Morning Report: Hard data versus soft data 4/4/17

Vital Statistics:

Last Change
S&P Futures 2345.5 -10.5
Eurostoxx Index 378.7 -0.6
Oil (WTI) 50.5 0.3
US dollar index 90.5  
10 Year Govt Bond Yield 2.32%
Current Coupon Fannie Mae TBA 103.41
Current Coupon Ginnie Mae TBA 103.7
30 Year Fixed Rate Mortgage 4.09

Stocks are lower this morning after auto sales disappointed. Bonds and MBS are up.

Factory orders rose 1% last month, in line with expectations.

US economic confidence decreased last week, according to Gallup, however confidence is still strong. Meanwhile, consumer spending was flat.

These data points (economic confidence, consumer spending, and auto sales) illustrate the conundrum we have been seeing for the past few months: soft data like confidence and ISM reports show a strong economy, while the hard data like sales have been showing a mediocre economy. Much of this is Washington-driven as investors realize that Trump will have a difficult time pushing through his agenda in the face of unified Democratic opposition and a Freedom Caucus that wants less government, period. Unrealistic expectations are being brought back to Earth. Despite gridlock, much is being done on the regulatory front and with executive orders which don’t require Congressional approval. That will help. But there seems to be a shift in the psychology of investors: the markets seem to be worrying less about the Fed and worrying more about tepid growth. Bonds have noticed as well, with the 10 bond yield down about 30 basis points over the past 3 weeks.

Home prices rose 7% YOY in February, according to CoreLogic. We are seeing the highest price appreciation at the lower price points. The first time homebuyer is getting hit with a double-whammy of higher prices and borrowing costs.

Housing’s share of GDP came in 15.6% in the fourth quarter. Historically, that number has been around 18%. Housing continues to punch below its weight, as evidenced by tight inventory. It is hard to know exactly why homebuilding continues to be weak – credit is an issue, as is the general post-bubble caution, along with local land use regulations.

43 Responses

    • Dude was 9 days away from inauguration, why did they need a back channel?

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      • Guess WaPo needed something to distract from the Susan Rice story…

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      • Dude was 9 days away from inauguration, why did they need a back channel?

        First thought I had this morning.

        However, it is a two-edged sword of a question, if you think about it. I mean, why did they?

        And, no, I have no idea. Maybe Blackwater, a notoriously secretive group, maintains a suite in the Seychelles. Maybe Blackwater was drumming up biz for itself by suggesting it maintained a certain closeness to the DJT group. I don’t know. I just picked one plausible scenario.

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        • Maybe it’s designed to try and counter another story?

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        • The other implication is that despite all the conspiracy theories so far, they didn’t actually already have one.

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        • The theory I see bandied about is that Russia has cultivated some tools who have managed to get close to DJT and who manipulate him on his stance toward Russia. Frankly, I have always thought DJT was too much enamored with Putin. I have assumed that to be a character defect, not full Manchurian Candidate. The story about the Blackwater operative centers on the Emir wanting to put distance between Russia and Iran and and knowing that DJT saw this as useful used his good offices with Russia to arrange the back channel.

          There are lots of plausible inferences. Take your pick.

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  1. NoVA, so apparently the new repeal and replace compromise involves adding language to grant waivers to the states over the essential health benefits and the community rating provisions.

    https://www.washingtonpost.com/powerpost/with-help-from-pence-house-republicans-suddenly-rekindle-health-care-talks/2017/04/04/91cf1c74-192f-11e7-855e-4824bbb5d748_story.html

    I thought they could already do that currently, or was it something else that they could do via waiver that we were discussing before?

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  2. Grist for the “celebrity appeal” theory of Trump’s victory:

    http://politicalorphans.com/a-truly-disturbing-explanation-for-trumps-win/

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  3. Question for NoVA, our chief insider.

    To me, who has been involved in local and state politics, choosing when and what to fight is the essence of how to succeed in that arena. There are, very occasionally, fights on principle that must be engaged.

    I take “filibustering” Gorsuch as not a fight over principle, but a macho display of tit-for-tat. It also is one that violates the rule of choosing wisely, because it enters into a gunfight unarmed, apparently so that some presumed audience will applaud their gallantry.

    Because McConnell had the guns to thwart Garland and he has the guns to ensure Gorsuch, the Ds seem to me to have actually misunderstood the tit-for-tat game.

    From a professional and dispassionate view, isn’t this a fool’s errand in every respect, or is there something I am missing, like potential fundraising from the left wing? Does Schumer intend to go all Bernie and crowd fund the D’s Senate races? I mean, what?

