Morning Report: Stirrings of inflation at the wholesale level 12/12/17

Vital Statistics:

Last Change
S&P Futures 2666.3 1.8
Eurostoxx Index 390.4 1.4
Oil (WTI) 58.4 0.5
US dollar index 87.3 -0.1
10 Year Govt Bond Yield 2.39%
Current Coupon Fannie Mae TBA 102.531
Current Coupon Ginnie Mae TBA 103.591
30 Year Fixed Rate Mortgage 3.88

Stocks are up this morning as we begin the FOMC meeting. Bonds and MBS are flat.

Inflation at the wholesale level came in slightly above forecast according to the Producer Price Index. The headline number was 0.4% MOM and 3.1% YOY. Ex-food and energy, it rose 0.3% / 2.4% and ex-food, energy, and trade services it was up 0.4% / 2.4%. This report confirms building inflationary pressures in the system. It won’t have an effect on this Fed meeting, but it is something to watch.

Speaking of inflation, one of the bigger complications for the Fed is the effect of Amazon on price discovery. Amazon (and the Internet in general) allow consumers to compare prices easily, something that was not possible a generation ago. Goldman tried to estimate the effect of the internet on core CPI, and they found it to be about 0.1%. All of the Fed’s inflation models were conceived pre-internet. While price comparison on the web is not the only reason why inflation is low, it is a new factor. Deflation is generally experienced in the wake of asset bubbles – Japan has experienced it for a generation, the US had low inflation from the Depression that lasted until the 60s, and we have had persistently low inflation since the residential real estate bubble burst. Low productivity hasn’t helped either, as productivity growth drives wage inflation.

Small business optimism hit the highest level in 34 years on tax reform according to the NFIB. “We haven’t seen this kind of optimism in 34 years, and we’ve seen it only once in the 44 years that NFIB has been conducting this research,” said NFIB President and CEO Juanita Duggan. “Small business owners are exuberant about the economy, and they are ready to lead the U.S. economy in a period of robust growth.” While small business didn’t add any workers last month, hiring plans increased, and difficulties in finding workers remains a big problem.

CoreLogic reported that delinquency rates in July were the lowest in a decade. The foreclosure inventory rate was 0.7%, down from 0.9% a year ago and is the lowest level since 2007. Delinquency rates are the lowest in the West, while New York has the highest. The Northeast judicial states like New York, New Jersey, and Connecticut still have a foreclosure inventory to work through. Lower oil prices were beginning to push up DQ rates in places like Alaska and Louisiana.

Congress hopes to pass tax reform by Christmas. The bill is in committee right now, where the House and Senate are trying to reconcile their differences.

Bitcoin mania: People are taking out mortgages to buy bitcoin. This will not end well. That said, can bitcoin double from here? Of course. Can it go to zero? Of course.

41 Responses

  1. Fauxoutrage

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    • Slutshame, snicker.

      I wouldn’t fuck her with your dick.

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      • Fact remains that DJT is a jerk. Let’s not lose sight of that by trying to divert attention elsewhere.

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        • I’m not sure I understand why Trump’s manifest personality flaws deserve to be a greater focus of our attention than those of Warren or Gillibrand.

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        • BTW, Mark, not sure if you saw it, but I asked a question the other day that I thought you might be able to answer. Basically, in the Masterpiece Cake case that had oral arguments the other day in SCOTUS, the original ruling that was being appealed had been made by a 7 member panel of bureaucrats appointed to the Colorado Civil Rights Commission. I was curious how it was that the original decision that the baker was guilty of breaking the law could be issued other than by a jury after a trial.

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        • Trump’s flaws are worse, and as President he’s in a position to cause more problems due to them than one senator or two out of 100.

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        • jnc:

          Trump’s flaws are worse…

          Not sure I agree with that, as bad as I find his faults to be.

          …and as President he’s in a position to cause more problems due to them than one senator or two out of 100.

          Again, not sure I agree. The primary effect of Trump’s jerkishness that I see is to coarsen, poison, and polarize the political environment in which we all operate. While I definitely think that the coarsening effect of Trump is greater than any politician in my lifetime, I actually think that he is more of a consequence of, rather than a creator of, a poisoned and polarized political atmosphere, an atmosphere that has indeed been greatly impacted by a few highly visible and particularly disingenuous congressmen.

