Morning Report: Hawkish Fed-Speak yesterday 3/30/17

Vital Statistics:

Last Change
S&P Futures 2355.0 -2.0
Eurostoxx Index 378.7 0.2
Oil (WTI) 49.8 0.3
US dollar index 90.2  
10 Year Govt Bond Yield 2.39%
Current Coupon Fannie Mae TBA 102.06
Current Coupon Ginnie Mae TBA 103.36
30 Year Fixed Rate Mortgage 4.11

Stocks are lower this morning on no real news. Bonds and MBS are down small.

We will have Fed-speak all day, with 4 speakers. The bond market is still digesting hawkish statements from yesterday.

The final revision to fourth quarter GDP came in at 2.1%, an uptick from the previous 2.0% estimate, based on higher consumption. The PCE price index came in at 2%, bang in line with the Fed’s inflation target.

Initial Jobless Claims came in at 258k, a slight downtick from the week before. Consumer comfort slipped.

Corporate profits rose 22% in the fourth quarter compared to a year ago to just over $1.7 trillion. While the stock market may have overreacted to the Trump reflation trade, the backdrop of increasing corporate profits provides basis for increasing stock prices.

Federal Reserve Bank of Boston Head Eric Rosengren suggested the Fed should hike rates 3 more times this year and warned about pushing unemployment too low. “The perception seems to be that the outcome of each FOMC meeting depends on nuances of incoming data, with the base case being no change in rates,” Rosengren said in a speech in Boston Wednesday. “My own view is that an increase at every other FOMC meeting over the course of this year could and should be the committee’s default.” Rosengren used to be a dove, and now has turned hawkish. Again, the big question is whether the unemployment rate of 4.7% is a true reflection of the labor market given the low labor force participation rate. The true “tell” is going to be wage growth, and that is improving after a long slumber, but is nowhere near igniting inflation. Remember, the Fed has two goals here: 1) to prevent inflation from getting out of control, and 2) to get off the zero bound. The Fed is soft-pedaling goal #2, but that is what is really going on here.

A bipartisan group of senators has warned FHFA Chairman Mel Watt to not suspend Fannie Mae’s dividends to Treasury, as it would affect efforts to revamp the housing finance system. Note that the dividends from Fannie Mae have been used to prop up Obamacare, and the constant draining of capital means that Fannie is becoming less safe and more likely to need a bailout should home prices fall or we have a recession.

Repeal and Replace might not be dead after all. Trump is hinting that he might deal with Democrats if the Freedom Caucus doesn’t come onboard. That may be an empty threat as the bridge across the aisle is pretty much a smoking hulk at this point, but you never know. Trump does have leverage with the Democrats however, if he chooses to use it. Lawsuits against Obamacare still exist, and if the Administration chooses not to defend against them anymore, they could end the subsidies to the insurance companies which would probably end the exchanges in many parts of the country. The Freedom Caucus however is about to learn the first lesson of coalition politics – nobody gets everything they want. Additional progress on this front will generally be bond bearish (in other words sending interest rates higher).

One-of-a-kind waterfront property in VA for under $250k? Yes! Though it is a bit of a fixer-upper.

25 Responses

  1. This says more about the MSM than anything else:


  2. Re: the lighthouse.

    If you could make it rise out of the ocean? with an enclosed helo landing pad? submarine dock?

    gentlemen, our perfect league of evil lair.


  3. Look, I get that the rubes in the Democratic base believe the moronic “Russians Hacked the Election” shiny object, but elected Democrats in D.C. Don’t actually believe it, do they?

    Liked by 1 person


      If you did not hear Rubio run through some of the litany of Russian active measures you should check it out.

      The Russian hack of the DNC/Podesta was a tiny part of the active measures – including against Speaker Ryan and Rubio.

      Ds may call it “hacked election” but that is inaccurate. “Influenced election” through active measures would be accurate. Russia is pulling the same crap in France and Germany, as Cornyn suggested, and a byproduct of the Committee’s work would be the ability to aid the French and the Germans in dealing with it.

