Morning Report: Handicapping the next Fed Chair 10/5/17

Vital Statistics:

Last Change
S&P Futures 2538.5 2.3
Eurostoxx Index 390.1 -0.3
Oil (WTI) 50.1 0.1
US dollar index 86.7 0.0
10 Year Govt Bond Yield 2.32%
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 on no real news. Bonds and MBS are flat.

I was at the IMN conference earlier this week, which was very informative. Haven’t heard this much about convexity in a long, long time.

We have a lot of Fed-speak today, with 4 speakers. Powell, Williams, and Harker speak this morning and Esther George speaks after the close. Bonds should be quiet as we await the jobs report tomorrow.

Announced job cuts continue to be low, according to outplacement firm Challenger, Gray and Christmas. Job cuts fell 4.4% in September to 32,346. This number is down 26% from last year. The most movement (in terms of cuts and hiring) remains the retail sector. For the quarter, companies announced job cuts of just over 94,000. Sub-100k quarters are rare: the last one was Q4 last year and then you would have to go back to 2000 to find another. Remember, this stat includes announced job cuts (it counts all the press releases companies do) so these job cuts won’t necessarily materialize.

While online shopping has led to job cuts in bricks-and-mortar stores, those losses are being offset by new jobs in e-commerce. Of course the jobs are very different and require different skill sets, but it kind of looks like a wash

Initial Jobless Claims fell to 260k last week as hurricane-related effects continue to mess with the numbers. Note the ADP Survey (which foreshadows the BLS numbers tomorrow) was weak at 135,000 however hurricane-related effects are probably included in that number as well.

Janet Yellen’s term expires early next year. Here are the most likely candidates to run the Fed going forward. Trump could re-nominate Janet Yellen, however she is a liberal and supports stronger banking regulation. Gary Cohn is another possibility, as Trump prefers business people over academics. Jerome Powell is another possibility, and he would be somewhat more hawkish than Yellen. He is supposedly the choice of Treasury Secretary Steve Mnuchin. Kevin Warsh is more hawksh than either Yellen or Powell and supports financial deregulation. Warsh would probably get some opposition from the left. Finally, John Taylor would be the most hawkish. While politicians might rail against too easy money out of the Fed while on the campaign trail, most prefer dovish types once they are in office. Nobody wants a Fed-induced recession on their watch. The last one we had was 81-82, when Paul Volcker tightened to break the back of 1970s inflation. President Ronald Reagan supported his move, which caused the worst recession (at the time) since the Great Depression.

Online betting site Predict It shows the market’s assessment. Kevin Warsh is in the lead at a 40% chance, while Jerome Powell is at 31% and Yellen is at 10%. Gary Cohn is at 9%.

Philly Fed President Patrick Harker says that the US economy will continue to grow at a subdued 2% rate until we get some sort of pro-growth tax reform out of Washington. He still supports hiking rates in December. The Fed Funds futures have more or less doubled their probability of a rate hike over the past month from around 40% to over 80%.

Donald Trump roiled distressed hedge funds yesterday when he suggested that Puerto Rico might need some debt relief to recover. The Commonwealth’s general obligation bonds fell into the low 30s. At least Trump was nice enough to wait until everyone marked their books for Q3.

31 Responses

  1. I find the bigotry in this to be very inciteful.


    • The MSM is going all-in on the “white guys are terrorists” narrative, aren’t they?


      • Finally a terrorist they can hate.


      • Well, then let’s see them do something about it.


        • In Soviet Russia, anti-gun pacifist kills you!

          Liked by 1 person

        • “In Soviet Russia, anti-gun pacifist kills you!”

          That’s hilarious. The problem is, even outright gun confiscation would not have stopped this guy. Or, it’s highly unlikely. He had money.

          People with money can buy illegal things.

          Outright gun banning might prevent the gun deaths due to suicide (though they can and will repurpose, in many cases) and some domestic homicides (also, they can repurpose). But the rest of gun deaths, especially the mass shooting types, are unlikely to be affected.

          Clearly, they aren’t bothered by illegality. If they have money and time, they can probably get a gun.

          And let’s say the ends do justify the means somehow. What in the world does lining up the members of the NRA and executing them accomplish, except to turn your nation into Cambodia, only not as nice?

          There are 5 million members of the NRA. Nancy Sinatra is advocating for mass murder on the level of Hitler. And far, far beyond every mass shooting in the US (and probably the world, if you subtract wars) put together.

          The logic is amazing.


    • Whenever I hear virtue-signalling politicians and Hollywood types around mass shootings, I think of this video:


    • “If every black adult male in the U.S. bought & registered a semi-automatic rifle tomorrow, Congress would Pass gun control laws by Friday.”

      That guy is a mole for the gun lobby. Gotta be. What better argument could you want, than every member of a sizable community has a moral obligation to go out and buy a semi-automatic rifle? If you’re a gun manufacturer or seller, that’s gotta be music to their ears.


    • Well that be enough to make progressives think they’ve gone too far and surrendered too much? That they are tolerating their way to a new Stalinist identitarian fascism?

      My guess is no.


      • Progressives are totalitarians… Can’t get to utopia any other way…


        • The problem is (as Orwell, a dabbler in utopian political movements came to experience) that even on the far left their can be dissension amongst identity groups as to what “utopia” is. And once the utopians become the state, they are often surprised (because they are deeply naive) that their once fellow travelers have declared them enemies of the state, no different than any neo-Nazi.

          “But I’m pro-choice! I believe in gay marriage!” they wail as they are dragged off to the work camps, but to no avail.


  2. This is gonna be fun.

    Christopher J. Gowen, one of Imran’s lawyers, added in The Washington Post: “There’s nothing that Imran did that wasn’t requested by one of his clients on House staff.”


    • The MSM is studiously looking away from all that, for the most part. I wonder why!

      This would be an awfully juicy news story if Trump had employed from Ukrainian IT person who had been stealing equipment and had unauthorized access to government servers.


  3. Interesting

    I understand Democrats’ reluctance to talk to him – he’ll destroy their narrative. But Republicans?

    Or is the urge to censor social media (which is the point of this whole goat rodeo) a bipartisan affair?

    Liked by 1 person

    • Both sides worry Assange is not on their side. That he’s a loose cannon and he can hurt both sides equally.

      Yes, the urge to censor social media and to generally enlarge the size and scope of government is a bipartisan affair. People who are not easily seduced by both the power of being an elected official, and the narcotic of spending other people’s money, don’t run for office much. I’m sure many of them are devoted to their partisan narrative, but at the end of the day, they are mostly different at the fringes.


  4. Hollywood and Democrat bigwig Henry Weinstein gets bagged by the NYT… I guess the days of liberal men getting a pass for their peccadilloes are over…

    Interestingly, he claims he will sue the paper…

    Liked by 1 person

  5. Hawt blue on blue action.

    Liked by 1 person

    • Yup. They want to be angry at gun owners and punish them, rather than pursue solutions that might actually work. The principal (Guns are bad, mmmkay?) is more important than saving lives.


  6. That’s where the chicks are.

    Double points if he wore a pussy hat.

    Liked by 1 person

  7. Mark – I’m in Austin. I sent you an E-mail at your G-mail address.

    Liked by 1 person

  8. This from Instapundit makes me laugh, especially the picture.


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