Morning Report: More Yellen testimony 7/13/17

Vital Statistics:

Last Change
S&P Futures 2443.0 3.0
Eurostoxx Index 386.4 1.5
Oil (WTI) 45.5 0.0
US dollar index 87.9 -0.1
10 Year Govt Bond Yield 2.33%
Current Coupon Fannie Mae TBA 102.625
Current Coupon Ginnie Mae TBA 103.59
30 Year Fixed Rate Mortgage 4.03

Stocks are flattish as Janet Yellen begins her second day of testimony in front of Congress. Bonds and MBS are flat.

Initial Jobless Claims fell to 247k last week, showing that employers are hanging on to employees.

Inflation still remains in check at the wholesale level, as the producer price index rose only 0.1% in June. Ex-food and energy it rose 1.9% YOY, which is below the Fed’s target. Services increased 0.3%, which could indicate wage growth is beginning to happen.

The markets rallied yesterday on Janet Yellen’s dovish comments. Fed-Watcher Tim Duy believes the markets have it wrong. His view is that Yellen has spent enough time at the Fed to understand that the longer the Fed waits to address inflation, the more aggressive they will need to be, which increases the risk of a recession. He basically lays out four scenarios:

  • Inflation rebounds while unemployment remains steady, which is the base case Fed scenario
  • Inflation remains low while unemployment holds steady. This is the market’s bet.
  • Inflation rebounds while unemployment goes lower: This would mean a more aggressive Fed in 2018
  • Inflation remains low while unemployment goes lower: Difficult for the Fed.

His view is that we see one of the latter two scenarios. FWIW, I think the unemployment rate is a bit of a red herring given that the employment to population ratio is still pretty low. Granted, some of that is demographic (older Boomers retiring) and some of it is discouraged workers, but a 4.5% unemployment rate today doesn’t really mean the same thing it meant, say, 20 years ago. I think the mistake people make is that they fail to recognize that recoveries after burst residential real estate bubbles are fundamentally different animals, characterized by low inflation, weak demand, and risk aversion in business. Weak demand and risk aversion are not recipes for inflation. I suspect the second or the fourth scenario is the most likely. IMO, we won’t see inflation until we see wage growth, and that has been slow to materialize.

Angel Oak Advisors priced a $210 million deal of non-prime residential mortgages recently, and it looks like the second quarter may break $1 billion in non-prime RMBS. This is a record since the financial crisis, but is still a shadow of its former self. At one point during the boom, 1/3 of all mortgages were alt-A or subprime. Even if we hit a record for the rest of the year, we probably won’t even sniff 5%. In fact, many of the loans being put in these securitizations wouldn’t have even been considered non-prime during the bubble years. These loans are non-QM, and mainly consist of two types of  borrowers: self-employed who don’t have enough W2 income and borrowers with a credit event in the past who have large down payments. The borrowers in Angel Oak’s portfolio are paying between 5% and 9%.

Why do appraisals sometimes come in low?  Typically, the problem is in apples-to-oranges comps (i.e. not in the neighborhood, or comps that had an issue like asbestos, mold, etc). The other big issue surrounds things that have value, but tend to get short shrift with appraisers: things like a nice finished basement, a good view, nice appliances, etc. Raised ranch homes are often problematic, as the lower level gets completely excluded from the square footage, basically cutting your square footage in half.

56 Responses


    Bill Gates and a Canadian oil magnate have built a plant in Squamish, BC, outside Vancouver, that sucks CO2 from the atmosphere, and recombines it with hydrogen to make gasoline or diesel. It is thus “carbon neutral”. See video:

    Frist, apparently.

    There are also ongoing commercial beginnings for the STEP process. See this article as a reminder.

    Kev and I visited about this last year or maybe the year before when it was still barely out the MIT labs. I am impressed with how fast this is moving forward.

    Liked by 1 person

    • McWing:

      Volock weighs in on Trump Jr.

