Morning Report: Strong Chicago PMI 12/28/17

Vital Statistics:

Last Change
S&P Futures 2687.5 2.0
Eurostoxx Index 390.3 -0.2
Oil (WTI) 59.7 0.0
US dollar index 86.3 -0.3
10 Year Govt Bond Yield 2.43%
Current Coupon Fannie Mae TBA 102.375
Current Coupon Ginnie Mae TBA 103.25
30 Year Fixed Rate Mortgage 3.97

Stocks are modestly higher this morning on no real news. Bonds and MBS are flat.

Very slow news day.

The Chicago PMI came in at a very strong 67.6 as production and new orders hit multi-year highs. Employment was disappointing however as businesses struggle to find qualified employees.

Initial Jobless Claims came in at 245k last week ahead of the Christmas holiday. Surprised it is that high.

Some the biggest fixed income managers lay out their trades for 2018. Blackrock says to move up in credit quality. Note that they are neutral on everything. U.S. municipal bonds, U.S. credit, emerging markets and Asian fixed income, and an underweight position on Treasuries, European sovereign debt and European corporate bonds. They don’t like anything, really. Fidelity says global growth is going to become inflationary, so buy TIPS (Treasury inflation protected securities) and emerging market debt. Goldman is betting against the crowd, favoring yield curve steepeners as opposed to the biggest trade on the Street, which is betting on a flatter yield curve. The theme seems to be inflation will return, and that means higher rates next year. The elephant in the room is the Fed, and the fear that increasing short term rates will torpedo the recovery.

Easy come, easy go. Bitcoin continues to give back gains after it hit a record last week. It is down 28% from its highs on fears that South Korea might close one of its exchanges. Here is the fundamental issue with Bitcoin: governments despise it, and while they might not be able to kill it directly, they can attack everything that supports it. While there are a few retailers that accept Bitcoin, understand that they don’t hold it. They immediately exchange it into dollars.

Tax reform has some people in high tax jurisdictions rushing to pre-pay their property taxes ahead of the change in 2018. Note the IRS will only allow this if they are assessed and paid in 2017. So if your local government can’t get the assessments out in time, it doesn’t matter if you prepay.

18 Responses

  1. All it took was for a Republican to win.

    Liked by 1 person

    • Extreme poverty goes away when a lightworker is in charge… Don’t you baggers know that?

      Liked by 1 person

    • I think this is exactly correct:

      “The biggest threat to New Yorkers right now is the federal government,” Attorney General Eric Schneiderman of New York recently declared. The radical leftist pol who had once vowed to do everything possible to elect Hillary Clinton was explaining his hundred lawsuits against the government on everything from net neutrality to the travel ban meant to keep out the Islamic terrorists running over tourists near Ground Zero and bombing commuters in the tunnels off Times Square.

      Islamic terrorists have killed thousands of people in New York City in the last two decades. Net neutrality’s current death toll hovers around zero. The Federal government is far less of a threat to New Yorkers than their own government which insists that Islamic terrorists should be able to kill them. But it is a great threat to a class of political lawyers whose ranks include AG Schneiderman, Hawaii’s Judge Derrick Watson, Mueller’s team, Sally Yates, the ACLU and countless other #resistance combatants.

      The blatant secessionism of the AG’s premise is no longer extraordinary. Not when California’s Jerry Brown tours the world signing independent environmental treaties. Schneiderman is one of a number of blue state attorney generals who have decided that their primary focus shouldn’t be enforcing the law, but resisting the Federal government. But Scheiderman is also articulating the central tenet of the new #resistance which, despite Antifa’s antics, is more dedicated to legal sabotage than actual violence.

      It’s still a paper civil war. For now.

      The loss of the two elected branches of government has forced the left to default to the unelected third. Like AG Schneiderman, the left’s legal civil war appears to reject the authority of the Federal government. But despite the posturing, blue staters aren’t serious about seceding. Nor have they become newfound converts to the rights of states to go their own way when they disagree with D.C.

      New York and California’s #resistance apparatchiks aren’t rejecting the authority of Federal judges. They’re turning to them and relying on them. Instead they’re rejecting the authority of elected Federal officials. Their secession isn’t Federal, it’s democratic. They want a strong central government. They just aren’t willing to allow the American people to decide who gets to run it.

      That’s what the civil war is about.

      Liked by 1 person

      • Which is why I always chuckle at the name for their party… The Democrats accomplish their dirty work via the two completely non-democratic entities: the courts and the bureaucracy..


