Morning Report: Consumer confidence highest since Dec 2000 3/28/17

Vital Statistics:

Last Change
S&P Futures 2334.5 -1.5
Eurostoxx Index 374.0 -1.3
Oil (WTI) 48.32 0.5
US dollar index 89.4
10 Year Govt Bond Yield 2.36%
Current Coupon Fannie Mae TBA 102.06
Current Coupon Ginnie Mae TBA 103.32
30 Year Fixed Rate Mortgage 4.15

Markets are slightly lower after recouping most of yesterday’s losses. Bonds and MBS are up small.

The trade deficit improved to $64.8 billion from $68.8 billion in February. The weakening dollar is helping things, along with lower oil prices. Meanwhile retail inventories increased 0.4%.

Janet Yellen is scheduled to speak at 12:50 pm on workforce development. I doubt there will be any monetary policy (i.e. market-moving) statements, but you never know.

Donald Trump is hoping he can attract some moderate Democrats to vote in favor of his infrastructure spending plan. Democrats are in favor of infrastructure investment, however they want the government to spend directly, while Trump and the Republicans want to do it via the tax code. The partisan rift will almost undoubtedly fall down that line, although the failure of Obamacare repeal leaves less money for direct spending.

Remember the debt ceiling negotiations and threats of government shutdowns in the Obama admin? The government runs out of money in a month.

Charles Evans said that two hikes might be the right number for 2017, which is more dovish than the consensus. The collapse of the Obamacare repeal is still sinking in. Watch for more dovish statements and a lowering of growth and inflation forecasts.

Economic confidence fell last week according to Gallup and is at the lowest since the election. It is still higher than pre-election however. It will be interesting to see the numbers post the health care vote.

That drop in confidence was not apparent in the Consumer Confidence numbers, which came in way higher than expected in March. The reading of 125.6 was the highest reading since December 2000. Note the cutoff for this survey was mid-March.

The Richmond Fed Manufacturing Index is showing further strength, echoing the strength we have been seeing in the other regional Fed indices.

Home prices rose smartly in January, increasing 5.9% and hitting a 31 month high, according to the Case-Shiller home price index. Seattle, Portland, and Denver led the charge all reporting over 9% growth. Seattle increased by over 11%.

Home inventories are at the lowest level in 2 decades, according to NAR at just under 4 months’ worth. The first time homebuyer is being squeezed by tight inventory, rising prices, and increasing mortgage rates. Unless incomes begin to catch up with prices, something has to give: either home prices or building. According to NAR, the median home price February was $228,400, while the median income (from Sentier Research) was $58,056, putting the median house price to median income ratio at 3.9x, which is higher than the historical range of about 3.2- 3.6 times. Given the continued acceleration in home prices, professional investors who bought properties during the bust years and rented them out are happy holders. And to be honest, as an investor, you would sell real estate to buy what, exactly? Stocks? Bonds? Bitcoins?

Meanwhile, the homebuilder stocks are almost back to 2 year highs heading into the Spring Selling Season. Note that KB Home recently reported strong earnings, while Lennar disappointed on the the gross margin side. Increasing land costs are the biggest problem, while rising material and labor costs are an issue. The question for the bigger builders is what is going to drive revenue growth going forward once home prices plateau. At that point, they may begin to start building again. We aren’t there yet however, as Stuart Miller of Lennar commented on an earnings call: “In this environment of accelerating sales pace, together with limited land and labor, and tight inventory particularly at the lower price points, we believe we are positioned for increased pricing power and solid earnings going forward.” Translated, that says that Lennar plans to keep inventory tight and let price increases drive the top line going forward.

Despite the increase in rates, lenders are still optimistic about the economy, according to the latest Fannie Mae Investor Sentiment Survey, however a challenging purchase environment and the death of refis remain huge issues. Lenders are beginning to increase the size of the credit box in response, although the changes are modest. Increasing the credit box meaningfully will require some sort of return of the private label securitization market, which remains largely dormant. Addressing the issues here will be a huge part of Dodd-Frank reform. The US taxpayer currently stands behind something like 90% of all new origination, which almost nobody in government wants.

The regulators are using AI and machine learning to deal with the markets.

32 Responses

  1. “Donald Trump is hoping he can attract some moderate Democrats to vote in favor of his infrastructure spending plan. Democrats are in favor of infrastructure investment, however they want the government to spend directly, while Trump and the Republicans want to do it via the tax code. The partisan rift will almost undoubtedly fall down that line, although the failure of Obamacare repeal leaves less money for direct spending.”

    This is what he should have started with, not PPACA repeal.