      The Senate Committee is doing actual work here.


      • You actually believe that? Podesta was phished for goodness sake and the DNC hack is an open question, there is a reason they wouldn’t allow the FBI to look at their server. Are the Ruskies trying to influence our elections? Yes. Have they since 1917? Yes. Are they attempting to gain intelligence on all our elected officials, don’t we do the same? Obama hacked Merkel’s phone if you recall. The Chinese hacked the Federal employee database and have exceedingly detailed personal information on literally millions of current and former government employees.

        How did the Russians force the DNC to collude with HRC against Bernie Sanders? How did they force Donna Brazile to provide questions to HRC before debates? How did they prevent HRC from campaigning in Michigan, Wisconsin and Pennslyvannia? Did they get her sick via computer that caused her to collapse on camera on 9/11? Did the somehow, via computer, cause a large turnout of the so-called missing white voters?

        This is Democrats trying to cover up the fact that their candidate is a two time loser and lost to the most unpopular Republican nominee ever. The story is utterly contrived.

        If wasting time on this keeps the Senate from fucking up something else, well I suppose that’s a benefit to us all. But let’s not kid ourselves, there is no important work being done.

        Question, was Russian interference greater now versus 84 when they colluded with Ted Kennedy?

        Did we ever try and effect elections? Obama spent Federal money trying to defeat BiBi. Didn’t Obama do all he could to influence the Brexit vote? Hell, we had Allende and Diem killed.

        I’m honestly stunned you buy into this.


        • George, HRC lost the election by her own hand, or foot in mouth.

          Russia has a long history of interference and propaganda.

          What is different is the scope and the availability of social media and Russia’s all out use of it to spread disinformation. You really should watch some of this stuff and not assume I am ‘splainin’ for HRC.

          Russians are doing specific bot generated false news in Germany, and openly support the nationalist woman in FR.

          This is interesting material generally if you don’t go into it looking for excuses or are blind to details.

          There was a Trump related narrative I shouldn’t forget to mention – DJT retweeted stuff from RT and Sputnik a few times, adding to the credibility of false Russian planted stories.

          There were instances where Ds were repeating other false Russian planted stories – they didn’t talk about the campaign, but RT and Sputnik really pushed that anti-Wall Street protest group[was it called “Occupy Wall Street”?] and Ds were sucked in on that one.

          This is about understanding Russia’s agenda and how to deal with it, at least, for me, and according to the Senate Intelligence Committee, for them.


        • I tend to agree that Russia was interested in “Influencing the election” but I regard that as far too low of a bar for a scandal. For this to matter, there has to be some evidence of collusion between Trump’s campaign itself and the Russians. Roger Stone is probably the most questionable player out there in this regard.

          All kinds of actors, starting with the press itself are interested in “Influencing the election”. I don’t see any way to limit Russia’s “fake news” tactics without violating the First Amendment, and I certainly don’t trust the Democrats to exercise that level of power.

          Had Russia been the one to release the Trump Access Hollywood tape, Democrats would be calling for Putin to get the Nobel Peace Prize.


        • JNC, one of the suggestions about dealing with Russian generated disinformation and their bots is for the ISPs to get together and with consultation from security types not ban Russian shit but rate it, or flag it as questionable. The ISPs and social media would have to do it through their own committee with no government input on the ratings.


        • Why do you think the status quo is inadequate?


        • mark:

          …one of the suggestions about dealing with Russian generated disinformation and their bots is for the ISPs to get together and with consultation from security types not ban Russian shit but rate it, or flag it as questionable.

          The trouble is that if such an approach is effective, it will be expanded beyond just Russian-generated disinformation and applied to information and information sources that the people in charge of the ratings/flaggings simply don’t like. We’ve already seen this type of thing happen on social media sites. Twitter sets up “community standards” and then uses them capriciously to ban those who express political opinions they don’t like. People who run ISPs and social media sites have interests and agendas just like the Russians do.