      I’m with Volokh. It seems absurd to me to think that agreeing to talk to someone who says “Hey, I have some dirt on your opponent” could be a crime simply because the person was a foreigner. The only reason the notion is being taken seriously at all is because it is Trump, and those taking it seriously want Trump to be guilty of something, and are searching for any opportunity to make it so.

      BTW, with all this talk about foreign contributions of a “thing of value” being illegal, how is it possible that Clinton herself is not already behind bars for conspiring to violate federal law?

      Hillary Clinton’s presidential campaign announced a new Latino outreach initiative Sunday focused on mobilizing young undocumented immigrants to highlight their risk of deportation if Donald Trump becomes president, with the aim of inspiring others in their communities to vote in November.


      • It would be a tough case to actually make, without also being obligate to gather up a whole lot of other politicians in the bargain.

        Hillary’s initiative reminds me a lot of Trump’s stump speech, “inviting” Russia to hack Hillary’s email (after they had presumably already done so). They aren’t Americans, and Clinton was obviously trying to mobilize them for the benefit of her election.

        I feel like the “how bad we want Trump to be guilty” is a real problem for their actual goals. I think it’s probably somewhat obstructive, but in terms of getting a solid majority in the house and senate in 2018, this only plays with the base who would never vote for a Republican in a million years, anyway.

        I don’t think moderates and fence-sitters are compelled by arguments about how technicalities could entrap Trump, and how ignorance of the law is no excuse. Again, MAGA ultimately equalled to a lot of Trump voters: things will be better for me.

        How are the Democrats committing to make things different for voters with the non-stop Trump attack?

        And I totally get it. I don’t like Trump myself. I like a few promised policy shifts, most undelivered (excepting pulling out of the Paris Accords, the one thing he’s actually done, because he could, that I like) but on the whole, I would have rather have had almost anybody for president, HRC included (given I envision an HRC presidency leading to even more Republicans in the house and senate, and more gridlock).

        Don’t necessarily want eight years of Trump, either. But this is not the way, people.


        • I think you can draw a distinction between actual agents of a foreign government and just regular foreign nationals.

          Among other things, foreign nationals work on campaigns directly all the time.

          Liked by 1 person

        • jnc:

          I think you can draw a distinction between actual agents of a foreign government and just regular foreign nationals.

          Not, it seems, within the context of the law that everyone keeps saying DJT Jr has violated.

          Among other things, foreign nationals work on campaigns directly all the time.

          If they are volunteering, that actually seems to me a much clearer violation of the law than what Jr. did.

          Liked by 1 person

        • you can draw a distinction between actual agents of a foreign government and just regular foreign nationals.


          In 1996 we had our first election in which illegal foreign money poured into the campaigns in the millions. China for WJC, the Saud royal family for Dole. It was predicted by Archibald Cox, in a lecture I attended in September ’96, that whoever won would be impeached for this. I determined to vote Perot.

          What actually happened was that the FEC ordered the two national committees to relinquish the funds – four years later – to charities.

          So in 2002 those statutes were supposedly “tightened”.

          Liked by 1 person

        • Mark:


          From Volokh:

          Now this whole controversy is of course arising as to Donald Trump Jr.’s willingness to get unspecified information that came from the Russian government, and was “part of Russia and its government’s support for Mr. Trump.”…But in any event, that’s not what the rules that people are discussing say. Rather, those rules ban contributions of “things of value” by all foreign citizens (except those who are also U.S. citizens or permanent residents), and the argument is that politically useful information about a candidate’s opponent is in general a thing of value.

          Liked by 1 person

        • I agree with Volokh, as far as he goes with it.

          The distinction for national entities and their surrogates is under 50 USC 1801, which might or might not apply here.
          And whether or not there was an ultimate crime involved would rely on proof that Russia or its proven surrogate[s] hacked the DNC, from what we know now.

          To summarize:

          On June 3, 2016, Rob Goldstone e-mailed Trump, Jr., that the Russian government had “offered to provide the Trump campaign with some official documents and information that would incriminate Hillary,” adding that this “very high level and sensitive information” was “part of Russia and its government’s support for Mr. Trump”.