    Like

  2. https://www.washingtonpost.com/world/national-security/trump-administration-sought-to-block-sally-yates-from-testifying-to-congress-on-russia/2017/03/28/82b73e18-13b4-11e7-9e4f-09aa75d3ec57_story.html?hpid=hp_hp-top-table-main_yates1005a%3Ahomepage%2Fstory&utm_term=.efb57dc94ba0

    After reading the exchange of lawyer letters there it seems Yates is determined to testify, probably about Flynn, and if she is careful she will not infringe on Executive Privilege because the information has now been made public.

    But the Admin wants her not to testify about her communications with WH counsel on a broad claim of privilege.

    1] Every WH almost always invokes privilege, so no surprise there.

    2] Does Yates know something other than now public stuff about Flynn?

    3] If she technically violates executive privilege, I think the WH’s only recourse is to go after her bar card, if the information is not classified above a level the Intelligence Committee can hear.

    4] Your thoughts? What about Nunes pulling down the hearing? Coincidence?

    Addendum: my own guess is that Yates has nothing to do with the cancellation of the hearing and that the Committee, Ds AND Rs, won’t move forward with anything until Nunes shares with them whatever the fuck he was talking about last week.

    Like

  3. Mark:

    I found the following defense of the notion of substantive due process:

    https://www.cato-unbound.org/2012/02/06/timothy-sandefur/why-substantive-due-process-makes-sense

    I have two primary criticisms of it. First, if the author’s reasoning is correct, then it is possible even for a Constitutional amendment to be deemed “unlawful” and hence unconstitutional. Which is an absurd position to take. (If we are to accept it, then I think a very easy case can be made that the 16th amendment is contrary to the very purpose of government and therefore unconstitutional.)

    Second, the application of his notion of substantive due process does not solve the problem of arbitrary law making, which is ostensibly the very reason for the doctrine. It merely transfers the power of arbitrariness from elected officials, about whom the people can actually do something to end it, to unelected judges, about whom the people are powerless to do anything to end it. He says:

    Substantive due process makes sense: some things government does—arbitrary, irrational, self-serving exercises of political power—lack the elements that make a legislative pronouncement a “law.”

    Change “legislative” to “judicial” and is the claim any less true? Certainly a judicial pronouncement that SSM is a “fundamental” individual right is no less arbitrary or irrational (and I would argue significantly more arbitrary and irrational) than a legislative pronouncement that marriage is defined as a union between a man and a woman.

    Lastly, as I mentioned on the previous thread, I am very curious how you think the 14th would need to be re-worded in order for it to protect procedural rights from state encroachment, while still allowing states the same power that they always had to define the scope of substantive rights to be protected by state law. In other words, how should the 14th have been written in order to protect individual procedural rights while also leaving how and when to regulate gun rights or abortion rights entirely up to the states rather than SCOTUS.

    Like

    • “Substantive” due process is murky ground. I applaud your energy. We hated it as subject matter in law school.

      As for the immigration issue, I think you are ignoring both the federal-state separation of law enforcement obligations and priorities and the reality that every state prosecutor and law enforcement agency faces on the ground.

      Go after felons first. Use every community tool available to find them. Don’t chase people underground who could be witnesses or leads.

      Finally, undocs pay into the SS system and get NOTHING out, as it should be.

      The repeating local problem with undocs is that there is the likelihood they will be exploited and become a serf class. People complain that they will lose their cheap construction, gardening, and landscape workers around here.

      Which is fine with me. If you will recall, I am big on employer verification and the ultimate result of that would be a huge voluntary exodus of undocs with higher pay going to native born American gardeners, tree trimmers, and construction workers. Employer verification is no strain on local law enforcement and if the feds were ever serious about the issue of illegal aliens this would be the first step.

      This would apply also to the hundreds of thousands who have overstayed their visas and thus did not enter illegally and thus have committed NO CRIME. 50K in Boston would be encouraged to go back to Ireland if they could not work. At least that many Chinese in CA, too.

      Local law enforcement chasing federal misdemeanants is utterly stupid and costly; an attempt to avoid a federal responsibility because it sounds good to sunshine patriots when a true solution is there for the asking.

      I also favor an entirely different immigration system based on merit, not extended family reunification.

      Like

      • Mark:

        “Substantive” due process is murky ground.

        Which is precisely why it is the tool of choice for living constitutionalists. It is the magic elixir that allows them to justify whatever decision their own personal policy prescriptions require, as we have seen in Griswold, Roe, Obergefell, etc, etc, ad infinitum. The use of such a murky and limitless doctrine to impose massive social change on the nation at the will of just 5 unelected Ivy League lawyers is bad enough as it is. The fact that the doctrine itself is nothing but an invention of the Court and can be found no where in the Constitution makes it even worse.

        At the risk of being a bore, I’ll try one more time, and then I will let it be. I genuinely would like to know how those who accept incorporation doctrine, as you do, might answer this. If, as you maintain, the due process clause of the 14th can reasonably be read to have incorporated all of the substantive rights in the Bill of Rights (and then some!), how could the 14th otherwise have been written so as to indicate to you that only procedural rights were guaranteed, while maintaining the states’ historical sovereignty with regard to substantive rights like private gun ownership or access to abortion.

