Morning Report: Gary Cohn for Fed?

Vital Statistics:

Last Change
S&P Futures 2472.5 -1.0
Eurostoxx Index 379.5 -0.2
Oil (WTI) 49.8 0.2
US dollar index 86.0 0.0
10 Year Govt Bond Yield 2.24%
Current Coupon Fannie Mae TBA 102.93
Current Coupon Ginnie Mae TBA 103.81
30 Year Fixed Rate Mortgage 3.94

Global stocks are lower after the Bank of England cut its growth forecast. Bonds and MBS are up.

Initial Jobless Claims fell by 5,000 to 240,000 last week. Employers are holding on to their employees. Separately, Challenger and Gray reported that there were 28,307 announced job cuts in July, which is the lowest level since November last year. 80,000 hiring announcements were also made in July, which is the highest July reading on record.

The ISM non-manufacturing index slipped in June, which appears largely driven by seasonal factors.

Goldman Sachs alum Gary Cohn is reportedly the front-runner to replace Janet Yellen at the Fed when her term expires. He would be the first non-economist to run the Fed since the disastrous tenure of G. William Miller during the Carter Administration.

Fannie Mae reported net income of $3.2 billion in the second quarter. It paid a $2.8 billion dividend to Treasury in June. Fannie is returning to its roots as well: “Fannie Mae has transitioned from a portfolio-focused business to a guaranty-focused business. Income from the company’s guaranty business accounted for more than 75 percent of the company’s net interest income in the first half of 2017. Fannie Mae expects net interest income from the company’s guaranty business to account for an increasing portion of net interest income as its retained mortgage portfolio continues to shrink.” Fannie Mae drew $116B from Treasury during the crisis, and has paid $163B in dividends back. Those dividend payments have been used to shore up Obamacare.

The MBA concludes that its plan for housing going forward will have little impact on consumer borrowing costs. Some of the proposals will lower costs, while others will increase costs. The biggest change would cement the explicit guarantee for GSE MBS by the government. This will push down rates and also increase demand, assuming that bank regulatory capital requirements will treat the new GSE MBS the same as GNMA MBS. In other words, banks can treat GNMA MBS as Treasuries and require no capital against them. FNMA MBS have a 20% hit. On the other side of the coin, there will be additional fees earmarked for affordable housing and possibly increased guaranty fees to protect the taxpayer. There will have to be a debate over how big the credit box will be, and affordable housing types will argue it should be bigger while taxpayer advocates will want it smaller. Overall, MBA thinks it will be a wash when it comes to mortgage pricing.

Luxury home price appreciation outpaced the rest of the market for the first time since 2014, according to Redfin. Much of this was driven by homes being taken off the market. The average luxury home price was 1.79 million, which means we really are talking about the rarified top end of the market. The number of luxury homes on the market fell 9.4% YOY. 1.7% sold above list. The rest of the market averaged $336k and 26% traded above list.

The debt ceiling is looming, and Mitch McConnell and Paul Ryan are advocating for a hike without spending cuts, which is sure to anger many in the GOP.

10 years ago, the Jim Cramer rant that unofficially heralded the start of the financial crisis.

30 Responses

    • Yes, I’ve seen the delineation between the millennials and the “iGeneration” being given as ubiquitous access to smartphones and social media since childhood. I think that’s right as a divider.


    • “In conversation after conversation, teens described getting their license as something to be nagged into by their parents—a notion that would have been unthinkable to previous generations.”

      This was me. I had zero enthusiasm for getting my license and starting to drive. And my dad bought me a car. I enjoyed it once I actually had my license, but would have dawdled until I was 18 if my dad had let me.

      But I lived in my own little universe, mostly centered around my computer, and much of my socializing was phone-based or computer-based (as an early user of BBSes, I had been online since I was 12). So I might have experienced the iGen phenomenon for myself back in 1981.


    • This is where Sanders voters will come from:

      “Independence isn’t free—you need some money in your pocket to pay for gas, or for that bottle of schnapps. In earlier eras, kids worked in great numbers, eager to finance their freedom or prodded by their parents to learn the value of a dollar. But iGen teens aren’t working (or managing their own money) as much. In the late 1970s, 77 percent of high-school seniors worked for pay during the school year; by the mid-2010s, only 55 percent did. The number of eighth-graders who work for pay has been cut in half. These declines accelerated during the Great Recession, but teen employment has not bounced back, even though job availability has.

