Morning Report: Risk on feel after Trump speech 3/1/17

Vital Statistics:

Last Change
S&P Futures 2379.5 16.8
Eurostoxx Index 374.6 4.4
Oil (WTI) 54.1 0.1
US dollar index 91.7
10 Year Govt Bond Yield 2.46%
Current Coupon Fannie Mae TBA 101.91
Current Coupon Ginnie Mae TBA 103.41
30 Year Fixed Rate Mortgage 4.09

We have green on the screen this morning as markets liked Donald Trump’s speech to Congress last night. Bonds and MBS are down.

Donald Trump addressed Congress last night (it wasn’t a full-on State of the Union address), and laid out broad brush strokes about his priorities going forward, including tax reform and healthcare. Generally speaking, the speech was well-received, although those looking for policy depth were disappointed. Here is a transcript. Regardless, equity markets liked what they heard and we are off to the races this morning.

On the bond side of things, yields continue to increase, particularly on shorter-term paper as markets handicap a March hike. The 2 year bond now yields 1.31%, which is a post-crisis record.

Mortgage Applications rose 5.8% last week as purchases rose 7% and refis rose 5%. Refis accounted for just over 45% of all applications last week, the lowest since 2008.

Personal incomes rose 0.4% in January, a little better than expected, while personal spending rose 0.2%, which was a little lower than expected. The Personal Consumption Expenditure index, which the Fed prefers to use, rose 1.9% YOY. The core PCE index which excludes food and energy rose 1.7% YOY. Note that the PCE index is generally about 30 basis points behind the Consumer Price Index, simply because of the difference in weightings. Note that the second revision of GDP from yesterday had PCE inflation at 2.2% at the end of December, so we are seeing a deceleration in January.

Manufacturing improved in February, according to the ISM Manufacturing Survey. New Orders rose, while employment fell. The reading for February of 57.7 would typically correspond to a GDP growth rate of 4.5%. While manufacturing isn’t the driver of the economy that it used to be, this is still good news for growth going forward, especially after a pretty weak 2016.

Construction spending fell 1% in January and is up 3.1% on a YOY basis. Residential construction rose 0.3% and is up 5.5% YOY. Donald Trump plans to add $1 trillion in construction spending, although he does not say over what period. As we learned from the Obama stimulus of 2009, infrastructure spending has a long lead time. That said, take a look at the chart below, which is of public construction spending. We have averaged about $300 billion a year in public construction spending over the past 10 years or so, which means an additional trillion over something like 4 years amounts to almost doubling public construction spending. This would mean public construction spending as a percent of GDP would be at a 50 year high.

Delinquency rates continue to fall according to Freddie Mac. The seriously delinquent rate fell below 1% in January, which is down from 1.33% a year ago. The rate peaked in 2010 at 4.2%. Pre-bubble, seriously delinquent rates were in the 60-80 basis point range.

36 Responses

    • The progressives actively don’t want the Democrats to reach out to that demographic.

      I think that’s the exact wrong lesson to draw and is a big advantage to Trump.

      Like

    • Brent:

      Pierce ends his piece with what he presumably thinks is great profundity.

      Feeling lost and desperate is a terrible thing. But if, out of loss and desperation, you drink 20 cold beers out of the old preparation room and smash your car into a daycare center, the judge is not going to care how lost and desperate you felt. You build your own prisons in this life. You design your own sentences.

      I actually agree with him on this, but I wonder why he thinks it applies to Trump voters but not to people who spend 20 years in the US illegally and never bother to do what it takes to become legal.

      Like

  1. Interesting take. I didn’t watch the speech.

    “Trump critic Van Jones: ‘One of the most extraordinary moments you have ever seen in American politics, period’
    By Aaron Blake February 28 at 11:54 PM ”

    https://www.washingtonpost.com/news/the-fix/wp/2017/02/28/trump-critic-van-jones-one-of-the-most-extraordinary-moments-you-have-ever-seen-in-american-politics-period/

    Like

    • To attack him on this point, which god love them, they’re trying, you to to thread a needle that’s impossible.

      1. Trump praises the SEAL and his family on live TV
      2. She’s a pawn and here’s why ….

      if you’ve selected this moment to target and are using Point 2 — well, that’s how you got Trump. Because it is impossible to make an argument against his handling of the situation without, in the mind of the average voter, attacking a widow.

      Like

      • And as Scott Adams observed, this is the mirror image of Trump vs Khan family at the Democratic convention:

        “Trump pulled a Khan maneuver. You remember when Clinton invited the Khan family to talk about their fallen hero son while criticizing Trump. Trump fell for that trap by responding to it, which allowed his critics to frame him as disrespectful to a Gold Star family.

        Last night, President Trump returned the favor.”

        http://blog.dilbert.com/post/157865134106/president-trumps-speech-last-night

        Like

    • JNC, I didn’t watch it either. But introducing the family/widow of a fallen warrior is standard stuff and has been for years. Certainly not worth even one minute of criticism, as NoVa noted, but not the defining moment Jones seems to think it to be, either, even if Ds completely fall into the the tar baby trap.