          Trump, Jr., e-mailed back: “[I]f it’s what you say I love it ***.” On June 7, 2016, Goldstone e-mailed Trump, Jr.: “Emin [(a Russian pop singer)] asked that I schedule a meeting with you and The Russian government attorney who is flying over from Moscow for this Thursday.” Trump, Jr., replied he probably would bring along Manafort and Kushner to the meeting. They set a time, and the meeting took place in Trump Tower.

          So far as we now know, there was no result of that meeting, the Russian broad was not acting for the Russian government, and no information from the hack was presented.

          Thus all we have is evidence of Trump, Jr.’s intent.

          My blind spot about all this is not my derision of Trump but my suspicion of Russia. I believe that it will probably turn out that Russia violated 50USC1801 here but I have no actual knowledge. It’s just that Russia has by informal count violated that statute in several American elections. Essentially, Russia engages in clandestine intelligence in order to compromise US Foreign Policy especially toward Russia. This can include by means of electronic surveillance aimed at a United States person or persons. This is what the Senate Committee work is all about, as far as I know.

          Notice that Volokh limits his remarks to FEC stuff explicitly excluding the following:

          It certainly is illegal to deliberately conspire with anyone, foreign or domestic, to hack into someone’s computer; but so far I haven’t heard evidence that Donald Trump Jr. was doing that.

          And I agree.

          Liked by 1 person

        • Mark:

          Thus all we have is evidence of Trump, Jr.’s intent.

          Yes, but intent to do what? The only indisputable intent to me is the intent to talk to an employee of the Russian government who claims, through a third party, to have some kind of dirt on HRC. You said earlier that it was intent to violate federal law, but if Volokh is correct, such a thing isn’t a violation of the law. So why should we care that the emails demonstrate intent to do something that is perfectly legal?

          I believe that it will probably turn out that Russia violated 50USC1801 here but I have no actual knowledge.

          I don’t think I understand. For one, the Russian government is not subject to US law, and so cannot be said to have violated it. And second, even if it were, from what I can see the code you are talking about is the FISA code, which regulates how the US government engages in foreign surveillance. So again, I don’t understand how Russia could be said to be in violation of it. Am I looking at the wrong statute?


        • Should have “written agents of Russia” but I thought that would be understood.

          The FISA Code definitions are taken together with the relevant crimes as defined in Title 18 for the purpose of defining criminal responsibility of those who conspire with foreign agents.


        • Mark:

          Should have “written agents of Russia” but I thought that would be understood.

          I’m really not trying to be deliberately obtuse or pedantic. I’m just trying to understand what law you think might have been broken, and by who. You said that it was probable that “Russia violated 50 USC 1801”. So I looked up 1801 and found that all it consists of is definitions, no actual prohibitions on any action at all. So I assumed you must have been referring to the wider law to which the definitions referred. But that wider law is the FISA law which regulates how the US government engages in foreign surveillance. So neither Russia nor individual agents of Russia can be said to have violated it, because it applies to the US government and its agents.

          Now I understand you to be saying that you referred to 1801 only as a reference to define what a foreign agent is with regard to other “relevant crimes” involving conspiring with foreign agents. But this still doesn’t help me make sense of your claim that Russia probably violated the law, because I would have thought that Russian agents are simply the foreign agents with whom it would be a “relevant crime” for an American to conspire, not the criminals themselves. Do you mean that you think Russia has probably gotten someone, somewhere in the US, to violate the law by conspiring with them?

          Maybe I am just being stupid, or maybe I am confused as a lay person, but really all I want to know is what laws you think might have been violated, who might have violated them, and how the DJTjr emails are evidence of it.

          BTW, I don’t doubt that Russia is routinely engaged in all kinds of nefarious activities both inside and with regard to the US, ranging from trying to seriously undermine our national defense to stupid games like planting news stories to embarrass the US or its representatives. And perhaps the approach to DJT jr by the “Crown prosecutor” was a part of these activities. But the reason all of this is such a big news story is not because what it ostensibly reveals about Russian activity, but rather what it ostensibly reveals about the Trump campaign.


