Morning Report: Risk off feel on North Korea missile launch 8/29/17

Vital Statistics:

Last Change
S&P Futures 2431.3 -12.5
Eurostoxx Index 367.6 -4.7
Oil (WTI) 46.6 0.0
US dollar index 85.1 -0.1
10 Year Govt Bond Yield 2.11%
Current Coupon Fannie Mae TBA 103.33
Current Coupon Ginnie Mae TBA 104.21
30 Year Fixed Rate Mortgage 3.84

Stocks are lower on news that North Korea fired a missile over Japan. Bonds and MBS are up.

Pre-open, the 10-year bond is trading at 2.11%, the lowest level of 2017 and we are back at immediate post-election levels. Remember, on the day of the election, the 10 year was trading around 1.83%, so we could still have further to fall in rates. The Great Trump Election Reflation simply isn’t going to happen, though the Administration still intends to pivot to tax reform. The trader in me thinks we test the 1.83 level at some point.

Home prices rose 0.1% MOM and are up 5.7% YOY according to the Case-Shiller Home Price Index. The Case-Shiller index has been lagging the FHFA index, which indicates that there might be some issues at the high end of the market. The FHFA index only looks at homes with a conforming mortgage, so jumbos and all-cash sales are excluded.

Consumer confidence rose again in August to 122.9. The present situation component of the index hit a 16 year high, as we are back to mid 2001 levels.

Tax reform won’t be a slam dunk, but there could be a possibility for a bipartisan deal. Democrats might be willing to trade a carbon tax for an income tax cut, but that might be too tough of a deal for Republicans to stomach. A repatriation holiday for overseas corporate earnings is another possibility, however Democrats will certainly want some sort of strings attached to the repatriation break to ensure the funds don’t simply go to buybacks and dividends, which is what happened last time we did one. Perhaps a deal could be found if there is a stipulation that some percentage of the savings be applied to worker compensation and training.

A drop in the cap for the mortgage interest deduction is also something being considered, however that is such a politically risky issue that I doubt anyone does anything about it. The main beneficiaries are the wealthy and the upper middle class, and the upper middle class is really the third rail of politics. Liberals may hate the distribution of the benefits, but they probably won’t go to the mat for it. Why? It isn’t indexed for inflation, so the cap will hit more and more people simply due to home price appreciation. As a practical matter, the cap is declining 6% a year.

Fannie Mae Chief Economist Doug Duncan looks at the implications of the Fed ending QE. He believes that it will increase MBS spreads, which means that mortgage rates will rise more than you would typically expect when rates rise, and fall less than you would expect when rates fall. FWIW, I think any effect would be minor: it certainly was when QE was actually happening. He also speculates that tapering will affect Fannie Mae and Freddie Mac spreads more than Ginnie spreads due to the differing capital treatment for banks. This means that FHA and VA loans will be relatively more attractive to a borrower than a Fannie or Freddie loan. The GSEs have also been ordered to reduce their balance sheets to a set level, so they won’t automatically absorb that lost demand.

48 Responses

    • Yes, but I’m not sure how much better things were in the “good old days” that he talks about.

      For me, the big break with the New York Times coverage where it went from merely biased to actively working against a candidate was the BS story on McCain having an affair with a lobbyist. It’s not just about Trump.

      But I may well have missed earlier incidents.

      Liked by 1 person

      • jnc:

        But I may well have missed earlier incidents.

        Considering that Maureen Dowd was the NYT’s Washington political reporter for 10 years before she become an op-ed writer in 1995, you can be sure there were earlier incidents. I remember taking note of her name for the first time after reading her blatantly biased coverage of the Republican Convention in 1992.

        Liked by 1 person

        • I think the change in the NYT began with the rise of CNN. There was a time when the reporters had to have three reliable sources and the opinion writers were clearly separate. 24/7 cable news pushed all newspapers, including the NYT, to rush to judgment on stories that might not have broken the same way three days later – before cable news.

          So it dates, for me, from the early 80s. That is also when I began to prefer the weekly Economist to daily news. I was so glad to finally change my subscription to online and stop accumulating paper copies of that magazine with the unfinished puzzles mounting to infinity and beyond.

          Liked by 1 person

  1. Not having an actual President in the sense of all the preceding ones in my lifetime, I should not have been surprised when Laura Ingraham criticized DJT for not having filled so many executive positions in the light of the hurricane.

