Morning Report: Q1 GDP weakest in 3 years 4/28/17

Vital Statistics:

Last Change
S&P Futures 2387.0 1.0
Eurostoxx Index 386.8 -1.0
Oil (WTI) 49.5 0.6
US dollar index 89.7
10 Year Govt Bond Yield 2.32%
Current Coupon Fannie Mae TBA 102.63
Current Coupon Ginnie Mae TBA 103.68
30 Year Fixed Rate Mortgage 3.98

Stocks are flattish after first quarter GDP misses expectations. Bonds and MBS are down.

First quarter GDP came in at 0.7%, which was lower than the 1.1% consensus forecast. A decline in spending on motor vehicles was a drag on Q1, which has been weak the past several years for some reason. The personal consumption expenditure (the inflation measure most preferred by the Fed rose 2.4%, which is higher than their target rate. This was the highest reading in several years, which means the Fed might be forced to move even though growth is weak. The savings rate jumped from 5.5% to 5.7%, which means consumers are still using increases in income to pay down debt. Inventory depletion and a drop in government spending, along with weak consumption were the main drivers. Note that this is just the advance estimate, and will be revised twice in the next month.

Employment costs rose 2.8% annualized in the first quarter, according the BLS. Wages and salaries rose 2.5% while benefit costs increased 2.2%. We have been seeing a gradual tick up in this index, however wages are still well off their pre-crisis historical trend.

Trump’s tax plan was short on specifics, but it certainly looks like wealthier residents in high tax states will feel it the most. Killing the state and local tax deduction has been fraught with risk, but given that it will largely affect the blue states it might have a chance. Eliminating the mortgage interest deduction will be a poison pill, IMO. Will tax reform hit the residential real estate market? Probably not, as tight inventories are the dominant factor driving pricing right now.

The homeownership rate ticked down slightly in the first quarter to 63.6% from 63.7% in the fourth quarter. It looks like it is on the rebound, however the first time homebuyer really needs incomes to rise in order to catch an asset that is increasing 7% a year. More starter home construction would help too, but multi-fam seems to be the interest of builders. Vacancy rates are largely flat MOM and YOY.

The Chicago Purchasing Manager Index rose last month, while consumer sentiment slipped.

Housing Wire’s home price forecast for the rest of the year. Overall, looking at 3.5% growth, with a range of anywhere from 1% to 10%.

46 Responses

  1. The case against democracy

    “Our political process is premised on the notion that everyone is equal and therefore everyone’s perception of reality deserves a roughly equal weight. Apply this logic to questions of scientific expertise and the results are either comedy and tragedy, sometimes both.”

    Liked by 1 person

  2. Worth a read:

    “America, From Exceptionalism to Nihilism

    The U.S. leads the free world in its helplessness before the dissolution of its most cherished values.

    APRIL 28, 2017”


    • an unprecedented onslaught against the very notion of truth.

      Ugh. Like every president and administration doesn’t lie, and lie constantly. Trump is just obviously lying, and basically attacking other liars—primarily the press—for how they lie, and asserting that some other lie is the truth, rather than the lie the critics are advancing. But it’s gauche to be so obvious about it all.

      Extravagant promises by ruling elites, and their unexamined assumptions, are at least partly to blame for this moral breakdown in the world’s most powerful country. In 2011, for instance, Mr. Obama had claimed, “We are perfectly poised to make the 21st century again the American Century.”

      This has been a frequent theme of politicians since I was born. The tensions between that, and the real suffering of people, and the imagined suffering of people, both of which will always be with us—that’s always happened. Incumbents tend to a message that says the country is awesome, because they are in charge. There is a few bad things, sure, but those are the other guy’s fault.

      This is not some new thing that’s just now manifested because we elected some vulgarian to the Whitehouse. History goes back before Trump and Obama.

      Mr. Obama, who recently accepted a very lucrative speaking engagement on Wall Street, now looks like just one of the fortunate members of historically depressed minorities who mistake their own upward mobility for collective advance.

      Who was the last president who didn’t leverage their experience in the presidency to advance themselves afterwards in some form? Even Nixon wrote some books. Not sure what LBJ did.

      Reading on, in short, he’s got a point, and does acknowledge the long history (or of) of boosterism being at odds with the worries of the world, but . . .

      I guess it’s the NYT. They’ve got to start the article by implicitly blaming Trump, and his “relentless onslaught on the truth”.


    • From the article:

      ..but also something more ominous: an unprecedented onslaught against the very notion of truth.

      I have just one question for the author of this sentence and the editors that published it: Is Bruce/Caitlyn Jenner a man or a woman?


      • Well, there’s a genetic answer and a psychological/appearance answer. . .