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        • Most Presidents are

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        • “I actually think that he is more of a consequence of, rather than a creator of, a poisoned and polarized political atmosphere”

          He utilizes it to his advantage, and in so doing makes it worse.

          No, Trump is worse than Warren or Gillibrand. They are run of the mill liberals, but still somewhat constrained by the previous (I don’t think it should be called “existing” anymore) political culture.

          Trump is the demagogue that Madison, et al. were concerned with. He’s not particularly competent at translating that into an actual governing plan, but he’s paving the way for whomever comes next.

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        • I just don’t see how Trump is uniquely bad when we’ve have had President Wilson, President L. Johnson and President F. Roosevelt.

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        • jnc:

          He utilizes it to his advantage, and in so doing makes it worse.

          I agree. But the alternative is to allow others like Warren to utilize it to his disadvantage.

          They are run of the mill liberals, but still somewhat constrained by the previous (I don’t think it should be called “existing” anymore) political culture.

          You mean the constraints that kept run-of-the-mill liberals from routinely claiming that Republicans are waging a “war” on women, on the poor, on gays? That every policy initiative with which they disagree is motivated by “hate”? Those constraints? Sorry, but the main difference I see between Harry Reid implying that Mitt Romney is a tax-dodging crook and DJT implying that Kristen Gillibrand is a campaign finance whore is that we know that Harry Reid was lying.

          Sure it is reasonable to be concerned with what might follow after Trump, but I think it is folly to think that the road on which Trump himself is travelling wasn’t paved by what came before him. One of the biggest mistakes the R’s made in the years preceding Trump’s appearance was not recognizing how much the political culture had already been changed, much to their disadvantage, by progressives like Warren.

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        • DJT also proved a GOP politician can fight back against the media and can challenge the underlying assumptions of the left without dying politically.

          That is huge, and even if he is a class-A-1-A douchebag, I gotta hand it to him. Hopefully future GOP politicians grow a spine with these assholes….

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        • Kudos to Sara Sanders and her press briefings, her contempt for the reporters there is a pleasure to watch.

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        • “Sorry, but the main difference I see between Harry Reid implying that Mitt Romney is a tax-dodging crook and DJT implying that Kristen Gillibrand is a campaign finance whore is that we know that Harry Reid was lying.”

          I don’t see them as equivalent positions. I would still hold the President to a higher standard than the Senate Majority Leader.

          Plus Trump’s egregious commentary is much more all encompassing. Reid’s comments on Romney are memorable because they were the low point of his career. Trump’s comments about Gillibrand are just another drop in the bucket, and don’t particularly stand out vs what he’s said about McCain & everyone else.

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        • jnc:

          I would still hold the President to a higher standard than the Senate Majority Leader.

          I don’t. They’re both high profile, federal politicians, playing the same game.

          Plus Trump’s egregious commentary is much more all encompassing.

          Reid was just one specific example to demonstrate that the “constraints” you think exist for other politicians actually haven’t existed on the left for a long time. There are plenty of others. Like Joe Biden telling a group of blacks that Republicans want to “put y’all back in chains”. I can even reach back as far as 1987 and Ted Kennedy’s despicable “Bork’s America” speech.

          Trump’s comments about Gillibrand are just another drop in the bucket, and don’t particularly stand out vs what he’s said about McCain & everyone else.

          Sure, and in that respect, frankly, it is probably less effective than it otherwise might be. I just think it is wrong to suggest that Trump’s insults and attacks are somehow outside the “constraints” that other politicians operate within. The main difference that I see between Trump’s attacks on his opponents and the left’s attacks on theirs is that Trump’s are generally intended to inspire contempt, while the left’s are generally intended to inspire fear.

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        • Agree with JNC completely. Most kids know “the President”. As the leftist rag USA Today said in an editorial:

          “…unfit to clean toilets in Obama’s presidential library or to shine George W. Bush’s shoes”

          My grandkids have no idea what a Mitch McConnell is. The whole third grade knows what a Trump is.

          No comparison.

          An apt comparison for Warren – ideologue who is willing to climb over the bodies of her presumptive allies – is Cruz. These must be the two Senators who generate the least loyalty among their colleagues. I also have my suspicions about Gillibrand on that score.

          But they do not venture outside the previous accepted norms of behavior that we really want our kids to model. They are not the bragging con artists who have been sued thousands of times and who had to pay a $25M settlement for a massive con the month after being elected.