          There is simply no “fix” to the problem of voters being influenced by disinformation, and nothing particularly special about Russian disinformation. Is it any worse when a voter is influenced by some fake Russian story he found on Facebook about HRC’s connection to terrorists than if the voter is influenced by some fake story she found in the WaPo about women being paid 77 cents for every dollar that men make?


        • Excellent point, don’t like something you hear? Counter it with facts.


        • Counter it with facts.

          Basically, I agree with this. But I do see a value in warning about disinformation if not done by a government entity.

          It might not work out better than Consumers’ Reports, considering that ferreting facts is difficult on an instant basis, and allowing for bias. But it would be a plausible idea, provided no one was banned for a political story and there was no govt control.


        • jnc:

          I tend to agree that Russia was interested in “Influencing the election” but I regard that as far too low of a bar for a scandal. For this to matter, there has to be some evidence of collusion between Trump’s campaign itself and the Russians.

          I wholeheartedly agree.

          All kinds of actors, starting with the press itself are interested in “Influencing the election”.



        • The governments focus on RT and Sputnik are funny in that their influence, using ratings as an indicator, are literally nil. What are the BBC’s rating numbers? Isn’t that government run? NPR?

          This has the smell of backdoor censorship. Based on who American’s elect it’s obvious to me we are a profoundly stupid (at least politically) country. That being said, the last thing I want is the Federal, state and local governments “advising” me on what is “Real” versus “Fake”. That always smacks of “there are things I don’t want you to hear/read/understand”. The motive behind that is ALWAYS nefarious.

          I believe NPR does far more damage to the electorate than anything any foreign government could ever do and that’s why government funding of it should be forbidden. Should it be removed from the air? Of course not, that way lies madness.


        • George – stuff that originated in RT was retweeted more than CNN and BBC stuff combined.


        • My question back is, so what?

          Is it your opinion that more than a tiny fraction of the electorate reads beyond the headline?

          How many stories about the dangers of E-Meters power companies are installing in homes get passed around?

          My point is people are stupid. Do you believe these so-called fake stories changed votes? Really?


        • The thing about Twitter (and all social media) is that it skews young, demographically and the young voted overwhelmingly for HRC. That would mean then that Ruskie “interference” was designed to help HRC, no? Or, are the Ruskies incredibly incompetent?

          By the way, what’s the evidence that the Ruskies desired a Trump win?


        • McWing:

          What are the BBC’s rating numbers? Isn’t that government run?

          They would say taxpayer funded, not government run. But your point is legitimate, especially in light of all the disinformation that the BBC publishes/broadcasts, especially about the US.

          BBC World, the BBC’s arm in the US, is definitely trying to influence American politics.


        • “markinaustin, on March 31, 2017 at 10:34 am said: Edit Comment

          George – stuff that originated in RT was retweeted more than CNN and BBC stuff combined.”

          But was it actually false?


        • Are you calling James Clapper a liar?


  4. Shame seems to be an emotion with which progressives are unfamiliar:

    San Francisco has already filed suit against the Trump administration over the executive order, also citing the 10th Amendment. “This strikes at the heart of established principles of federalism and violates the United States Constitution,” attorneys for the city and county of San Francisco wrote in its complaint.

    This, coming from a city that celebrated the imposition of SSM on California by a federal judge. Twice.


  5. Interesting argument:

    “In countries with thinner social capital institutions the declining power of organized religion has posed an existential threat. As accountable and reasonable religious figures lose influence, they have been replaced by extremist entertainers and fundamentalist revolutionaries. Devolution of power away from traditional institutions creates anxiety for many, anxiety that’s often displayed in the shape of fanatical extremism and desperate efforts to shore up a disintegrating religious culture by political mandate. It is not religious enthusiasm, but religious decline, that feeds fundamentalism. We are not immune.”


    • I find it humorous that the people most likely to invoke Jesus to justify their political arguments are progressive atheists..


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