        • Some persons are born to their gender, some achieve their gender, and some have their gender thrust upon them.

          [Famous saying, redux]

          So a person with a penis who was born without one could be hit with an indecent exposure charge in the ladies room but be banned from the men’s room?

          Meh. I wouldn’t give Ms. Jenner a second thought. As Sherlock Holmes opined, it is useless to waste space in your brain.


        • Mark:

          Meh. I wouldn’t give Ms. Jenner a second thought.

          Neither would I if the culture, both popular and political/legal, wasn’t foisting it upon me.


        • Mark:

          Meh. I wouldn’t give Ms. Jenner a second thought.

          This is why you should start doing so.



          I hope Mercy Hospital wins on summary judgment.

          This is apparently a state court case, and in CA SJ is unlikely. In which event, I hope the final opinion is clear in both its findings of fact and conclusions of law in favor of Mercy.

          But what does this case have to do with Caitlin Jenner?


        • Mark:

          But what does this case have to do with Caitlin Jenner?

          This case is the product of the lunacy that is the trans activist political movement (combined, of course, with the authoritarian impulses of the left more generally). Caitlyn Jenner is the poster boy for that movement. (Heh…poster boy.)

          Do you think it is just a coincidence that these trans cases are suddenly cropping up after Jenner gets put on the cover of Vanity Fair and feted by MS-ESPN for his “courage” in publicly declaring himself a woman? As Andrew Brietbart was fond of pointing out, politics is downstream from culture.


        • Mich:

          Well, there’s a genetic answer and a psychological/appearance answer.

          Yeah…so just who is it who is engaged in an unprecedented onslaught against the very notion of the truth?


        • You. Because you refuse to accept anything other than your opinion as the truth.


        • Mich:

          Because you refuse to accept anything other than your opinion as the truth.

          The conclusion doesn’t follow.

          To remind you, the question was not about an assault on the truth of some specific claim (eg Bruce/Caitlyn Jenner is a man). It was about an assault on “the very notion of the truth”. And it seems to me that those who claim that whether someone is a man or a woman is a matter of subjective rather than objective reality are the ones assaulting the very notion of the truth.


        • Kinda stands to reason that if Scott thinks something is true he’d therefore think the opposite is false. Is it your position that the problem is you believe that Scott never entertains doubt?


      • Is Elizabeth Warren a Cherokee?

        Is Rachel Dolezal black?


  3. U.S. President Donald Trump told Reuters on Thursday he will either renegotiate or terminate what he called a “horrible” free trade deal with South Korea and said Seoul should pay for a U.S. anti-missile system that he priced at $1 billion.

    Secretary of State Rex Tillerson called on the world community Friday to drastically increase pressure on North Korea, warning that failure to do so could be “catastrophic” and that the US is prepared to take military action against the rogue regime if necessary.

    Both these suggestions occurred, within close proximity.

    I favor the second.

    In another setting, I might favor the first.

    However, our South Korean allies just impeached their President and are going through a political campaign at a time when they are a key player for the good guys in dealing with NK.

    So the two items together make for a certain dissonance to me. In fact, I think DJT impulsively has timed his remarks in a way that make what Tillerson has suggested is our actual FP that much more difficult to implement.


  4. Let’s think about that for a moment. In other words, for some of these comparatively low level crimes, the city wants prosecutors to go after and punish actual citizens of the country who may have run afoul of the law, but those who compound the issue by knowingly being in the country illegally to begin with are given a pass. Are the actual citizens in Baltimore who pay the taxes which fund these officials listening to this?


  5. Another thing illegals get away with that younor I wouldn’t.


  6. This is the kind of thing that gets me on board with The Resistance.


  7. This should prove interesting:

    “Supreme Court says cities can sue big banks over housing bubble damages”

    Apparently standing is the new Commerce Clause, in terms of being subject to unlimited expansion:

    “And, highly relevant here, they reduced property values, diminishing the city’s property tax revenue and increasing demand for municipal services.”

    All of that together means that the city has standing to sue, wrote Breyer, who was joined by Chief Justice John G. Roberts Jr. and liberal justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan.”

    All this flows from the BS reasoning in Kelo v. City of New London where increasing the tax base counted as a “public purpose” sufficient to exercise eminent domain.


    • So now banks are going to get sued for lending to bad credits in “minority” neighborhoods, a practice they adopted in response to getting sued for not lending to bad credits in “minority” neighborhoods prior to the bubble.

      Need I say it? Twighlight Zone.


      • Technically, they are being sued for tax revenue going down and increasing demand for municipal services.

        Because that’s the banks’ problem.