    “I think we can all look at these horrific pictures, and we can conclude a federal government does need staff. We see it acutely in need of staff in a situation like this,” she said.

    So DJT tweeted in response:

    @foxandfriends We are not looking to fill all of those positions. Don’t need many of them – reduce size of government.

    Selectively, I guess.


    • Is it your position that all of the Federal political appointment positions require filling for effective governance? Do you think Bush had them all filled for Katrina? If so, were they effective? How about Clinton and Hurricane Andrew?

      Can we at least agree that the Federal government is the least effective governmental unit under all conditions?

      I get you’re unsatisfied with Trump, no one here voted for him, so you’re not the only anti-Trumper. But to blame Trump for Federal inadequacy or understaffing is just, well, short-sighted I guess.

      It’s the Federal Government, the only thing worse than a non-fully staffed Federal response is a fully staffed federal response.

      Liked by 1 person

    • The other part of this issue is that there should be fewer positions that require Senate confirmation.

      Liked by 1 person

    • I don’t understand why a federal court or the justice department is involved at all. If a lawsuit is necessary, why not sue in a state court?

      Liked by 1 person

      • The original lawsuit was over federal civil rights violations I believe.

        But it doesn’t take a consent decree to make Rham Emmanuel, the mayor of Chicago, change Chicago police policy. He can do that unilaterally as mayor. No court order needed.

        Liked by 1 person

    • Ah, well. I figured that was coming.


    • jnc:

      Palin’s lawsuit against the NYT gets dismissed.

      That’s a shame. They deserve to suffer in some way. Even their “correction” was an attempt to elide the truth. The NYT editorial board are unconscionable liars.

      Liked by 1 person

      • My read of the decision was that the suit didn’t properly name the individuals who defamed her, but instead targeted the New York Times in general. Rakoff held an evidentiary hearing, where the NYT editor looks like a total liar on the stand, but that still didn’t apparently clear the hurdle of clearly showing who conspired to defame Palin and their state of knowledge at the time.

        ““The complaint fails on its face to adequately allege actual malice, because it fails to identify any individual who possessed the requisite knowledge and intent and, instead, attributes it to the Times in general. This will not suffice,” wrote Rakoff.”


    • ““I’m very concerned about Milo Yiannopoulos and Ann Coulter and some of these other right-wing speakers coming to the Berkeley campus, because it’s just a target for black bloc to come out and commit mayhem on the Berkeley campus and have that potentially spill out on the street,” Arreguin said, referring to militants who have also been called anti-fascists or antifa.”

      You forgot your usual tag line:

      “Why did you make me hit you?”

      Clearly Milo’s skirt was too short.

      Liked by 1 person

  2. Good Taibbi piece:

    “Trump’s monstrousness is ironic, since the image of Trump as the media’s very own Frankenstein’s monster has been used and re-used in the last years. Many in the business are of the opinion that, having created Trump and let him loose in the village, we in the press now have a responsibility to hunt him down with aggressive investigative reporting, to make the world safe again.

    That might indeed be a good idea. But that take also implies that slaying the monster will fix the problem. Are we sure that’s true?

    Reporters seem to think so, and keep trying to find the magic formula.”


    • I think the media and the left are going to be sorely disappointed once they vanquish DJT and the people that voted for him refuse to come to heel.


    • “and keep trying to find the magic formula”

      I guess that’s what they tell themselves, but I think they just want the catharsis of getting to say whatever they want and make up the news as the please without the burden of multiple sources. Or standards.


      • If only they can expose the exhibitionist, people will come to their senses.

        Liked by 1 person

        • Yeah. Generally, the noisiest critics who either get attention because of their Trump hate, or get permission (i.e., moral self-licensing) to be horrible human beings in the fight against “injustice” may say they are trying to expose the exhibitionist, so to speak, but I think at least some part of them loves the war. They don’t want to win the war. They just want to “win” an endless series of battles, and preen over their self-acclaimed moral victories.

          They don’t want this war to stop. As much as they might want a progressive dictator to enforce their idea of utopia with an organic-artisnal iron fist, they define themselves by their enemies. They’d be lost, and I think a lot of them are in no hurry to end Fight Club.


    • I do love this mental image:

      “If a meteor crashes into jello night at the Playboy mansion, it doesn’t matter if you send Edward R. Murrow to do the standup. Some things sell themselves.”