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  4. A useful reminder of how things were seen at the time vs conspiracy theories:

    “She is everything everyone dislikes about the front row kids. And this election is about everyone else throwing them out.”

    View story at Medium.com

    Source piece which is worth a read too:

    https://newrepublic.com/article/141828/bernie-sanderss-misguided-attacks-liberal-elite

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    • JNC, those links were excellent.

      George, a friend of mine who is a USADA thinks that you are right about Schumer’s motives and that he isn’t dumb.

      But he thinks the new paradigm that the President and Senate will have to be in the same hands to get judges on the bench is awful.

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      • Mark:

        But he thinks the new paradigm that the President and Senate will have to be in the same hands to get judges on the bench is awful.

        Turning the court into a policy making body via living constitutionalism is what I think is awful. The new paradigm is just the inescapable result of having done so. If the court hadn’t embraced living constitutionalism and imposed the likes of Roe and Obergefell on the nation, would anyone outside the legal field have much interest in SCOTUS nominations? Seems unlikely to me.

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        • I believe that I’ll see a president go full Andrew Jackson in my lifetime and disregard a SCOTUS decision.

          If confirmation battles are all political anyway, why should the actual elected branches automatically defer to the SCOTUS?

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        • jnc:

          If confirmation battles are all political anyway, why should the actual elected branches automatically defer to the SCOTUS?

          Exactly. The Court has spent almost 75 years discrediting itself in increasingly outlandish fashion. Eventually the chickens will come home to roost.

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  5. Here’s a thought exercise:

    If James Mattis (Secretary of Defense) and Joseph Dunford (Chairman of the Joint Chiefs of Staff) announced that they had removed Trump from office due to suspected collusion with the Russians and were temporarily running things until a new election could be organized since the old one was tainted by Russian interference, would anyone on the left actually object?

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    • JNC – if you mean politicians and press, they would object vehemently. If you mean the commentariat at liberal blogs, not so much.

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      • I tend to think not. There’s a lot of investment in the “Trump’s trying to undermine American democracy” and “Trump’s an authoritarian fascist” narratives by both the Democrats and the media at this point. Remember, all those articles about what would happen if he had command of the US nuclear arsenal?

        They will give some general boilerplate disclaimers about “extraordinary circumstances” but they will not push to return him to office.

        And a lot of Republican office holders will be quietly glad that he’s gone too.

        This is exactly what happens to various populist politicians in other countries when their approval gets this low and it’s “normalized” in exactly the same fashion.

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      • I’m scratching my head trying to come up with the names of politicians and press (BIRM) that would even mildly object, let alone vehemently.

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    • jnc:

      Here’s a thought exercise:

      “As of now, I am in control here in the White House.”

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      • Did you happen to see The Americans episode with that in the first season? It was great.

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        • Yes…I am a big fan of The Americans. Requires a pretty big suspension of disbelief, but I enjoy it.

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        • I liked it better when it had more direct ties to historical events. I would love to see the reaction to Korean Air Lines Flight 007 being shot down, a plot line involving Teddy Kennedy trying to contract Andropov, or the invitation to Samantha Smith.

          Since they’ve already gotten to Konstantin Chernenko, it looks like they elected to skip those events.

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        • jnc:

          I liked it better when it had more direct ties to historical events.

          The Day After. I remember that being a huge cultural event, but had totally forgotten about it until I saw it again on The Americans.

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        • Marine barracks in Lebanon would have been good too.

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        • You should write an episode.

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  6. Interesting read:

    ” A Former Trump Adviser Met With A Russian Spy

    Carter Page told BuzzFeed News that he had been in contact with at least one Russian spy working undercover out of Moscow’s UN office in 2013.

    Posted on April 3, 2017, at 6:39 p.m.
    Ali Watkins
    BuzzFeed News Reporter”

    https://www.buzzfeed.com/alimwatkins/a-former-trump-adviser-met-with-a-russian-spy

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  7. Interesting premise:

    “Think of world as digital binary option. If you educated, and live in NYC, LA, College town. You above the strike

    If you don’t, you below strike. Option pricing theory says. If you out of the money, you want volatility.”

    & more links

    View story at Medium.com

    View story at Medium.com

    The illustrations add a lot to the posts.

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    • “Your downside is flat, your upside isn’t. Break the system.”

      is this so obvious, yet lost on so many.

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    • probably why a lot of the left went for Bernie…

      I would also add that behavioral finance explains it too… If someone is offered a choice between a certain $450 or a coin toss for $1,000 they take the sure bet. However, if someone is offered a choice between a sure $450 loss and a coin flip for -$1,000 they take the gamble. People are risk averse when they are ahead, risk-seeking when they are losing.

      Like

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