      • Thomas always gets to the heart of the matter so succinctly:

        “Miami’s complaints do not allege that any defendant discriminated against it within the meaning of the FHA. Neither is Miami attempting to bring a lawsuit on behalf of its residents against whom petitioners allegedly discriminated. Rather, Miami’s theory is that, between 2004 and 2012, petitioners’ allegedly discriminatory mortgage-lending practices led to defaulted loans, which led to foreclosures, which led to
        vacant houses, which led to decreased property values, which led to reduced property taxes and urban blight.

        See 800 F. 3d 1262, 1268 (CA11 2015); 801 F. 3d 1258, 1266 (CA11 2015). Miami seeks damages from the lenders for reduced property tax revenues and for the cost of increased municipal services—“police, firefighters, building inspectors, debris collectors, and others”—deployed to attend to the blighted areas. 800 F. 3d, at 1269; 801 F. 3d, at 1263.”


      • Guess how far CRA paper trades through pristine conventional loans?

        Depends on the time of year, but anywhere from 1-2 points through. So if a 20% down, 800 FICO loan trades at 104, a 3% down 640 FICO with the right zip code trades at 106. CRA paper trades at insane levels because of the quotas. The problem is when they default, then the government comes back and beats you up for having too many defaults. No win situation.


  8. A good indication of how utterly deranged the open-borders left has become with regard to Trump..

    The Baltimore State’s Attorney’s Office has instructed prosecutors to think twice before charging illegal immigrants with minor, non-violent crimes in response to stepped up immigration enforcement by the Trump administration.

    So illegal immigrant criminals will receive better treatment from the state than citizen criminals.


  9. Even without Trump, how were these illegals supposed to get back in?

    How were they getting into Japan without a US Passport?


  10. Ponzi scheme.


  11. Good piece:

    “What Trump Gets Right—and Progressives Get Wrong—About Andrew Jackson

    In the 19th century, Jackson broadened the electorate, but the self-righteousness of some Democrats impedes their efforts to do the same.

    Andrew Exum

    Trump, it seems clear, strongly identifies with, but actually knows little about, Jackson. But what little he knows helped get him elected president of the United States of America. What the Democrats forgot about Jackson, meanwhile, is partly why they’re in the wilderness.”


  12. I actually don’t recall right wing media personalities saying something like this about Obama during their broadcasts, certainly not on network TV.

    “Colbert was in the middle of a monologue launching various insults at Trump, including some fat shaming, “presidunce,” and “pricktator.” In the course of this, he said, “The only thing your mouth is good for is being Vladimir Putin’s cock holster.””


    • I have exactly zero interest in defending Colbert and if he lost his job tomorrow over it, it wouldn’t bother me in the slightest. Certainly any right wing pundit would be facing a shit storm, so what’s good for the goose…

      But I simply don’t buy this:

      But the only way this works as a joke is by demeaning gay people. The underlying implication here is that gay relationships are somehow extra funny

      That’s BS. If HRC were president and the exact same joke were said about her rather than Trump, the joke would have no allusion to gay sex but would still work just as well (although it would undoubtedly send feminists into a similar tizzy). The joke works not because it demeans gay people, but because the nature of the act it is describing tends to be demeaning no matter who is performing it, straight or gay. These people need to get the chip off their shoulder.


    • “pricktator.” In the course of this, he said, “The only thing your mouth is good for is being Vladimir Putin’s cock holster.””

      This was on network TV?

      I think ill of DJT but that monologue as quoted is neither funny nor clever, IMHO. I think DJT sounds/acts very immature but responding with Middle School level insults is no way to make that point.

      In fact, the left wing of the D Party and their favorite TV personalities may actually give DJT breathing room. I did not think that was possible.


    • McWing:

      A lot I disagree with in this piece, still, it’s really interesting.

      Agreed. He’s at least headed in the right direction. Although, despite his certainty at the badness that is Fox News, I’d be surprised if he’s actually watched more than 10 minutes of it.


    • I almost stopped reading when he said Republicans don’t like dealing with facts.


    • The totalitarianism of the left nicely described:

      “And then when it turns out that the enemies can just leave and start their own institutions, with horrendous results for everybody, the cry goes up “Wait, that’s unfair! Nobody ever said you could do that! Come back so we can grind you beneath our boots some more!” “


      • I am interested in what exactly is the “horrendous result” for the left in this scenario? The fact that Colbert’s cock holster remark was only heard by liberals?


  13. Having been a boxing fan from the reign of Sugar Ray Robinson in the Middleweight and Welterweight divisions I had lost interest after the Ukranian brothers held all the various heavyweight crowns but would not fight each other and the lighter divisions had no outstanding fighters, it seemed, under 40.

    So I welcome this:

    and hope to see some life in the sport again.


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