Vital Statistics:
Last | Change | |
S&P Futures | 2499.5 | -5.0 |
Eurostoxx Index | 385.4 | -0.3 |
Oil (WTI) | 52.4 | 0.3 |
US dollar index | 86.4 | -0.1 |
10 Year Govt Bond Yield | 2.33% | |
Current Coupon Fannie Mae TBA | 103.05 | |
Current Coupon Ginnie Mae TBA | 103.98 | |
30 Year Fixed Rate Mortgage | 3.88 |
Stocks are higher this morning after a strong GDP number. Bonds and MBS are down.
Second quarter GDP was revised upward to 3.1%, while the PCE price index was steady at 1%. Consumption was unchanged at 3.3% while after-tax incomes rose 3.3%. This is a Goldilocks type report for the economy, with strong growth and muted inflation. Residential Construction was a weak spot, falling 7.3%, the biggest drop since 2010.
In other economic data, Initial Jobless Claims came in at 272k, a touch lower than expectations. Claims in Texas are getting back to normal, while claims in Florida are still elevated. Retail inventories rose 0.7% while wholesale inventories rose 1%. Corporate profits rose 7.4%.
Tax reform could cause a quick jump in jobs, assuming it plays out the way its drafters hope. One provision that is getting attention is the accelerated depreciation idea. Accelerated depreciation will let companies expense new capital investment in the year it is made instead of having to depreciate it over a longer time period. The net effect is to make reported profit (and therefore the tax liability) lower than it would otherwise be, and that actually adds to the cash flow of the company. The big question is whether it will encourage job growth, and that is a question that divides economists almost 50/50 and largely falls along ideological lines. Liberal economists believe that this will only reward investors, while more right-leaning economists believe that the tax effect makes some marginal projects begin to make sense economically. If you are a leftie, you think the tax savings will get plowed back into dividends and buybacks. If you are a rightie, you think the tax savings will encourage investment in the business and hiring.
Note that one provision of tax reform includes a repatriation tax credit, which could cause bond yields to rise if companies sell Treasuries en masse to bring cash back to the US. The amount of money isn’t trivial: Microsoft alone holds $133 billion in cash overseas, largely sitting in Treasuries.
Tax reform at the individual level is still sketchy, and it looks like there will be winners and losers. The winners will be people in low-tax states as well as the super-rich. The losers will be upper middle class taxpayers in high tax states like NY and CT. Historically, the upper middle class taxpayer has been the “third rail” of tax reform and it is likely that hitting them will doom tax reform at the individual level. There is probably more support for corporate tax reform given that we have the highest statutory corporate tax rates in the world, and US corporations that don’t have overseas exposure (generally the smaller ones) are disadvantaged relative to the bigger guys.
Equifax’s CEO resigned over the hacking episode and the new CEO has unveiled free credit locking for life. To prevent identity theft, locking means that a new creditor cannot access your credit file unless you specifically request it, for example if you are getting a new car or opening a new credit card. This presumably prevents someone from opening a credit line in your name. So far, we have not heard about issues with mortgage loans and the inability to access credit reports from borrowers who have locked their accounts, but the hack is still relatively recent.
Housing credit risk increased in the second quarter, according to CoreLogic. Credit risk is still within the benchmark range of 2001-2003, before the housing bubble began to inflate in earnest. It seems that there have been two opposing phenomenons going on – first an increase in investor and condo loans has increased credit risk, while better DTIs and FICO scores have lowered it. The average credit score for new mortgages is 745, which is up 9 points YOY. DTI ratios were flat at 36%, while LTV ratios fell from 87.5 to 85.5. The increase in FHA loans over time has increased the number of 95+ LTVs by over 50% since 2001.
Tennessee Senator Bob Corker said he will not stand for re-election. Corker is a big name on the Banking Committee and is instrumental in GSE reform. This will accelerate the push for GSE reform in his last 15 months in office. GSE reform is difficult and cleaves strongly down ideological lines. Bob Corker and Senator Mark Warner came up with a bill that made it out of committee, however the left opposed it. The right wants to limit exposure to the taxpayer and introduce more competition. The left wants to ensure that low-income and targeted lending are not compromised. In the current state, Fannie and Fred remain under conservatorship, with all profits going to Treasury.
Thinking outside the box in Albuquerque:
Filed under: Economy, Morning Report, taxes |
It really is time to break up the country over the irreconcilable differences. These people can’t be reasoned with, and I have no interest in allowing them a voice in my affairs.
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It really is time to break up the country over the irreconcilable differences.
Take a deep breath and walk away from the river. It’s just a lawsuit filed by a criminal defense lawyer.
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I agree though, we should break up the country.
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Not going to solve anything. People aren’t going to stay in their ideological zones. They’ll just mix it all up again and try to mess with the system in the independent country.
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So they split again. Nothing wrong with smaller and smaller political units. Prolly be more responsive too.
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Sounds good. If it happens, probably won’t be. Based on my experience of generally being that nothing people hope for in terms of tribal separation seems to turn out well in the long run.
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Tribalism is the natural human condition. Nothing lasts forever and trying to keep something that has failed is often worse than letting it go.
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mark:
Take a deep breath and walk away from the river. It’s just a lawsuit filed by a criminal defense lawyer.
I don’t think it is just that. It appears to be a growing trend in the global legal world.
http://loweringthebar.net/2017/03/two-more-rivers.html
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jnc:
It really is time to break up the country over the irreconcilable differences. These people can’t be reasoned with, and I have no interest in allowing them a voice in my affairs.
I guess the answer to the question I posed back in March was 6 months.
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Deconstructing the dystopia that is the Island of Sodor
https://www.newyorker.com/culture/rabbit-holes/the-repressive-authoritarian-soul-of-thomas-the-tank-engine-and-friends?mbid=social_twitter
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Each time we have accelerated write-offs in the past small businesses have taken the opportunity to modernize with equipment purchases. At least in the first year. IIRC, nothing much happens after the first year, and the boomerang effect of higher taxable income in each succeeding year either does or does not make up for the revenue loss in the first year. IIRC, nobody knows.
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True, in absolute dollars it is probably a wash, but a dollar today is worth more than a dollar tomorrow. Although in this interest rate environment, that is almost irrelevant.
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Bitch be woke af
http://thehill.com/blogs/in-the-know/news/352909-elementary-school-librarian-says-shes-rejecting-books-from
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In fairness, Dr. Suess is communist propaganda.
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I will never understand how people can live this way. So filled with rage that you reject a gift that nobody knew about until you had to make a story about it.
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Hot Air has a nice clip of what this twat librarian wrote.
https://hotair.com/archives/2017/09/28/librarian-rejects-first-ladys-gift-dr-seuss-books-calling-racist-propaganda/
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It probably goes down well in Cambridge, MA, but… The left is absolutely insufferable at this point.
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People are assholes.
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I expect this librarian is in hot water at this point. Not for rejecting the books, but for talking about the money the district has.
No school district wants anybody in the district even hinting that they have enough money, much less “too much” money. A public suggestion that the school district has “more money than it knows what to do with” with not sit well with the people who handle the budgets and have to go plead for money and fill out grant requests and defend expenditures and so on.
I’d be very surprised if this librarian hasn’t gotten told, in no uncertain terms, not to do anything like that ever again.
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We now also know who speaks for the trees. It’s not the Lorax. It’s their lawyers.
Presumably Seuss book itself was entered as an Mmicus brief in the Colorado case.
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