Morning Report: The Trump reflation trade is back 2/10/17

Vital Statistics:

Last Change
S&P Futures 2307.0 2.8
Eurostoxx Index 366.8 0.0
Oil (WTI) 53.9 0.9
US dollar index 91.2 -0.1
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 4.06

Stocks are following through on yesterday’s strength. Bonds and MBS are down small.

President Trump made some comments about corporate tax reform which brought back the Trump reflation trade, at least for a day or two. While everyone agrees we need corporate tax reform, in practice it is going to be a lot harder than it looks, simply because almost everyone has some sort of tax break they don’t want to give up. An undertaking this big will also need some things to bring Democrats onboard, so it will probably be watered down. Initial price talk is a corporate tax rate of 20%, with an exemption on overseas earnings, and some sort of border adjustment tax. As you can imagine, some industries will love this new arrangement, while others will hate it.

Import prices rose 0.4% last month and are up 3,7% YOY. Ex petroleum, they are down small. We will be getting more inflation data next week with the consumer price index and the producer price index.

Consumer sentiment slipped in the preliminary reading for February. It came in at 95.7 after a January reading of 98.5. The drop was almost 100% in the future expectations index, as the current conditions index was more or less flat. Perceptions of Donald Trump and his effect on the economy was pretty much split: 30% favorable, 29% unfavorable.

A top Fannie Mae official (Brian Brooks) is reportedly being considered to replace Richard Cordray as Director of the CFPB. Another possibility is Todd Zywicki, an economist with the Mercatus Center. Discussions are preliminary as the future of the CFPB remains up in the air.

The Mortgage Bankers Association plans to lobby Congress to turn the GSEs into private utilities and allow new entrants to compete on the same terms, meaning their securitizations will have a government backstop as well. Partisan politics will be an issue, as Republicans want to government backstop to become smaller, and Democrats worry about the social mission of the GSEs falling by the wayside.

The Spring Selling season is more or less beginning now, and tight inventory remains the biggest issue. A second problem is mismatched markets, where there is a disconnect  between what buyers want and what is available for sale. Affordable starter homes are the biggest problem, as builders have focused on the luxury end of the market since 2008. Luxury was the only segment that worked for builders post-crisis, but 10 years on, the boomers that bought McMansions are looking to downsize, and the Millennials are beginning to start families.

Millennial women are more likely to use FHA loans than men. Not sure why – it could be any number or reasons: income, education, lenders highlighting them more. Worth watching, however. has some good advice for the first time homebuyer. Hint: you don’t need 20% down.

19 Responses

  1. It’s Friday, and I’m frist!

    Liked by 1 person

  2. Interesting take on the Resistance vs the Tea Party.

    As I said, though, Democrats never really understood the Tea Party. In fact, they avoided understanding it because they preferred their own narrative to the facts. Most of them remain convinced, for example, that the Tea Party was not a real “grassroots” movement but was “astroturfed” with money from the Koch Brothers. I saw my local Tea Party on the ground level, and nothing could be further from the truth. Most of our local organizers were people who were not highly politically engaged before 2009, and there was nary a Koch dollar in sight, which is why everything was done with volunteer labor on a shoestring budget. It’s the closest thing I’ve ever experienced to the Norman Rockwell vision of old-fashioned town hall politics.

    But if the Left still thinks the Tea Party was all just astroturfed, then they’re going to think that they can astroturf their own movement. That’s what strikes me about all this talk about “The Resistance.” It’s still early, but so far, a lot of this seems to be coming from people who were already activists, who were already highly politically engaged. It’s not spontaneous grassroots outrage. It’s the revolutionary vanguard trying to herd the proletariat into following them.

    More fundamentally, in trying to make the revolution happen, they’re actually taking the political imbalance that produced the Tea Party movement (and, to some extent, the Trump campaign) and they’re making it worse. They are trying to build their own movement to serve a political agenda that is even more out of step with the voters they need to win back.

    Liked by 1 person

    • The tea party stood up to the establishment in the MSM and politics. The resistance IS the establishment in the MSM and politics.

      Tea Parties were out trying to limit the size of government.

      The Resistance is out there marching for rights they already have.

      Liked by 1 person

      • Brent:

        The tea party stood up to the establishment in the MSM and politics. The resistance IS the establishment in the MSM and politics.

        Well put.


        • Scott: I think that Lena Dunham fantasizes that she is saying something that hasn’t been said before, but artistically she hasn’t been edgy since the 60s. Wanna be edgy? i.e. upset the establishment? Be Milo (which is why I think he is a brilliant performance artist, but not an ideologue).


        • Brent:

          Wanna be edgy? i.e. upset the establishment? Be Milo

          Exactly. The cultural left doesn’t understand or doesn’t want to admit that it has won the culture war. It wants to be seen as fighting “the man”, but it is “the man” now. These narcissistic Hollywood knuckleheads fancy themselves to be oh-so brave, but it takes far more guts to say what Milo says than to be Dunham or Meryl Streep.


      • I also think the Tea Party was responsive, like Rush Limbaugh and Fox News, in a “hey we are here and we matter” way. Everybody knows the left is here and that it matters. There’s no traction in fighting that battle. At least, not electorally.


    • That last bit seems to me to be t exactly. A useful observation that will be tactically ignored. It’s why I’m not so sure Trump is going to suffer in 2018. You can fake news and fake polls but district by district voting is much harder to fake.


  3. Like

  4. Like

  5. You gotta be pretty fucking bad if even the Saudi’s think you’re to terroristy.


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