      On Sessions and the Rooskie Ambassador, this would be a nothingburger if Sessions had told the Committee that they had met, in the ordinary course of his tenure on the Foreign Affairs Committee. Even if he had refined his testimony after the fact, which witnesses regularly do. There would have been no reason to believe that their meetings had anything to do with Russian propaganda interference with the election. The matter of concern is that Sessions failed to disclose and failed to correct the non-disclosure. I would ask “why?” and “How come?” And maybe I would be moved toward wanting him to recuse himself from the FBI investigation, the way the former AG recused herself from the HRC matter after WJC accosted her at the airport.

      Like

      • What if the questions were asked specifically in regards to the campaign rather than his role on them SASC? Both the written Leahy question and the Franken question (not the edited version but the full question) limit the question to the campaign. If that’s the case is there a problem?

        Like

        • It could well be that there is no underlying problem, and I tend to think there is not one. But the failure to annotate his testimony does seem remarkable to me.

          Where did you read the full versions of the questions? I have been listening only to the Franken question and his answer: “I have been called a surrogate at a time or two in that campaign and I did not have communications with the Russians.”

          I would understand that not to be a lie from Sessions’ POV if the question was properly limited, as you suggest. I would still have thought a clarification was in order, from the interrogator’s POV.

          Like

        • Sweden, not a member of NATO, is reinstituting the draft in response to perceived Rooskie threatening gestures.

          Where is Gustavus Adolphus when we need him?

          Like

        • Like

        • Thanks, George.

          Since this morning, apparently Sessions, a former US Attorney who should know better and have better advice, has dug a hole. Now he doesn’t remember the substance of his discussions with the Ambassador.

          Eerie parallel to Flynn. If Sessions steps down, as JNC suggests he should, no big loss to DOJ, IMHO.

          Like

        • I get that politicians do not deserve the benefit of the doubt, but it’s obvious he did not lie under oath.

          I’m fascinated how misinforming the NYT and WaPo have been. If someone is relying on them as their primary source of information, do you agree they’re being badly served and should seek information elsewhere?

          Are you also amazed at what dupes these reporters and editors seem to be? Or is your thinking that they’re complicit in willfully misinforming their readers?

          Like

        • George, he could never be nailed for perjury, I agree. But he has mishandled this worse than the press. It’s their job to point out these discrepancies.

          Like

        • What discrepancy did they point out?

          Like

        • Mark:

          Now he doesn’t remember the substance of his discussions with the Ambassador.

          I suppose that could mean one of two things. Either he actually was coordinating with the ambassador about the Russians hacking into the DNC and then releasing embarrassing info, or they talked about entirely insignificant things not worth remembering. I think odds are on the latter.

          Frankly no matter what was discussed, Sessions is probably best off saying he doesn’t remember, because regardless of the topic, literally any discrepancy between what he says and what might ultimately come out will be played up by the press and the D’s as a “lie”.

          “Sessions claims he only talked to the ambassador about the weather, but witnesses say that the ambassador actually asked Sessions what time it was, raising questions about why Sessions would want to hide this aspect of the conversation.”

          Like

        • There is something to that. As I have written, I doubt there is any underluing problem here. The problem for me was that he never amended the record. And after saying he did not recall, he then has recalled much. Bad lawyering. Hole digging.

          Like

        • I also am becoming more certain there is no underlying issue, JNC, although I leaned that way. The WaPo this morning is treating Sessions’ public statement exactly as Scott has suggested.

          I still want to know why he did not amend the record earlier, although he now will do so. I don’t think a Special Prosecutor is req’d, certainly, not now.

          I think if Barr’s Committee slow plays its investigation and Warner breaks from him, an independent Commission might then be called for to dig out the Russian interference details. That Warner says the Committee is doing its work should be good enough for the Ds in the Senate.

          Bipartisan committee work still exists and should be encouraged. A body the size of the Senate or the House cannot work as a committee of the whole, Its standing committees gain expertise and work together and are the only way any actual work can get done. “Regular order” and process are important.

          Like

        • What is required to be investigated?

          Like

        • mark:

          …the Russian interference details.

          What do you know that I don’t?

          If we accept the public assessment of our own intelligence agencies (which I am willing to do), we know that 1) Russia hacked into the DNC computer systems and obtained politically embarrassing information about Hillary Clinton and her campaign, 2) subsequently Wikileaks released politically embarrassing information about HRC and her campaign obtained from DNC emails, and 3) it is likely although not certain that the Wikileaks information came from the Russians.

          Is this what you are referring to when you talk about “Russian interference”? If not, what else is there that I don’t know about? If yes, then is it the case that every time any media outlet releases politically embarrassing information about a candidate during an election campaign, it is fair to say that that media outlet and/or the source of the information is “interfering” with an election?

