Morning Report: Slow week coming up 6/19/17

Vital Statistics:

Last Change
S&P Futures 2437.0 7.3
Eurostoxx Index 391.4 2.8
Oil (WTI) 44.8 0.1
US dollar index 88.6 0.2
10 Year Govt Bond Yield 2.17%
Current Coupon Fannie Mae TBA 103.31
Current Coupon Ginnie Mae TBA 104.375
30 Year Fixed Rate Mortgage 3.89

Stocks are up this morning on no real news. Bonds and MBS are flat.

Slow news day.

We don’t have much in the way of important economic data this week (new home sales on Friday is probably the biggest), but we do have a lot of Fed-speak. Also, the Fed will release the results from its latest stress tests on Thursday afternoon. We will get some more housing data with existing home sales and the FHFA House Price Index.

Where do the Fed Funds futures stand after the FOMC meeting last week? For the upcoming July meeting, a 97% chance of no changes to rates. For the Sep meeting, an 87% chance of no changes, and for December a 54% chance of no moves. The Fed continues to insist that the weak inflation numbers are transitory, however the markets don’t seem to believe them. Note that monetary policy is a partisan issue as well.

Another reason why inventory is so tight? 10% of the housing starts last year were tear-downs, which means a new structure is replacing an older one, so there is no net change in housing inventory.

Debt supernova? Bill Gross warns of the possible negative consequences of $9.5 trillion in negative-yielding sovereign debt. The problem with the supernova theory is that most of the buyers of this negative yielding debt are central banks, not retail investors, and central banks are doing it for policy reasons. It is still strange though, Grandpa tell me again about how you had to pay money to lend to the government?

Elizabeth Warren wants the Fed to fire Wells Fargo’s Board of Directors.

27 Responses

  1. Frist!


  2. This quote from the Sandoz CEO, butt hurt over a recent SCOTUS ruling is hilarious.

    I sell a Biosimilar to Remicade. My product was launched in November ’16. Remicade has been on the market for 18 years and sells about $6 Billion a year in the US

    The fact that the decision allows biosimilars to hit the market before brand name developers can recoup a significant amount from their investments continues to evoke concerns.

    Liked by 1 person

    • Good story, good link, George.


    • So, they are talking that after the end of patent exclusivity, that biosimilars could get to the market 6 months sooner than normal would be highly detrimental to their already gigantic profits, or . . . ?

      Not sure I take the cost recoup argument seriously, given that pharma companies generally spend upwards of 19 times the amount of money on marketing that they do on R&D. I don’t watch that much TV and I’m often exposed to the same drug ad hundreds of times more often than necessary to make a decision about that drug. I imagine there’s overspend in drug marketing in other areas. Marketing seems a great area to cut in order to recoup supposed losses.

      Also, aren’t pharma company profits, as an industry, extremely high?


  3. For Scott,

    Not a fan of Erickson, but he makes a great point


  4. Brent, can the Federal Reserve actually remove an entire Board of Directors? How would that be possible? Unfortunately, for me, the WSJ article is behind the paywall. Unless I gain “enlightenment” I will assume this is more grandstanding by EW.


    • CNBC piece on the same story. The key point:

      “For the Fed to act, it would need to establish that any individual board member’s actions were unsafe or unsound to the bank. The Fed likely would need to initiate an enforcement action and prove its case.”

      Bloomberg piece:


      • Thanks, Joe and Scott, for the Bloomberg article. I understand it better now.

        I wonder about SOP for bank directors. Typically, a corporate director would only know about a scam after the fact and would then be bound to fire the officers/employees who pulled it off, and then hire better officers/employees and turn the litigation over to counsel.

        Is there any likelihood at all that a number of directors at WF knew about the scam accounts? Since those accounts also cheated THE BANK ITSELF as well as the public I cannot see that likelihood. If the Fed investigates and finds that a director was playing around in the muck, that would be one thing. But asking for wholesale slaughter on the assumption “they all should have known” still seems like GRANDSTANDING.

        Unless someone with banking experience can explain to me WHY they should have known, that is.


        • As noted in the Bloomberg piece, it’s all for show:

          “Warren’s real goal probably isn’t to oust the firm’s board, but to use the Wells Fargo scandal as a means of rebutting Republican calls for broad bank deregulation, said Isaac Boltansky, an analyst at Compass Point Research & Trading.

          ‘‘It’s about defending the regulatory regime,” Boltansky said in a phone interview. “Senator Warren’s big fear is that the call for medium-size and smaller bank deregulation will be used as a Trojan horse” for easing rules against the biggest lenders.”

          Of course, if Trump was calling for the same thing Warren was it would be cited as a prime example of his authoritarianism and disregard for the rule of law.

          Liked by 1 person

        • With her uncanny ability to stab her own allies in the back I consider her the left’s version of Ted Cruz.

          They are both smarter than DJT and both always angling for personal political points at the expense of others, whether aligned with them philosophically or not.

          I’ll bet if both failed to show up on the Senate floor on a given day the whole room would breathe easier.


        • Mark:

          They are both smarter than DJT and both always angling for personal political points at the expense of others, whether aligned with them philosophically or not.

          I would be interested in examples of Cruz behaving like Warren.


        • Cruz supposedly stabbed Kasich in the back, and Trump, during the campaign. Warren stabbed Bernie in the back, supposedly. That sort of thing, maybe.


        • Or you could google it.


        • Mark:

          Or you could google it.

          I googled “examples why markinaustin thinks warren and Cruz are similar” but nothing relevant came up.

          Liked by 1 person

    • Mark:

      I tried to email you the article, but it turns out it is part of something called WSJ Pro, to which even I as a subscriber to the WSJ do not have access. I can see the article on my ipad, but when I go to the WJS website, I don’t have access (even though I am logged in) so I can’t even copy and paste it. But this is the Bloomberg story on the same thing.

      Unless I gain “enlightenment” I will assume this is more grandstanding by EW.

      A reasonable default position to take.

      edit: I haven’t been corked in a long time


  5. What was the SCOTUS vote on the Redskins/Trademark case?


    • mark:

      Can you summarize the article? Apparently I have hit my monthly quota of WP articles without a subscription, so I can’t see it.


      • Op-ed by George Shultz and Larry Summers on a carbon tax scheme.

        Tuesday, the Climate Leadership Council announced its founding members,
        a group of companies, opinion leaders and nongovernmental organizations who have joined forces to promote a consensus climate solution based on carbon dividends. We are proud to be part of this distinguished group.

        The companies involved represent a cross section of industries: BP, ExxonMobil, General Motors, Johnson & Johnson, PepsiCo, Procter & Gamble, Santander, Schneider Electric, Unilever, Total and Shell. Two top environmental organizations are also involved, as are other opinion leaders from across the political spectrum.

        The idea was first posed by James Baker and George Shultz. Here are the nuts and bolts:

        a gradually rising and revenue-neutral carbon tax; carbon dividend payments made equally to all Americans, to be funded using all the carbon-tax revenue; rollback of costly command-and-control regulations that were implemented because the environmental costs of carbon fuels have not been incorporated into their price; and border adjustment to ensure a level playing field and U.S. competitiveness.

        A carbon tax set at $40 per ton would achieve substantially greater reduction in greenhouse-gas emissions than all of the regulation now on the table. The application of a border carbon adjustment that levied a tax on the carbon content of imported products would incent other countries to adopt carbon pricing, increasing its impact and preventing free-riders. So the carbon dividend approach is best for the environment.

        It would also be best for economic growth, which explains why prominent companies are backing it. The alternative to a carbon tax is not the application of the free market. It is the current extensive regulatory apparatus in which government judges the products and production techniques that businesses employ and mandates particular business practices. The enactment of a significant carbon tax justifies the removal of these regulations, thus taking a burden off the economy. And unlike regulation, carbon dividends are consistent with border adjustment, assuring that U.S. firms are not disadvantaged against foreign exporters and carbon-intensive products.

        The carbon dividend also represents an important innovation in social policy. Unlike many advocates of carbon taxes, we do not believe this revenue should be earmarked for any form of government spending or for the reduction of other taxes. Rather, we believe it should be rebated as a monthly dividend equally to all Americans.

        This approach ensures that working-class Americans benefit financially.
        Because energy use rises with income and the dividend would be equal for all, the Treasury Department estimates that the bottom 70 percent of Americans would be better off with a carbon dividend plan in a direct sense. At a time when uncertainty about technology and trade looms large for many workers, assuring every American a basic benefit of citizenship with no need to go through an income test or qualification process is desirable.

        Finally, there is the question of alternatives. We do not believe the American people will for long wish to stand apart from the global effort to limit the damage from climate change. Nor do we believe that an ever-growing web of government regulation or a proliferating program of subsidies is in our national economic interest. And we share the president’s conviction that in approaching international economic policy, we need to ensure that other nations do not free-ride on the United States.


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