Morning Report: The Trump reflation bubble deflates 3/27/17

Vital Statistics:

Last Change
S&P Futures 2324.5 -19.5
Eurostoxx Index 374.0 -1.3
Oil (WTI) 47.62 -0.35
US dollar index 89.4
10 Year Govt Bond Yield 2.35%
Current Coupon Fannie Mae TBA 102.06
Current Coupon Ginnie Mae TBA 103.32
30 Year Fixed Rate Mortgage 4.17

Stocks are lower after the Trump reflation trade is being unwound. Bonds and MBS are up.

Not much in the way of data this week – probably the biggest number is the final revision to Q4 GDP on Thursday. We will have a lot of Fed-speak however.

The Republican House couldn’t agree on a replacement for Obamacare and pulled the vote. This puts Trump’s planned infrastructure spend and tax cuts in jeopardy as reduced spending on healthcare was the pay-for. That said, tax reform will probably be easier as there is bipartisan agreement that the current corporate tax structure isn’t really working for anyone. Tougher will be individual tax reform, where Republicans want to lower rates in exchange for reduced deductions. The mortgage interest deduction will stay, but the deduction for state and local taxes may not.

Even though the markets are re-adjusting their forecasts for fiscal stimulus, central bankers still seem committed to getting off the zero bound. Amidst all the furor in the US over the last month, Europeans have completely re-assessed what they think the ECB is going to do, taking the implied probability of a rate hike by the end of the year from a long shot to a coin toss.

In the aftermath of the Obamacare vote, the next thing to watch for is whether the regional Fed banks and strategists start taking down their estimates for 2017 GDP. Remember, the Fed’s forecast of 2-3 hikes this year was predicated on fiscal stimulus, which now looks less likely.

Treasuries remain under some selling pressure as Japanese fund managers sell. Note that speculative short positions in Treasuries were pretty high going into this defeat on healthcare, so interest rates may be pushed lower as hedge funds unwind the trade. Not sure how long that lasts, but this is good news for homebuyers entering the Spring selling season.

Home prices are just shy of their 2006 peak, according to the Black Knight Financial Services Home Price Index. In December, they rose 0.1% MOM and 5.7% YOY. The report has a good state-by-state analysis too.

35 Responses

  1. Honest question, I keep seeing articles essentially pining for the days when the media was tightly controlled, I get it when it comes from media types, they want a monopoly, but why do average Joes pine for it?


    • They don’t. And average Joe’s don’t write articles in the media in the first place.

      This is simply media types talking to media types.


  2. Interesting read:

    “Yuval Harari on why humans won’t dominate earth in 300 years
    “It’s not because I overestimate the AI. It’s because most people tend to overestimate human beings.”
    Updated by Ezra Klein
    Mar 27, 2017, 9:10am EDT

    I think the other problem with AI taking over is not the economic problem, but really the problem of meaning — if you don’t have a job anymore and, say, the government provides you with universal basic income or something, the big problem is how do you find meaning in life? What do you do all day?

    Here the best answers so far we’ve got is drugs and computer games. People will regulate more and more their moods with all kinds of biochemicals and they will engage more and more with 3-dimensional virtual realities.

    This idea of humans finding meaning in virtual reality games is actually not a new idea. It’s a very old idea. We have been finding meaning in virtual reality games for thousands of years. We’ve just called it religion until now.

    You can think about religion simply as a virtual reality game. You invent rules that don’t really exist, but you believe these rules and for your entire life, you try to follow the rules. If you’re Christian, then if you do this, you get points. If you sin, you lose points. If by the time you finish the game when you’re dead, you gained enough points, you get up to the next level. You go to heaven.

    People have been playing this virtual reality game for thousands of years and it made them relatively content and happy with their lives. In the 21st century, we’ll just have the technology to create far more persuasive virtual reality games than the ones that we’ve been playing for the past thousands of years. We’ll have the technology to actually create heavens and hells, not in our minds, but using bits and using direct brain-computer interfaces.”


    • if you don’t have a job anymore and, say, the government provides you with universal basic income or something, the big problem is how do you find meaning in life? What do you do all day?

      Rediscover the beauty of a life of leisure. I’d probably get a Ph.D. in something totally ridiculous like 16th Century French Literature.

      Too many people nowadays have lost the capacity to simply enjoy life without outside stimulation.


      • I’d say he’s right that the majority will do drugs and just play computer games or engage in social media all day. See what the current long term unemployed do now.

        Idiocracy is the future in more ways than one.


        • I’m with Michi, fuck those losers. If all they can do is get high, jerk off to free porn and watch video games, then why should they nurse off the government teat?

          They need to pursue degrees in literature, else-wise, no government cheese.


        • McWing:

          They need to pursue degrees in literature, else-wise, no government cheese.



        • Probably. Like I said, so few people can live without outside stimulation.


      • “Rediscover the beauty of a life of leisure.”

        Sounds very Jane Austen.


    • In the 1960s, the big question that vexed economists was what we were going to be doing with all of our newfound leisure time due to productivity increases.

      Working longer hours for less money wasn’t what they were predicting.

      Liked by 1 person

    • Way to completely misunderstand Christianity

      There are no points.


