, so Giuliani has not said anything that everyone didn’t already know.

          2) Trump calls Giuliani and tells him to figure out how to do “it” legally. The implication is that the “it” is a “Muslim ban”, but we don’t know for sure whether, in the context of their conversation, he was referring to literally all Muslims, Islamic extremists, potential terrorists, or what. But whatever the “it” was, even assuming the most broad possibility, what we do know is that he asked for a way to do it legally. Giuliani’s exact words were “He said, ‘Put a commission together. Show me the right way to do it legally.’ ”

          3) Giuliani puts together this commission and they explicitly do not focus on religion, and instead formulate a policy based on areas that pose danger to the US. Giuliani said:

          And what we did was, we focused on, instead of religion, danger — the areas of the world that create danger for us. Which is a factual basis, not a religious basis. Perfectly legal, perfectly sensible. And that’s what the ban is based on. It’s not based on religion. It’s based on places where there are substantial evidence that people are sending terrorists into our country.

          So, it seems to me that the very worst possible interpretation of what happened is that Giuliani was asked to come up with a legal way to ban all Muslims in the entire world, and Giuliani ignored that request and instead produced a policy that does not ban all Muslims in the entire world, and in fact has nothing to do with religion at all.

          What about this is shocking, objectionable, or could reasonably lead to the suspension of Giuliani’s license?

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        • I like your points, Scott. I never actually read what Giuliani said and was going off the oral arguments, and thus assuming.

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        • I would never take media accounts of anything that Trump or his supporters say at face value.

          I always read it for myself.

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        • Some issues were explicitly not reached, but the Circuit treated the Order as a P.I. and placed the burden on the US to Stay it [standard placement of burden on interlocutory appeal]. The US could not meet the burden to Stay.

          Example of issues not reached:

          The States argue that the Executive Order violates the
          Establishment and Equal Protection Clauses because it was
          intended to disfavor Muslims. In support of this argument,
          the States have offered evidence of renumerous statements by
          the President about his intent to implement a “Muslim ban”
          as well as evidence they claim suggests that the Executive
          Order was intended to be that ban, including sections 5(b)
          and 5(e) of the Order. It is well established that evidence of
          purpose beyond the face of the challenged law may be
          considered in evaluating Establishment and Equal Protection
          Clause claims. See, e.g., Church of the Lukumi Babalu Aye,
          Inc. v. City of Hialeah, 508 U.S. 520, 534 (1993) (“The Free
          Exercise Clause, like the Establishment Clause, extends
          beyond facial discrimination. . . . Official action that targets
          religious conduct for distinctive treatment cannot be
          shielded by mere compliance with the requirement of facial
          neutrality.”); Larson, 456 U.S. at 254-55 (holding that a
          facially neutral statute violated the Establishment Clause in
          light of legislative history demonstrating an intent to apply
          regulations only to minority religions); Village of Arlington
          Heights v. Metro. Housing Dev. Corp., 429 U.S. 252, 266-Case: 17-35105, 02/09/2017, ID: 10310971, DktEntry: 134, Page 26 of 29
          26, 68 (1977) (explaining that circumstantial evidence of intent,
          including the historical background of the decision and
          statements by decisionmakers, may be considered in
          evaluating whether a governmental action was motivated by
          a discriminatory purpose).
          The States’ claims raise serious allegations and present
          significant constitutional questions. In light of the sensitive
          interests involved, the pace of the current emergency
          proceedings, and our conclusion that the Government has
          not met its burden of showing likelihood of success on
          appeal on its arguments with respect to the due process
          claim, we reserve consideration of these claims until the
          merits of this appeal have been fully briefed.

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        • mark:

          The States argue that the Executive Order violates the Establishment and Equal Protection Clauses because it was intended to disfavor Muslims

          I don’t know about the rest of it, but this part seems to me like a no-brainer. It’s hard to see how an order that never mentions Islam and has literally no effect on the majority of Muslims in the world could sensibly be construed to have the intent to disfavor Muslims, but let’s assume that it does. How could disfavoring Muslims be said to be establishing a religion? What religion is being “established” by disfavoring Muslims?

          And the equal protection clause applies explicitly to persons within the jurisdiction of individual states.

          nor shall any State…deny to any person within its jurisdiction the equal protection of the laws

          Foreigners in other countries are not within the jurisdiction of any state, and so the clause is obviously not applicable to them.

          The states’ claim is not one that any reasonable court would take seriously.

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        • “Establishment Clause” is the claim that I said the Court would not take up and it did not. It left the Establishment argument open for development of evidence based on the EO’s exception that could specifically be made for “minority religions”. Why not for any religion or consciencious belief? If the EO is not amended, that language could be problematical for the government.