        As for the immigration issue, I think you are ignoring both the federal-state separation of law enforcement obligations and priorities and the reality that every state prosecutor and law enforcement agency faces on the ground.

        I don’t think I am ignoring that. What I recognize, though, is that so-called sanctuary cities are called that, indeed call themselves that, for reasons other than simply separations of power and law enforcement priorities. They are making a political statement, an objection to the enforcement of immigration laws, and a vow to thwart such enforcement to whatever legal degree possible.

        Finally, undocs pay into the SS system and get NOTHING out, as it should be.

        The repeating local problem with undocs is that there is the likelihood they will be exploited and become a serf class.

        The exploitation issue is not one that concerns me. If they feel exploited, they are free to leave and cease being “serfs” any time they want. Besides, if the government makjng money off of illegal immigrants’ SS payments that they will never be able to collect on isn’t “exploitation” that should bother us, I don’t know why private businesses “exploiting” them should.

        That being said, I am with you on enforcing immigration law via employers. But it is somewhat odd to me to think that private citizens and businesses would have an obligation help ICE do its job, but local governments do not.

        Like

  4. Literally Hitler I is gonna see his image restored by weighing in on Literally Hitler II

    http://www.nbcnews.com/politics/white-house/dick-cheney-russian-election-interference-could-be-seen-act-war-n739391

    Like

    • That would be like the literal crossing of the streams.

      Like

    • Will any progressives rethink their position due to this? Probably not.

      Cheney is actually being reasonably consistent as a neocon. But the whole “act of war” with Russia line always sounds contrived when it comes from the left.

      Had Russia hacked and released Trump’s E-mails, they probably would be calling for Putin to get a Nobel Peace Prize for helping to stop his election.

      Like

  5. But “I have seen no evidence that they were doing anything that was nefarious,” Meeks told Politico March 1.

    Then their shit-canning by DSW was due to muzzieohobia?

    http://dailycaller.com/2017/03/28/house-democrat-dismisses-muslim-womans-charge-against-muslim-staffer-citing-islamophobia/#ixzz4cduIaTn2

    The lengths that the Democrats interviewed in this article are going in defending these people are incredible. Apparently being accused of Islamaphobia is now the equivalent of political death.

    Like

    • That, IMO is the fundamental difference between the left and right now.

      The left thinks Islamophobia is a bigger threat than terrorism
      The right thinks terrorism is a bigger threat than Islamophobia

      It is the natural conclusion from going all-in on identity politics…

      Like

  6. No wonder Schumer is (potentially) losing it. Check out what happened to Leahy after he said he wasn’t included to filibuster Gorsuch.

    http://www.dailykos.com/story/2017/03/28/1647851/-Senator-Leahy-walks-back-I-m-not-inclined-to-filibuster-comment-Keep-calling-it-works

    In fairness, the progressive left has wanted to eliminate the filibuster for a while now.

    Liked by 1 person

    • George, I think that cooler heads will not join Schumer in an ineffective filibuster that could only end dismally for the Ds. I actually hope that 10+ Ds just simply vote “yea” on the matter. Otherwise, I would anticipate the so called nuclear option.

      As to Yates – good to see the WH claiming no executive privilege. I think the plan by Yates’ counsel announced in his last letter to permit her to testify unless the WH set forth its specific privilege arguments by Monday rolled back the knee jerk response of EP, which every single Admin raises, IIRC.

      It was the Justice Department that raised the claim of Executive Privilege, originally, but if you were representing Yates you would have to take that as coming from POTUS because only he can claim it. However, Justice could announce it. So it is possible that Justice went out on its own to raise the claim but then backed off because the WH really didn’t care about it. Doesn’t matter, now, if WH expressly isn’t claiming and Justice has taken itself out of the loop.

      Like

  7. Every one of these posts is literally hysterical.

    http://www.dailykos.com

    Like

  8. Like

    • No, this is a case of the conservative carve-out. Conservatives are at the bottom of the victim totem pole..

      Like

  9. Legal lunacy is apparently not restricted just to the US:

    http://loweringthebar.net/2017/03/two-more-rivers.html

    How long before the likes of Greenpeace claim, and the lockstep liberals declare, that the Mississippi has substantive due process rights?

    Like

  10. The NSA is expected to turn over logs as early as this week to congressional committees detailing who consumed reports with unmasked Americans’ identities from their intercepts since the summer of 2016.

    I hope they release this information publicly. Whether there was spying for political reasons or not (there was, but I’m pretending to be fair here), the public should have access to who got to see this information and why they saw it.

    http://circa.com/politics/barack-obama-changed-how-nsa-intercepts-of-americans-like-donald-trump-could-be-shared

    Like

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