Morning Report: Initial Jobless Claims at 44 year low 3/2/17

Vital Statistics:

Last Change
S&P Futures 2394.0 0.5
Eurostoxx Index 375.9 0.2
Oil (WTI) 53.0 -0.9
US dollar index 91.9  
10 Year Govt Bond Yield 2.47%
Current Coupon Fannie Mae TBA 101.88
Current Coupon Ginnie Mae TBA 103.28
30 Year Fixed Rate Mortgage 4.09

Stocks are flat this morning on no real news. Bonds and MBS are down small after Fed dove Lael Brainard suggested rates should rise soon.

The Fed funds futures are now assigning a 90% probability of a rate hike at the next FOMC meeting. It was only 30% or so just a few weeks ago.

Fed watcher Tim Duy has a good piece on the Fed’s balancing act and how it relates to November. He was in the “two hikes with an option for a third” camp and thinks the Fed will stand pat in March. He raises a good point on the December dot plot that freaked out bond investors: the most hawkish members that contributed to that plot are non-voters.

Initial Jobless Claims fell to 223k last week, which was the lowest level in 44 years. When you correct for population growth, we are in uncharted territory.

Snapchat priced their IPO at $17 a share yesterday. The company sports a modest 21.4x sales multiple.

Consumer Comfort improved last week, and is at the highest since early 2007.

Donald Trump seems to be settling in on picking Kevin Hassett from the American Enterprise Institute to lead his Council of Economic Advisors. Hassett is known for supporting a “New Deal” style program where the government provides jobs to the long term unemployed. His rationale is that the government gets some value in return, it makes the LT unemployed more attractive to private sector companies, and it probably reduces crime.

While robotics have been displacing manual labor jobs for quite some time, artificial intelligence is replacing white collar jobs as well. In fact, the two professions that have been most insulated from the globalization wrecking ball (law and medicine) are ripe for machine learning and AI. Much of what I used to do as a trader 15 years ago is now completely done by algorithms. This is probably the single biggest reason why wage growth is so hard to find – the competitor to human labor only gets cheaper and better.

As we approach tax season, it pays to look at some of the tax benefits of buying. In 2016, however several tax benefits expired, including the deduction for mortgage insurance, the tax free treatment for forgiven mortgage debt, and the tax break for “green” energy home improvements. The new administration and Congress are looking to simplify the tax code, which means ending some of the social engineering pieces like the green energy home improvements mentioned above. The gist is that tax rates will be lowered, however deductions will be eliminated, and the standard deduction will increase. The mortgage interest deduction, and the deduction for state and local taxes will have the biggest effects.

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