  3. My leading contender for top progressive Trump Hate fantasy porn piece:

    “Imagining an endgame
    By Chris Ladd
    March 25, 2017”


  4. So if Nunes was called to the WH to read classified material and then explain it to POTUS does that mean that whoever first had it in the WH had no access to DJT and became frustrated, so leaked it to Nunes?

    Nunes was on his way to an event Tuesday night when he received a phone call that inspired him to switch cars and slip away from his staff, during which time his office now says he went to the White House to review classified intelligence material relating to the president and his team. The next day, he called a news conference to tell reporters that the intelligence community had “incidentally collected information about U.S. citizens involved in the Trump transition.”

    Nunes then left for the White House again — this time to brief the president on the material he had read at the White House the previous evening. He held a second news conference with White House reporters following that briefing.

    Strange, no?


    • I’m assuming that Obama was tapping foreign officials, Russians and Israelis specifically, for the express purpose of keeping track of Trump et al.


      • Except that the President cannot tap anyone. And Justice said it didn’t eavesdrop on DJT. So that leaves an intelligence agency. NSA hears everything, I suppose, but not at the President’s whim.

        Or DOJ is lying. But in Nunes’ confusing account these were lawful warranted searches. Did he say they were FISA warranted? I read that somewhere. That would make them intelligence searches not evidence searches.

        I can’t buy the assumption Obama was keeping track of DJT. That would take too many co-conspirators.



          Pennhurst State School v. Halderman indicates that the conditions on grant funding must be explicitly stated in the legislation. This is a simple due process issue in my opinion. So either Sessions’ threats are empty bluster or we have another example of “fire first, aim later.”


        • Eckhardt has previously said the community is safer when “people can report crimes without fear of deportation.”

          But the more relevant question is whether the community is safer when people can commit crimes, including violations of immigration laws, without fear of deportation. The question answers itself. Which I guess is why he answers a different one.


        • For a believer in separation of powers your notion that local law enforcement should do ICE’s work is surprising.

          Localities like Travis County honor ICE warrants. Mere detainers are requests for which compliance is expressly voluntary.

          If the Federal government says by fiat, without a change in the statute, that compliance with mere detainers will be treated as mandatory and funding will be cut off if compliance does not suit DOJ, then procedural due process demands that the locality be given fair notice that it will be cut off, and an opportunity to be heard through counsel before an impartial court before funding is actually cut.

          Without a statutory change there is no way DOJ wins.

          There is no state crime of illegal residency.

          And to be very clear, Scott – unlawful entry into the USA is a federal misdemeanor, not a felony, and not a state crime whatsoever. Undocumented presence in the USA is not a crime of any kind. If the USA issues an arrest warrant for unlawful entry most jurisdictions will turn the undoc over. If the USA simply issues a detainer b/c it suspects undocumented presence that detainer is a civil matter and completely discretionary for a locality to honor.

          Typically if the detainer is for someone who is a convicted state felon the localities are quick to say “good riddance”. Travis used to honor detainers for anyone they arrested for a felony under Sheriff Hamilton who sent more folks back to MX than any sheriff in America. The new Sheriff ran on a more permissive platform, explicitly, but she still honors warrants.


        • Mark:

          For a believer in separation of powers your notion that local law enforcement should do ICE’s work is surprising.

          Huh? All I did was pose a question about what makes a community safer, an issue that Eckhardt was claiming to be concerned about.

          But that aside, is it your understanding that a “sanctuary city” is simply defined as any city that refuses to do ICE’s work for it? That is not how I understand it.

          Undocumented presence in the USA is not a crime of any kind.

          Riding a stolen bike isn’t a crime of any kind, either. Should law enforcement officers who come across someone riding a stolen bike not concern themselves with how he ended up on the bike?

          BTW and just to be clear, in the absence of the welfare state, I would actually be in favor of a fairly open immigration policy. I just think that whatever restrictions do exist, they should be enforced, and not actively ignored or subverted by any government institutions.


        • Mark:

          This is a simple due process issue in my opinion.

          Perhaps it is a substantive due process issue. Maybe the right of citizens to be secure from illegal immigrants is so fundamental that no process could suffice to remove that right, and so any local policy that subverts that right is automatically unconstitutional. (/snark)


        • I can’t buy the assumption Obama was keeping track of DJT. That would take too many co-conspirators.

          That’s where we differ. There would be no co-conspirators, just unmasked transcripts of calls to/from foreigners. Easy peasy.


        • Here’s how it works in practice:

          “Paul explained how the NSA routinely and deliberately spies on Americans’ communications — listens to their calls and reads their emails — without a judicial warrant of any kind:

          The way it works is, the FISA court, through Section 702, wiretaps foreigners and then [NSA] listens to Americans. It is a backdoor search of Americans. And because they have so much data, they can tap — type Donald Trump into their vast resources of people they are tapping overseas, and they get all of his phone calls.

          And so they did this to President Obama. They — 1,227 times eavesdrops on President Obama’s phone calls. Then they mask him. But here is the problem. And General Hayden said this the other day. He said even low-level employees can unmask the caller. That is probably what happened to Flynn.

          They are not targeting Americans. They are targeting foreigners. But they are doing it purposefully to get to Americans.”

          They can do it without a warrant. All they need to do is act in bad faith.


        • JNC,
          I allowed for the probability of NSA near-universal intercepts. I agree that this is possible.


  5. I said it before and I’ll say it again… How in the hell did the religion-phobic left decide to become BFFs with islam?


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