      Of course, putting off the responsibilities of adulthood is not an iGen innovation. Gen Xers, in the 1990s, were the first to postpone the traditional markers of adulthood. Young Gen Xers were just about as likely to drive, drink alcohol, and date as young Boomers had been, and more likely to have sex and get pregnant as teens. But as they left their teenage years behind, Gen Xers married and started careers later than their Boomer predecessors had.

      Gen X managed to stretch adolescence beyond all previous limits: Its members started becoming adults earlier and finished becoming adults later. Beginning with Millennials and continuing with iGen, adolescence is contracting again—but only because its onset is being delayed. Across a range of behaviors—drinking, dating, spending time unsupervised— 18-year-olds now act more like 15-year-olds used to, and 15-year-olds more like 13-year-olds. Childhood now stretches well into high school.”


    • How does the WaPo get transcripts of presidential phone calls to foreign leaders? And if it has access to such things, why did I never see transcripts of any of Obama’s conversations with foreign leaders?


      • Obviously the WaPo asked and someone in the WH answered.

        It has become pretty obvious that the people who work in the WH, including the people DJT hired, don’t much like him.

        The story tells how these transcripts are kept.

        Liked by 1 person

      • Because Obama was a lightworker and Trump is Literally Hitler


        • These leakers haven’t committed a crime but of course they should be fired.

          I wonder if he can keep anyone’s loyalty outside his family.

          Liked by 1 person

        • These leakers haven’t committed a crime

          Maybe they have. The transcripts might have been marked as confidential, or even secret. If they have been, there will be some folks refusing FBI polygraph tests.

          Then Brent we can actually know if they are BHO holdovers or Priebus’ hires. My only bet is that his family didn’t tell.


        • i am guessing these are obama holdovers…


        • I’m guessing NOT. I’m guessing the Mooch-Priebus thingie did not go over well with folks Priebus hired who liked him.

          I’m guessing DJT’s attacks on Sessions alienate another whole group there. I’m guessing DJT rants at staff.

          We can all have our own guesses.

          Liked by 1 person

        • I get the sense Trump is broadly disliked by establishment pols and the deep state. Literally anyone could be leaking this stuff. It’s probably all sorts of folks at every level. I think it goes without saying there isn’t a single Obama holdover he can trust, and probably he can trust only 1-in-10 establishment Republicans. He’s not one of them.


        • David Frum on this:

          “Why Leaking Transcripts of Trump’s Calls Is So Dangerous

          When the president’s opponents violate norms to undermine him, they do lasting damage to American security.

          David Frum Aug 3, 2017”


      • … cuz Obama made fewer personal enemies, and ran a tighter ship, and “went through channels” and surrounded himself with people who idolized him, which were easy for him to find. Trump doesn’t have nearly as deep a pool to draw on there.


  1. Hi again guys! Sorry I never made it back to answer your questions this morning! We got busy, it’s that time of year here in our business.

    No worries on me paying for the domain, just wanted to make sure you guys are still actively enjoying the space. If I don’t pay for it I won’t have an excuse to check on y’all once a year……right?

    Yes McWing that’s me in the new Avatar. Blowing bubbles at one of our weddings last year, the one in our back yard. That’s what 67 years looks like on me! I’d show you muscle pics but you might get jealous and faint…..

    I’m doing fine, busy, busy. Walter was sick all last year and two surgeries and lots of medication and tests etc later he’s gotten a really good bill of health from his 4 specialists………LOL.

    Both of our daughters got married last year and the youngest is pregnant and I’m looking forward to welcoming the little “pike” in CO in early December.

    Still swimming but only in the summer right now as I’m running and lifting weights like crazy the rest of the time. I need to stay strong here. Haha

    This year was supposed to be an incident and illness free year but my sister has cancer and is alone in NM, so I’ve been traveling back and forth trying to help out since she’s alone now. Looks like we’re going to move her here in with us soon as the prognosis isn’t too good.

    So……that’s my life in a nutshell………..How about that Trump? 🙂

    Hope you’re all doing well and I kind of miss you all and politics but right now it’s just not in the cards for me to stay informed.

    Liked by 1 person

  2. 9 years.


  3. Because “white” is now synonymous with “bad”.

    “The Whitest Music Ever

    Prog rock was audacious, innovative—and awful.

    James Parker
    September 2017 Issue”


  4. Because every politician wants to switch to the party that’s “dying” before the next election.

    “West Virginia Governor Switches from Democrat to Republican

    Jim Justice made the announcement at a rally with President Trump.
    Clare Foran
    Aug 3, 2017”


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