          Did I ever post the excerpts from Trump’s deposition in the Trump U. case here? I would probably have to copy-paste them. A cite to the memorandum brief in opposition to his MFSJ would be easier-it has the funniest excerpts.

          Scott, the cake case comes from the Colorado Court of Appeals. I am going to guess that either party to a Colorado civil rights case can force it into the trial court system but both can agree to the Commission hearing it. In either case, the decision would be appealable to the Colorado Court of Appeals. In this case, there were no fact issues. So everyone was going to save time and money getting a fast legal ruling and appealing it. Didn’t matter really what the first legal ruling was, it was going to be appealed.

          If there are no disputed facts there is no reason for a jury. A jury only gets to resolve fact disputes.

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        • “I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or it they try, they will shortly be out of office.”

          ― Milton Friedman

          It’s always been a mistake to allow your children to admire politicians. Political power should be distrusted by all people and those that hold it should be treated by parents and children alike with deep, deep suspicion, a necessary evil.

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        • Mark:

          An apt comparison for Warren – ideologue who is willing to climb over the bodies of her presumptive allies – is Cruz.

          Has Cruz implied that his political opponents hate women, or blacks, or poor people, or gays?

          But they do not venture outside the previous accepted norms of behavior that we really want our kids to model.

          The fact that it has become the norm on the left to disingenuously accuse anyone who happens to disagree with them of being motivated by “hate” in order to gin up populist hatred against their opponents does not mean that I want my kids to model their behavior on it. Nor do I want my kids to think that any lie is worth telling if it gets you a policy victory, something that definitely was not invented by Trump.

          They are not the bragging con artists…

          I don’t know about bragging, but I think Warren is every bit the con artist. The fact that her pay off has been political power rather than dollars (although political power = $$ in any event) doesn’t change the fact.

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        • I wonder who’s deposition was more disingenuous, Clinton’s Paula Jones deposition or Trump’s Trump U deposition?

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        • Clinton lied at his Jones deposition. Trump’s deposition in the Trump U. case is not full of lies, it is full of admissions of lying.

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        • So, Clinton is a worse character as he lied as a sitting POTUS, while under oath and Trump lied as a private citizen, not under oath, and then, when he was under oath, admitted the truth.

          If I recall correctly, Eisenhower specifically told the American public that there were no US overflights of the USSR just months before Powers was shot down. Another example of a worse character than Trump?

          We need to have some perspective here, Trump isn’t using the Constiturion for toilet paper like Roosevelt, Wilson and Obama did. I’d even argue that he is much more transparent than any previous POTUS. I’m not convinced he set out to be, but that’s been the result.

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        • I’m not saying that Trump isn’t a uniquely bad President (the economy doesn’t seem to think so). I just think some perspective is in order. If we’re ranking Trump below Wilson, FDR, Johnson (A. and L) or even Obama because of his vulgarity versus their multitudinous Constitutional stompings, than their priorities of what’s important are significantly different than mine.

          Trump is not causing a crisis, those acting as if Trump is causing a crisis are the problem.

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        • McWing:

          If we’re ranking Trump below Wilson, FDR, Johnson (A. and L) or even Obama because of his vulgarity versus their multitudinous Constitutional stompings, than their priorities of what’s important are significantly different than mine.

          I agree with this completely.

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        • Mark:

          If there are no disputed facts there is no reason for a jury. A jury only gets to resolve fact disputes.

          If I was the baker I would have demanded a jury trial. The central fact of the case…was he motivated to discriminate based on the sexual orientation of the buyers…was in dispute as far as I can tell. And he surely had a better chance of convincing a jury that he wasn’t than the politically appointed and motivated clowns on the Civil Rights Commission.

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        • was he motivated to discriminate based on the sexual orientation of the buyers

          Why do you think that is material?

          For this purpose, it is stipulated that his objection is First Amendment based. No way will any court decide these cases based on a piercing inquiry into intent.

          FWIW, lots of small businesses have been excepted from federal equal access rights statutes. Essentially, it is a common sense view of commerce that is better than our worst case scenario of Wickard v Filburn applying to everything. So were this a case arising out of DC I think a Court would look at whether the DC ordinance made exceptions for small biz. So the question is here whether Colorado state law is overbroad as to its limiting effect on the First Amendment. That’s how it gets into the seeming rabbit trail of artistic license.