          The Court was suspicious of the equal protection argument and would not allow much time for it. It left that matter open, but was unsympathetic to it. It is not as legally simple as you make it out to be, however, because of the incorporation of equal protection as a due process right. Green carders and arguably some visa holders have due process rights to at least notice and a hearing before their rights to return are voided and where they are state employees, for instance, their employer can represent them. That they are denied “equal protection” from other employees may be relevant, if Christian green card holders can be allowed back in but Muslims not, but it is seeming background noise here. The straight due process argument without any incorporation issue is where the states’ standing turns and ultimately where the evidence will turn. Unless this case is just mooted in 90 days, or by a corrected EO.

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        • Mark:

          It left the Establishment argument open for development of evidence based on the EO’s exception that could specifically be made for “minority religions”. Why not for any religion or consciencious belief? If the EO is not amended, that language could be problematical for the government.

          Isn’t the “minority religions” exception related just to refugee applications?

          Regardless, I still don’t understand how using the status of one’s religion in one’s home country as an eligibility requirement for either refugee or just generic visa applications could possibly be construed as an instance of the federal government “establishing” a religion in the US. Again, the obvious question to ask is: What religion is being established via this qualification?

          The Court was suspicious of the equal protection argument and would not allow much time for it.

          Understood. I can see how a due process argument might be relevant to existing green card and visa holders, but the equal protection clause strikes me as obviously irrelevant on its face. It is almost as if the plaintiffs are just throwing anything and everything out there just to see if the court will bite. Which, given the nuttiness of the 9th, probably isn’t a bad strategy. When it comes to the 9th, my impression is that one could just present a two word argument – “Because Constitution” – and it would be just as legitimate, since the 9th is going to do what it wants anyway.

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        • I think it is so easy to amend this EO to make it work without dispute that eventually that will happen. The rewriting would first make it prospective, not retrospective, second, would not have a religious test of any kind, and third, would not apply to green card holders, citizens, or persons whose visas permitted travel abroad. If refugees are permitted based on persecution, that is enough to say – not that they are a persecuted religious minority, which leaves American officials able to consider religion as a bar to refugee status, thus establishing a religious test for entry. That’s pretty straightforward.

          One of the judges on the panel, the one who simply cut off the “Muslim ban” argument, was a Bush appointee, and I think the two Ds agreed with him that all they really wanted to know was “standing”, first, and if standing, then could the feds show irreparable injury from a preliminary injunction. Considering the feds came prepared with no case to show of terrorism in America from a refugee from one of the seven countries, the feds were empty of bullets on a Stay argument, once standing was found.

          The judges were definitely not buying “Muslim ban”, although they will [must, really] let that argument play out on a full presentation, if anyone ever does one. But, as I wrote, there is, despite your distinction that these refugees are not Americans, plenty of issue about establishing a religious test for entry into the USA.

          This is actually a case where the more conservative a judge is on the law, the more likely s/he is to tell the POTUS he does not have immigration authority unfettered by the rights of individuals to due process. This is analogous to the federal judge in Brownsville setting aside BHO’s attempts to give more undocs a way to remain in America, without going through the APA.

          The states raised APA here, too, but in the time allotted for orals, that was not reached.
          Addendum: APA would apply to anything that looked substantive, and states would probably be able to show standing as they did in Brownsville. However, I am not sure APA would have to apply to a 90 day EO – NoVA?

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        • Mark:

          I think it is so easy to amend this EO to make it work without dispute that eventually that will happen.

          I am sure you are right about that.

          But, as I wrote, there is, despite your distinction that these refugees are not Americans, plenty of issue about establishing a religious test for entry into the USA.

          There may be a statutory issue, but I really don’t see how it could be seen as a 1st Amendment issue. How can a religious test, even one that explicitly identifies a specific religion (which this is not), placed on 1 particular avenue of access to the US be sensibly construed as an establishment of religion? Again, what religion is being established?

          Suppose that, during WWII, Congress wanted to turn the US into a haven to protect European Jews from Nazi extermination, and so passed a law saying that the US would allow into the US as a refugee anyone of the Jewish faith from a European country. This would represent an explicit religious test with regard to a specific religion. Do you think such a law would have been in violation of the establishment clause?

          This is actually a case where the more conservative a judge is on the law, the more likely s/he is to tell the POTUS he does not have immigration authority unfettered by the rights of individuals to due process.

          Like I said, I can actually see a case for a due process argument, especially for those with an already existing green card or visa. I just don’t see any 1st amendment issues at all.

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