    • Kevin Williamson saying everything I have ever said over the last 5 years with regard to anti-discrimination law.

      Beyond the specific constitutional questions, Justice Bradley was in search of a limiting principle: If the Fourteenth Amendment means that obscure innkeepers and café operators are subject to the same constitutional burdens as, say, the government of Alabama, then “it is difficult to see where it is to stop.” Justice Bradley prevailed, and Justice Harlan was the lone dissenter. In the debate over the Civil Rights Act of 1964, the arguments were in many ways the same. Senator Goldwater, whose long and distinguished record as a champion of civil rights has been strangely forgotten, believed that the “public accommodations” language in the proposed civil-rights legislation — provisions that would put into effect Justice Harlan’s conception of private businesses as effective “agents of the state” —was undesirable and unconstitutional, a perversion of Congress’s power to regulate interstate commerce. The rhetoric of the time was often heated and at times indefensible. But no one, not the most wild-eyed critic of the principles underlying the civil-rights legislation of the 1960s, ever suggested that, if such laws were passed, they would lead to obscure Christian bakers’ being forced at the point of government bayonets to produce cakes for the celebration of homosexual weddings. (I write “principles” because the Masterpiece case is a challenge to a Colorado statute, not to the Civil Rights Act of 1964.) The slope is, in fact, slippery.


    • Pravda is what Pravda does.

      Can’t imagine why people think the media is biased or “fake news”. The notion is absurd!


  2. Interesting tactic:

    “Another route would be for states to create dollar-for-dollar tax credits for all charitable contributions made to the state government. Charitable donations are still deductible under the GOP, so reclassifying state taxes as charity would enable residents to still deduct them at the federal level.”

    The detailed analysis that the Vox piece is based on:

    Also, only a millennial at Vox could write this:

    “The plan could also lead to a significant backlash if employers decide to ignore their general tendency not to issue pay cuts and start slashing salaries to pay for their new tax burden. Employees shouldn’t be alarmed if that happens, as it’s a natural adjustment.”

    Liked by 1 person

    • jnc:

      Interesting tactic:

      It would be interesting to see how such an obvious tax avoidance scheme holds up in the courts.


      • I don’t think this is going to work the way that they want it to:

        “Consider a taxpayer donating $500 to a tax-exempt private school in Arizona. Assuming the taxpayer itemizes, this reduces the taxpayer’s federal taxable income by $500 as per Sections 170(c) and 67(b)(4). Under Arizona’s School Tax Credits for Individuals program, this donation also entitles the taxpayer to a dollar-for-dollar $500 credit against state income tax liability. By donating the $500, the taxpayer has both saved $500 in state tax liability and obtained a federal charitable contribution deduction of $500.

        Although the $500 state tax credit feels like a quid pro quo that should correspondingly reduce the deductible portion of the federal charitable contribution deduction, I.R.S. and Tax Court authority indicate otherwise. [fn.2] As described in detail by Phillip Blackman and Kirk Stark in 2013, state tax credits received in conjunction with a charitable contribution to the state are generally viewed as a reduction in liability owed to the state rather than a deemed payment of state taxes. As a result, no quid pro quo reduction of the federal charitable contribution is required.”

        I suspect it’s going to come down to how much choice the there is in terms of what’s donated to.

        Donating to private schools to reduce state tax liability is one thing. “Donating” to the general revenue is another.

        And of course there’s the issue for progressives of creating a massive subsidy for private schools.


    • If Vox keeps shilling for the Democrats, were Gonna end up with President Bannon.


  3. I love that progressives are scrambling to find ways to reduce their federal taxes after screaming for years they’d willingly pay more. Liars.

    Liked by 1 person

  4. Worth noting Brent if you haven’t seen this already.

    “Hundreds of thousands of poor Americans will soon be able to move to better areas, thanks to this judge
    By Tracy Jan
    December 28 at 5:30 AM

    A federal judge has ordered the U.S. Department of Housing and Urban Development to implement an Obama-era rule on Jan. 1 that would give low-income families greater access to housing in more affluent neighborhoods.

    The 2016 rule was designed to break up areas of concentrated poverty in two dozen metro regions, from Atlanta and Charlotte to San Diego and Honolulu.

    It would operate by taking into account the rental prices in specific neighborhoods — instead of averaging across an entire metropolitan area — making it easier for poor people to afford apartments in middle-class neighborhoods with better schools, lower crime rates and more job opportunities.”


  5. The quote Insty uses here is absolutely priceless!!

    Liked by 1 person

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