        • KW:

          It would be a tough case to actually make, without also being obligate to gather up a whole lot of other politicians in the bargain.

          Well exactly. It isn’t an actual violation of the law that bothers everyone so. It is Trump that bothers them so.

          And I totally get it. I don’t like Trump myself.

          I am with you. I hate the fact that Trump hysteria so consistently puts me in a position of having to defend this classless, bulllying blowhard from unjustified attacks. But as much as I hate Trump, I hate the double standards and disingenuousness of the media and of the left more generally even more.

          Liked by 1 person

        • “I hate the fact that Trump hysteria so consistently puts me in a position of having to defend this classless, bulllying blowhard from unjustified attacks. But as much as I hate Trump, I hate the double standards and disingenuousness of the media and of the left more generally even more.”

          Ditto. But most Democrats have totally lost it and gone Captain Ahab.

          Liked by 1 person

        • @markinaustin:

          the Russian broad



        • Is there a male equivalent to “broad”?


        • Russian lawyer


        • Seems fitting as the whole episode is out of a noir movie anyway.

          Liked by 1 person

        • a noir movie

          So true!

          Liked by 1 person

  2. This is good:

    “As they see it, the impulse among undergraduates to form exclusive in-groups is not hard-wired and ineradicable; rather, it is the result of flawed institutions affecting malleable individuals, and can be eradicated so long as authorities have the power to limit freedom of association. Thus, Harvard can assemble a mixture of America’s most ambitious meritocrats and most privileged legacy admits and induce them to live as egalitarians for four years or so, before they go off to Goldman Sachs or Stanford Law School or a Fulbright scholarship or Corey Booker’s 2020 presidential campaign.”

    Liked by 1 person

    • And ironically, most of the studies show married men are happier than married women…


      • They’re answering in the presence of their wives.


        • The piece does have a good point about the courts. That is a damn good reason to stay single..


        • I have no doubt I am happier than my wife. Probably happier than I would be had I never married, as I might still be thinking there was some external thing missing, and that was romantic love. Getting married is a great lesson in the grass not actually being greener on the other side of the fence. It gives you a perspective you otherwise would never have.


    • When more women make themselves sexually available, the pool of marriageable men diminishes. “In a world where women do not say no, the man is never forced to settle down and make serious choices,” writes George Gilder, author of “Men and Marriage.”

      I don’t know that that’s necessarily the problem. The availability on online porn might have something to do with it.

      “Men know there’s a good chance they’ll lose their friends, their respect, their space, their sex life, their money and — if it all goes wrong — their family,” says Helen Smith, Ph.D., author of “Men on Strike.” “They don’t want to enter into a legal contract with someone who could effectively take half their savings, pension and property when the honeymoon period is over.Men aren’t wimping out by staying unmarried or being commitment phobes. They’re being smart.”

      I think that’s likely correct. It would certainly explain a lack of re-marriage when the first one doesn’t work out.

      Unlike women, men lose all power after they say “I do.”

      Well, if my experience is any indication, they certainly lose most of it.

      And if no one’s taking care of anyone, why the hell marry?

      Because you like having a girlfriend and think marriage will make it more official, or that it’s what you’re supposed to do.

      But my sense is, generally, there’s less reason for men or women to get married as time goes on, from the perspective of self-interest.

      She doesn’t mention porn. That’s the only think I can see that seems “wrong”, but it’s just missing. Lots of young men pretty much burn out their “want a real woman” brain cells with their endless harem of digital pixel women.


  3. Liked by 1 person

  4. Progressives primary concern with nuclear war is apparently the possibility that income inequality will still remain.

    “Income Inequality Will Survive the Nuclear Apocalypse
    The class responsible for the lucrative rush to war can literally buy its way out of annihilation, thanks to the boom in luxury bunkers.
    By John Carl Baker
    July 14, 2017”

    Liked by 1 person

    • jnc:

      Progressives primary concern with nuclear war is apparently the possibility that income inequality will still remain.

      lol…but will it? If only the rich survive, then income inequality should shrink dramatically. They should rejoice!