      Liked by 1 person

  3. Why I love Twitter

    Liked by 1 person

  4. I thought this was a pretty good Scott Adams piece.

    A mass hysteria happens when the public gets a wrong idea about something that has strong emotional content and it triggers cognitive dissonance that is often supported by confirmation bias. In other words, people spontaneously hallucinate a whole new (and usually crazy-sounding) reality and believe they see plenty of evidence for it. The Salem Witch Trials are the best-known example of mass hysteria. The McMartin Pre-School case and the Tulip Bulb hysteria are others. The dotcom bubble probably qualifies. We might soon learn that the Russian Collusion story was mass hysteria in hindsight. The curious lack of solid evidence for Russian collusion is a red flag. But we’ll see how that plays out.

    The most visible Mass Hysteria of the moment involves the idea that the United States intentionally elected a racist President. If that statement just triggered you, it might mean you are in the Mass Hysteria bubble. The cool part is that you can’t fact-check my claim you are hallucinating if you are actually hallucinating. But you can read my description of the signs of mass hysteria and see if you check off the boxes.

    Liked by 1 person

  5. Robert Tracinski makes the point that McWing and I were making a couple weeks ago:

    In case there’s any doubt as to where I stand—and if you’ve read beyond the headline of this article, you’re way ahead of everybody else on Twitter, so there’s some hope—I think that a variant of this same evil drives the white nationalists and neo-Nazis. The urge to denigrate people from other racial and ethnic backgrounds is a similar attempt to establish your own superiority by imposing humiliation on someone else—as well as a naked admission that you have no other way to demonstrate your personal merit.

    The escalation of this urge to rule by force is revealed in all of the Nazi nostalgia, the theatricality of swastikas and torches. It’s all about pretending to be the tough guy who shows he’s superior to everyone else by bashing their skulls in—even if the current wannabes are starting out slowly by smacking people with sticks and running them down with cars.

    But the riots in Berkeley should put to rest the idea that criticizing Antifa creates a false “moral equivalence” between the violent left and the violent right. It does create such an equivalence, but it’s not false….

    …White nationalism and Antifa are both assaults on freedom and American values. They are both violent movements that ultimately seek rule by force as an end in itself. They are moral equivalents, and if we want to save our civilization, we have to stand firm—and stand together—against both illiberal sides.


    • What bothered me the most was the notion that antfas was somehow not illiberal. I still believe the president errored by lumping the 2 together. We’re incapable of nuance and you have to know how these things are going to play out. so he burned some political capital that he doesn’t have. that he was sort of right doesn’t matter.

      FWIW, I also don’t buy the nonsense that antifas is somehow a reaction to the rise of the neo-nazis, etc.

      and i don’t agree that they on the same moral standing. antifas is authoritarian and violent, but they haven’t taken the step –yet– the gone full nazi. but that almost doesn’t even matter. because i end up at the same place. they need to be dealt with just the same. and i think there are more of them.


      • I can make the FDR distinction between Hitler and Stalin. Both are bad, but you can put them on a list in terms of priority.

        The biggest problem with the AntiFa is the refusal of certain Democratic office holders to have the police actually enforce the law. I predict that’s going to blow up in their faces.

        Thiessen makes the same argument as Scott & McWing:


        • jnc:

          I can make the FDR distinction between Hitler and Stalin.

          That distinction had more to do with the imminence of a threat than the relative immorality of the threat, didn’t it? And frankly on that count, I would say that the authoritarianism (fascism?) of even the mainstream left, much less antifa, is a much more imminent danger to the nation than is whatever tiny contingent of neo-nazis that might exist.


        • I’d agree with that. But the original argument was over whether their ideologies were equivalent and what they wanted the final end state to be.

          I still don’t see the AntiFa as the heirs of Stalin & Pol Pot.


      • “What bothered me the most was the notion that antfas was somehow not illiberal.”

        They do represent the progressive arguments on safe spaces and microaggressions taken to their logical conclusion.

        If speech is the same as violence, then their premise of self defense against speech makes perfect sense.


        • I’d bet money that most of the Nazi graffiti and anti-semetic and racist vandalism we saw cropping up, post-Trump, was done by the folks now in anti-fa.

          Because it’s okay to spray paint swastikas on stuff when you’re doing it to fight fascism. And wake up the sheeple.


      • edit — and re: the moral equivanlence thing. JNC linked a piece that described the antfas as LARPers — live action role players. there’s no coherent ideology behind them. to me that’s less dangerous than an ideology with a documented history and internal logic.