          Like

        • Off hand, there are the intel assessments of the Russia Today propaganda, and its sources, which somehow got more hits online in America than CNN and BBC together, and the funny timing of Flynn’s meeting after the sanctions were announced, followed by Putin’s unorthodox announcement not to retaliate. Either bargaining with Flynn or a false flag operation could be inferred.

          I think the former.

          Like

        • Mark:

          Maybe I should take a step back. When you say “Russian interference”, you mean interference with what?

          Like

      • “The matter of concern is that Sessions failed to disclose and failed to correct the non-disclosure. I would ask “why?” and “How come?” And maybe I would be moved toward wanting him to recuse himself from the FBI investigation, the way the former AG recused herself from the HRC matter after WJC accosted her at the airport.”

        I’d go further. He should resign. He flat out lied to Congress during the hearings in response to a direct question.

        Same standard I wanted Clapper held to.

        Like

        • jnc:

          He should resign. He flat out lied to Congress during the hearings in response to a direct question.

          I’m a little late to this, and I don’t particularly care about Sessions, but in context the notion that he “flat out lied” isn’t obvious to me. And I guess he was, strictly speaking, responding to a direct question, but the “lie” wasn’t actually a response to the question at all. It was an offer of information that the question, “What will you do?”, didn’t call for at all. If Sessions was deliberately trying to tell an untruth, he should resign just for being really stupid, because he could have easily answered the question without introducing any info about himself at all.

          Like

        • This piece covers my view of why he lied pretty well:

          “The follow-up statement contains a qualification Sessions’s original testimony did not explicitly include. It says Sessions never met with Russian officials “to discuss issues of the campaign.” It does not say that Sessions did not recall his encounters with Kislyak, or that he did not meet with him, only that he did not discuss campaign issues with him.

          Had Sessions’s response to Franken contained the same qualifications as his statement Wednesday night, the next questions would have been about the circumstances in which Sessions met with Russian officials, and the content of those discussions. If he had said that he had met with the Russian ambassador as a senator but not as a campaign surrogate, or that he met with the Russian ambassador but did not discuss campaign issues with him, it would have provoked further controversy regarding a negative story the Trump administration was desperate to tamp down: The extent of the Trump campaign’s contacts with the Russian government. Sessions’s blanket denial put an end to that line of questioning––a denial that was freely offered by Sessions himself, not directly in response to Franken’s query.”

          https://www.theatlantic.com/politics/archive/2017/03/jeff-sessions-unforced-error/518403/

          I find him about as credible as HRC on the reasons for setting up her E-mail server or WJC about the nature of his conversations with AG Lynch.

          Like

        • jnc:

          I don’t understand this from the article:

          If he had said that he had met with the Russian ambassador as a senator but not as a campaign surrogate, or that he met with the Russian ambassador but did not discuss campaign issues with him, it would have provoked further controversy regarding a negative story the Trump administration was desperate to tamp down: The extent of the Trump campaign’s contacts with the Russian government.

          Apart from the fact that literally anything he said was likely to “provoke further controversy” simply because of the D’s and its media proxies’ desire to create it, I don’t see why his meeting with the Russian ambassador in his role as Senator and discussing non-campaign issues would provoke rather than temper further controversy.

          I find him about as credible as HRC on the reasons for setting up her E-mail server or WJC about the nature of his conversations with AG Lynch.

          So you think he really was conspiring with the Russians to do….something?

          Like

        • jnc:

          FYI it wasn’t just a rhetorical question when I asked if you really think Sessions was conspiring with the Russians. To me neither HRC’s nor WJC’s explanations were credible relative to the alternative explanation. In Sessions’ case, it seems to me that the alternative explanation is that he really was trying to hide his contact with the Russian ambassador because there was something untoward about it, which doesn’t strike me as more credible.

          I am genuinely curious if you think that alternative explanation is more credible than the one he offered.

          Like

  2. What it looks like when an actual outsider is elected:

    “The State of Trump’s State Department

    Anxiety and listless days as a foreign-policy bureaucracy confronts the possibility of radical change

    Julia Ioffe
    Mar 1, 2017”

    https://www.theatlantic.com/international/archive/2017/03/state-department-trump/517965/

    Quote of the day:

    ““Nothing will make you a libertarian faster than working in the federal government,” said the State staffer.”

    &

    “Federal workers grow increasingly nervous about Trump’s proposed budget cuts

    White House budget director Mick Mulvaney said this week that non-military spending will take the “largest-proposed reduction since the early years of the Reagan administration.”

    By Lisa Rein
    March 1 at 7:50 PM”

    https://www.washingtonpost.com/powerpost/federal-workers-grow-increasingly-nervous-about-trumps-proposed-budget-cuts/2017/03/01/39178724-fe90-11e6-99b4-9e613afeb09f_story.html

    Like

    • “““Nothing will make you a libertarian faster than working in the federal government,”

      hey, that’s my origin story!

      Like

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