  5. Interesting take from Matt Taibbi on the latest Trump/Russia news:

    “Russiagate and the Magnitsky Affair, Linked Again

    Natalia Veselnitskaya being at the center of this week’s explosive revelations is the latest indication that Russiagate didn’t begin last year – but almost a decade ago

    By Matt Taibbi”

    See also:


    • Didn’t all of those hate crimes at Mizzou turn out to be hoaxes?

      Liked by 1 person

      • Like 95% of them?

        Yeah, I kind of suspected Missouri was gonna have a lot of trouble after that. Made them from a local “my kids are gonna go there” to a “my kids will going anywhere BUT there”.

        And it ain’t just whitey. There are a non-significant numbers of middle- and upper-class African-Americans who would prefer their kids to go to a school where they learn employable skills.


  6. Any of you guys aware of these two black Trump supporters, Diamond and Silk? Apparently they have been doing videos supporting Trump since the campaign, but I only just discovered them (via the No Agenda podcast). They are hilarious.

    Liked by 1 person

  7. My favorite Dark Stock Photos tweet.

    Liked by 1 person

    • George, this seems to me to be a big deal. I very much care that it is Russia that Junior wanted to play footsie with, just as I did not vote for WJC or Dole in ’96 b/c their campaigns were taking money from China and Saudi Arabia.

      There have always been small donations from “friendly” interests – especially in Canada, UK, and MX. But the idea of China, Russia, the Saud family, and the like, not lobbyists for trading interests like Schenley in Canada, but state owned interests directly concerned with our FP, and having very different goals than we do, lobbing big bucks or big “information” or “disinformation” our way in campaigns makes my skin crawl.

      I think it should not be that way and doesn’t have to be. I don’t understand why anyone thinks its OK.


      • Mark, I believe you believe this.

        The “Russia hacked the election” conspiracy theory was created in the days after the election and has no validity insofar as any votes were changed by Russia, either by manipulating totals or by influencing media coverage or the even more moronic concept of creating “Fake News” in PA, MI and Wisconsin. It’s obvious on its face and even the Obama administration admitted as much, multiple times from 11/8 through January 20th. We both know this. Trump and all his multitudinous flaws were and are known by Trump voters, ditto HRC’s flaws. Trump won because the electorate thought HRC was worse, and they were right.

        What exists now is an attempt to stymie as much of Trump’s agenda as possible and make his term as personally costly for him and his family as possible. This is done for two reasons, the first being that both parties and their political class absolutely do not want a celebrity getting themselves elected in the future, this is a message for the Cuban’s, Zuckerbergs and Steyers of the world and you see, for example, Republican Senate cooperation with this. Secondly, both parties want to keep the current Obama administration accomplishments intact (ObamaCare, high government spending and intrusion, immigration)(so does Trump, frankly) while not giving Trump any of the credit (because of #1).

        There are a lot of “tells” for all this, what had been surprising to me is the gullibility of the left. Everything that’s reported breathlessly is believed wholeheartedly and amplified online at lefty media resources like WAPO, NYT and the tv networks. It’s funny as hell ultimately.

        No rational person (except the Democratic rube base) thinks that a campaign wouldn’t take the Russia Has Dirt meeting, what the so called political class is appalled and shocked by is that Trump’s campaign did so openly and that Trump defends it publicly. It’s just not done, to use a phrase.

        That Germany provided a venue for Obama in 2008 to hold a huge campaign rally in their country is no different than Trump’s campaign taking the meeting, but at least Obama got something out of it. Say this about Obama, he was an unarguable disaster for the country (and the Democratic Party), but he could campaign for himself like a muthafuck!

        Liked by 1 person

        • George – I am sure HRC lost the election based on who she is and how she ran her campaign. My concern is with Russia.

          If the Ds run EW next time they will lose even more “bigly”. It won’t be because of Russia.

          But I don’t like it that any pol would cozy up to Putin and his minions, or get indebted in some way to his buddies, or think Putin was our “friend”. All that is BS.

          Liked by 1 person

    • the left is so butthurt that it can no longer monopolize the megaphone…


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