Morning Report: Possible government shutdown? 1/16/18

Vital Statistics:

Last Change
S&P Futures 2801.3 12.5
Eurostoxx Index 399.0 1.2
Oil (WTI) 63.9 -0.4
US dollar index 84.6 0.2
10 Year Govt Bond Yield 2.54%
Current Coupon Fannie Mae TBA 101.75
Current Coupon Ginnie Mae TBA 102.875
30 Year Fixed Rate Mortgage 4.03

Stocks are higher this morning as on overseas strength. Bonds and MBS are up small.

Not a lot of market-moving data this week, however we do get housing starts and the FHFA House Price Index. Bank earnings will dominate the releases this week.

The Empire State Manufacturing Survey came in a little weaker than expected, but was still pretty strong. Employment-related indicators (number of workers and average workweek) decelerated a touch, however the inflation indicators (both prices paid and prices received) increased. The bond market seems to be taking the inflation data in stride.

The big thing this week will be a continuing resolution to keep the government open. The government will shut down if a budget deal isn’t reached by Friday. Democrats are holding out over immigration. Republicans are weighing another short-term funding measure that will last until mid-February.

So far, it looks like the meta-issue for 2018 will be inflation. Numerous companies have announced wage increases in response to the tax bill, and some states have raised the minimum wage. Commodity prices remain firm (especially food and energy). In order to really get inflation, we need wage inflation and so far we haven’t really seen a lot in the BLS numbers. That said, with all the company announcements over raises this could be the year.

Dallas Fed President Robert Kaplan believes we are going to “overshoot full employment” and he thinks we will need to see 3 rate hikes this year. His personal GDP forecast is 2.75% growth. “The history of overshooting full employment in this country has not been a happy one,” he added. “Normally, what happens is you get an overheating, the Fed has to play catch up, and what happens then is you tend to often have a recession.” Historically (post-Great Depression) that has been the case: the economy grows, inflation starts, and the Fed causes a recession to beat back inflation. That model probably works 90% of the time, but post-bubble economies are different, and have longer (and shallower) recoveries. The excesses of the bubble years may have been worked off, however the psychology of the bust instills a risk-aversion on the part of the business community that isn’t necessarily conducive to inflation. Japan has been trying to create inflation since the early 90s and they still haven’t been able to do it. The US isn’t necessarily Japan, however the Japanese experience shows that the usual economic playbook goes out the window after asset bubbles.

The black swan for US inflation? The bursting of the Chinese real estate bubble. This will be a drag on overall global growth and commodity demand.

19 Responses

  1. