Morning Report: Blue Apron IPO demonstrates shift on Wall Street 6/30/17

Vital Statistics:

Last Change
S&P Futures 2423.5 3.8
Eurostoxx Index 382.0 1.3
Oil (WTI) 45.2 0.2
US dollar index 87.8 0.1
10 Year Govt Bond Yield 2.28%
Current Coupon Fannie Mae TBA 102.88
Current Coupon Ginnie Mae TBA 103.75
30 Year Fixed Rate Mortgage 4

Stocks are higher this morning after yesterday’s bloodbath. Bonds and MBS are down as well.

Should be a relatively quiet day ahead of the July 4 weekend. Expect liquidity to dry up in the bond market as most of the Street will be on the LIE by noon.

Consumer sentiment increased in June, according to the University of Michigan survey, while the Chicago PMI also jumped.

Personal incomes rose 0.4% in May, while spending rose 0.1%. Inflation remained muted as the core PCE index (the preferred inflation measurement for the Fed) rose 0.1% MOM and 1.4% YOY. The increased spending was driven primarily by utility spending, so it isn’t that great of an indicator for the economy going forward. The savings rate increased to 5.5%, and has rebounded from the lows of the bubble years. The increase in the savings rate represents the de-leveraging of the American consumer, which does depress GDP in the near term.

Regulatory issues are restricting mortgage credit, according to Treasury. This is causing people at the lower end of the credit spectrum to be shut out of the mortgage market. The recommendations largely involve clarifying QM and TRID rules to make them less uncertain, which drives risk-averse behavior out of lenders. They also propose a moratorium on new servicing rules. They also recommend revising or repealing the residential mortgage risk retention requirement, which has more or less shut down the private label MBS market. The goal of this is to (a) increase credit, and (b) draw private capital into the market. As of now, the US taxpayer bears pretty much all of the credit risk of new origination.

Unicredito Bank’s Chief Economists sees the US unemployment rate falling to 3%. If you believe the Phillips Curve, that level should trigger inflation, however we have so much slack in the labor market with the long-term unemployed we still might not see much wage inflation. Janet Yellen has already said the Fed is willing to let the employment market “run hot.” At any rate, the Fed is just moving from “ultra-accommodative” to simply “accommodative.”

Blue Apron priced its IPO at the lower end of its reduced range and broke price (i.e traded lower than the IPO price) in the aftermarket. Old-timers might remember the days when something like that was a huge embarrassment for the issuing bank. For the most part, getting in on a IPO typically meant at least a 20% pop on the first day of trading. The behavior of APRN represents the change in the landscape in investment banking over the past 20 years. 20 years ago, IPOs were priced that way in order to reward the buy side for their trading business. Since issuers used investment banking services only sporadically, and the investment banks dealt with the big mutual funds every day, the banks were more concerned with making sure that the buy side was happy and therefore under-priced IPOs (which means the issuer was leaving money on the table). Fast forward 20 years, and trading commissions are now 5% – 10% of what they used to be. Nowadays the banks are more worried about keeping the issuers happy, which means IPOs are no longer underpriced. Which is why IPOs are no longer the free money trade they used to be.

26 Responses

    • If the guy is dead, I don’t see how..

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      • Flynn’s not dead. If he actively solicited the hacking or the E-mails from the Russians, then it’s a real problem. It’s actual collusion.

        It becomes what did Trump (& others) know and when did they know it.

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        • jnc:

          If he actively solicited the hacking or the E-mails from the Russians, then it’s a real problem. It’s actual collusion.

          If he solicited the hacking itself (which is not at all suggested in the article) then yes. But if, as the article suggests, he was simply trying to obtain the already hacked (and partially released) emails, then it is not actual collusion. Collusion implies a secret agreement between two or more parties for nefarious purposes. Assuming the claims in the article are entirely accurate, what secret agreement do you think is suggested by it?

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        • To secretly provide the campaign with the E-mails that they could then use to attack Clinton with or to secretly coordinate the release of the E-mails on a time table designed to best serve the Trump campaign.

          In the end, it appears that they decided against that route and instead went through WikiLeaks.

          Regardless, anyone associated with the campaign had no business being in contact with hackers. Even if they didn’t solicit the hacking before the fact, the hacked E-mails themselves were the results of a federal crime.

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    • All of this sounds hinky to me. I’m very dubious that this is much of anything but a form of collective hysteria that processes everything through a “how is this going to get Trump impeached” filter?

      I almost don’t think a question of “is this true” as much as it is “is this compelling or persuasive enough to get a critical mass of people into our collective hysterical and then act on it?”

      This may go one for a long time, and there might be something there, but this reminds me a lot of the Clinton impeachment, and how (of all things) Whitewater became this huge deal. It’s just a witch hunt that’s becoming more of a snipe hunt.

      Which, to be clear, is not a defense of Trump or his team, who seem less appealing to me every day.

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      • I think it’s materially different if people associated with the Trump campaign were in contact with the hackers and/or coordinating with them (say on a schedule for release) vs the hackers working independently and giving the material to WikiLeaks on their own initiative.

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        • It is materially different. I just remain dubious that it happened until I see hard evidence. And dubious that anything will happen on it if the contact was a guy who knows a guy who knows a guy, and we’re going on their word without a paper trail or audio or something.

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        • Agreed.

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  1. A great example of the futility of trying to explain anything to the Vox generation.

    https://www.vox.com/policy-and-politics/2017/6/30/15879702/health-care-capitalism-free-market-socialism-single-payer

    Liked by 1 person

    • It’s futile no matter what they think. They already know everything about everything because of the Internet, and we’re all dinosaurs. End of story. Shut up, old man.

      I wanted to talk to him because I’m genuinely interested in hearing a moral and economic defense of treating health as a commodity. I’m not an economist but this approach seems not to work, produces highly inequitable outcomes, and causes needless human suffering.

      OMG. No understanding of history. No perspective. It’s just blindness. A: healthcare works as well now as it ever has, and it used to be much, much worse. There was a time when healthcare merely killed you more quickly, and people allowed it to happen because of the irrational human belief that expertise means something, even absent evidence.

      Healthcare has always been messy and had bad outcomes for many people (used to be almost all of them). It has never been perfect. It has gotten better primarily because of people wanting to make money. A lot of bad stuff comes from that, too, because people want to game the system, but healthcare has improved tremendously over the years because it is a product.

      What was the last improvement at your local DMV? At some point in 1971?

      I’m not sure if the author is truly making a distinction between a public good and a public utility, but I’d argue healthcare cannot functionally be either, primarily because of cost. There are no public park innovations that will occur and suddenly become a right despite their crippling costs. Public utilities are generally of things that are fixed in some matter. A watt is a watt. Your local power company will not start providing some new super electricity that makes everything in your house work better but costs a thousand times as much. People also aren’t going to be going without electricity until they turn 60 or get diagnosed with electricity-defecit-disorder . . . Healthcare cannot be priced the way public goods or utilities can be.

      Ultimately, this is not an area where everybody is ever going to be happy. I’m not sure anybody is ever going to be happy.

      Well, the rest of the world drafts off of the innovation generated by the profits of the United States.

      This is a concept I think it’s hard for the Vox generation to digest. I’d be interested in a list of medical innovations that came from someplace other than the US or Israel, and a list of which innovations the Vox populi would be willing to give up in trade for universal coverage.

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      • This is the concept that the Vox generation has a hard time digesting:

        “Fundamentally, you have to understand that getting access to healthcare services, getting people to be willing to provide high-quality services and innovative treatments, is the result of a market decision for those providers as well”

        They think that once you vote that something is a right or a public good, that’s all there is to it.

        Liked by 1 person

        • That’s a concept the left-of-center generally have difficulty digesting. Everything outside of them is generally steady state, just happens, and incentives play meaningful no role.

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      • I’d be interested in a list of medical innovations that came from someplace other than the US or Israel, and a list of which innovations the Vox populi would be willing to give up in trade for universal coverage.

        The left thinks the only thing we will have to give up is big CEO pay packages..

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  2. Fast forward 20 years, and trading commissions are now 5% – 10% of what they used to be. Nowadays the banks are more worried about keeping the issuers happy, which means IPOs are no longer underpriced. Which is why IPOs are no longer the free money trade they used to be.

    This sounds like an improvement, to me. Is it?

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    • For the most part, yes. Lower trading costs have probably added liquidity to the market and made it cheaper to trade both in terms if actual commissions paid and market impact of your trades, which over time can add up to a big boost in your returns.

      IMO, the cost of this new structure will be evident the next time the stock market crashes and there is no one to buy when everyone else wants to sell.

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      • “IMO, the cost of this new structure will be evident the next time the stock market crashes and there is no one to buy when everyone else wants to sell.”

        Oh. That doesn’t sound like an improvement.

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        • The SEC / NASD have been relentless in doing everything possible to lower costs to the investor and in trying to put everyone on an even playing field, information wise.

          Which basically killed market making and research. Research is dead because companies will not talk to analysts anymore and there is no commission stream to support it even if they did. The Volcker Rule (and fear that the Feds will call your market – making “proprietary trading” has largely killed market-making (otherwise known as the guys you want to sell to when the fit hits the shan).

          Finally, the government and investors hated bid / ask spreads, and have pretty much eliminated market makers and the floor specialists. Good luck with the algos, people cause they are going to be running the show, and they mainly turn off when the market gets volatile.

          Liked by 1 person

    • How much do you wanna bet “big data” is going to seduce a lot of leftists into thinking they can do what the Soviets could never do: model the markets….

      Liked by 1 person

      • The problem is they already think they are data driven, and they aren’t, by and large. Especially the politicians. I get no sense that elected politicians have any real sense of when data is objective, when it’s skewed, or that summaries or conclusion may not be reflecting what the data tells you, or have any awareness of when there are glaring holes in the data.

        But of course they are going to think they can model the markets. Bill Clinton put an end to the business cycle! It was going be growth from then on out . . . forever and ever . . .

        Like

  3. Funny how the “leave no stone unturned re Russia interference in our election” democrats are so blase about investigating voter fraud…

    Surprised he hasn’t tweeted that yet…

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  4. jnc, check your gmail, please.

    Like

  5. Millions of lefties just shit themselves.

    https://mobile.twitter.com/realDonaldTrump/status/881875263700783104

    Will there be people rooting for his demise if he’s “allowed” to come here?

    That being said, both Bush’s attempts to interfere in the Terry Schiavo case did not help them, their cause, and most importantly, Terry Schiavo.

    I’m just enjoying my Schadenboner over the Tweet.

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  6. How the Libertarian movement will basically undo everything that was ever good about our country:

    https://www.democracynow.org/2017/6/29/republicans_have_trifecta_control_of_25

    Like

  7. The left cracks me up. Politico is applauding the courage of a WNBA owner for taking the risky stand of supporting planned parenthood…

    http://www.politico.com/magazine/story/2017/07/03/the-female-team-owner-who-isnt-afraid-to-take-a-political-stand-215329

    The funny thing is that the WNBA and its fans are probably the least likely people to have unwanted pregnancies in the first place…

    Like

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