          The way this case is posed makes it tricky – I think the free expression right should trump the state equal protection clause unless the complaining couple had no reasonable alternative source – in which case their equal protection right under state law would actually have been impaired.

          BTW, IDK if that issue was ever raised at any level. So I am just talking out of my own sense as to how the case should have been framed by the defense. Then I would have been able to get a jury on THAT issue.

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        • marK

          Why do you think that is material?

          Because that is what is prohibited by the law he was accused of violating.

          No way will any court decide these cases based on a piercing inquiry into intent.

          How can that be given that intent is precisely what the law regulates?

          I think the free expression right should trump the state equal protection clause…

          This is just an aside, but given the traditional legal meaning of “equal protection”, I don’t think it is right to call this clause an “equal protection” clause. Equal protection generally refers to the notion that the law must be applied equally to all people, not that private individuals must treat all other people equally.

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        • First, it’s a Colo law, not an adjunct to the federal constitution. It says Colo businesses “open to the public” cannot discriminate based on sexual orientation. So it is footed in a commerce idea, just like federal equal protection law that reaches into private conduct.

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        • MarK;

          It says Colo businesses “open to the public” cannot discriminate based on sexual orientation. So it is footed in a commerce idea, just like federal equal protection law that reaches into private conduct.

          I understand that it is a state law. I was just under the impression that the term “equal protection” referred to how the government was required (for example, by the 14th amendment) to apply the law, not to laws stipulating how private actors apply their own policies. So, for example, I wouldn’t call public accommodation law “equal protection law”, I would call it anti-discrimination law.

          Also, I remain confused about how a court could possibly decide the issue outside of an inquiry into intent, given that intent is exactly what the law prohibits.

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  3. I thought this piece was somewhat overwrought, but it did resonate with me. I realized later on in life that my feelings were my responsibility, and I wasn’t obligated to manage the potential hurt feelings of others. Still, my first instinct has always been to worry if I was hurting one parent or another with a lot of actions I take, I have to consciously remind myself that it’s not my obligation to manage their feelings.

    http://thefederalist.com/2017/12/12/parents-divorce-ruined-holidays-family-life-forever/

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    • My wife’s parents are divorced. Her dad remarried very quickly and was married another 20 years or so before subsequently divorcing again. Her mother never remarried and sadly died unexpectedly about 8 years ago.

      The tension described in that article is very real. I recall her grandmother trying to arrange an “original family” photo at our wedding. and trying to accommodate everyone’s wishes for the holidays. But your comment about not trying to manage other’s feeling is spot on. But I earlier on, I had to make it clear that my side of the family was under no obligation to accommodate her father’s wishes, which inevitably would change at the last minute. A maneuver I’m convinced as designed to exert some control.

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      • I get that there is divorce, hell, my wife was divorced before marrying me, it does set up emotional problems for everybody if there are kids involved, and those problems essentially last a lifetime. I’m guessing very few couples actually factor that in when proceeding with a divorce. I don’t know if that would change any minds, it might stop a person from cheating on their spouse or convince a cheated on spouse to forgive the cheater.

        The other element that’s difficult to navigate is letting the child choose which spouse to live with, there is no good way to do it without the child always feeling that they betrayed one parent over another. I’ve come to believe that either one parent capitulates or allow a judge to decide, it’s just,long term, a lot of emotional baggage to carry.

        Hate only seeing you kid the day after Christmas? What did you do to preserve your marriage?

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        • Joint custody, George. Kid never feels abandoned by one parent. Most do exchange week to week. Been around for forty years now.

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        • For those willing to accept it, it’s better than other alternatives. It doesn’t address the thousand other things that damage children during and after divorce. The act of splitting up a family is damaging. Are thre occasions when remaining married is more damaging? Yes. I’m not convinced that “falling out of love” with someone is a good enough reason, nor is not being fulfilled.

          When a child says something nice about another parents significant other and a pained look crosses the face of the other parent, that’s damaging. When there is tension between the divorced parents in each other’s prescience, that’s damaging. Like I said, divorce is permanently damaging to kids, no getting around it.

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        • McWing:

          I’m not convinced that “falling out of love” with someone is a good enough reason, nor is not being fulfilled.

          This was precisley the insight that was lost with the advent of easy, no-fault divorce and the notion that the purpose of marriage is something other than simply to provide the best environment for the producing and raising of children.

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  4. Andrew McCarthy revises opinion on Mueller/FBI agent/Paramour texts.

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