        Liked by 1 person

        • “They do represent the progressive arguments on safe spaces and microaggressions taken to their logical conclusion.”

          they are the personification of the ad absurdum argument that’s typically directed only at us (libertrians)


        • Dude, American Nazis and even most of the present-day KKK are LARPers. Heck, the KKK we think of that did such awful things in the American south during much of the 20th century . . . they were LARPers. The KKK had pretty much died out until Birth of the Nation came out. Then the KKK cosplayers all started getting together, and, well, you know what happened. Crosses got burned and people died.

          They are all LARPers. Some perhaps more mentally ill than others. But American Nazis are not 1930s German Nazis by any stretch of the imagination. For one thing, the German Nazis did not advance their cause by taking on all the trappings of a hated enemy of Germany and marching like idiots for things they knew 99% of the country disagrees with them on.

          Antifa has more in common with the Nazis of the 1920s and 30s, I think, than American Nazis today. Which is not to say they will enjoy anything like the same success in taking over the country, because they won’t.


      • “and i don’t agree that they on the same moral standing. antifas is authoritarian and violent, but they haven’t taken the step –yet– the gone full nazi. but that almost doesn’t even matter.”

        I agree. It doesn’t matter, as a practical matter. As awful and noxious as the American Nazis are (and I would argue that as with most mentally ill and emotionally damaged people, odiousness should be expected). Who is “worse” in a tactical sense is almost certainly antifa. They have the blessing of much of the progressive left and the press. They have the moral prestige of fighting Nazis. Their most egregious violent acts are occluded by the MSM. And there are far more of them, and their “Nazi Fighting Super Friends” orientation is far more attractive to young men anxious for violence than the Nazis ever could be.

        Any rising of Neo-Nazis is squarely the responsibility of antifa and the American leftist who are giving them undeserved attention, and irrationally inflating their real threat and power. Stroking the egos of megalomaniacal racist authoritarians makes no sense, if the goal is to actually “fight” Nazis. There are much less exciting and public ways to go after them, much more practical ways. Small groups with poor funding (and that would be the American Nazis) could really be harassed practically out of existence by a few rich liberals hiring lawyers. A few private detectives, and a lot of them could probably be sent to jail for things not directly related to being Nazis. Or sued into bankruptcy. Or both.

        The left (generally) *loves* the Nazis. The virtue-signalling opportunities are so over-the-top, how could they not?

        I understand that they are not morally equivalent in terms of their espoused goals. But bad actors with superior PR are still bad actors, and I don’t find that “not being a Nazi” is particularly exculpatory.


      • nova:

        I still believe the president errored by lumping the 2 together. We’re incapable of nuance and you have to know how these things are going to play out. so he burned some political capital that he doesn’t have. that he was sort of right doesn’t matter.

        I agree with that. Critique’s of Trump as a matter of political strategy are perfectly reasonable. On the substance of what he said, though, most of the critiques are BS.


  6. SInce no one has been shot at these demonstrations, I can think of only one reason these fascists want to ban guns.

    Liked by 1 person

    • Good luck to her apologism for left wing fascism. Preaching to the choir. Telling the press and folks in general to not report the violent things they do … a few will do their liberal duty. But they are trying to demand a legal right to be violent, and outside certain areas that ain’t gonna fly. They can get away with it on college campuses, and perhaps against legitimate All-Nazi rallies but they aren’t going to limit their scope. When anyone with a camera or iPhone is an obstacle to fighting fascism, then everybody is a fascist.

      Like the “white supremacist” pyramid call back. Author agrees, I am sure, that white people trying to talk to black people is a form of white supremacism. Gonna be a hard sell to the part of the country that elected Trump. A say least half the folks who elected Obama.


  7. Or when volunteer rescuers themselves die, as happened when two were electrocuted by a downed wire. How much is it right to ask of Good Samaritans?

    Uh, they’re volunteers, they’re not being asked anything, they’re giving of their own volition.

    and each time we have a Sandy or Harvey, the solution is different,” he said. “It’s cooked up locally by the state.”


    At the George R. Brown Convention Center in downtown Houston, there are signs of confusion. Some volunteers are turned away when they are desperately needed. Other volunteers are first-timers, with more-experienced volunteers jockeying for leadership.


    Liked by 1 person

  8. Not gonna lie, I’d hit it.


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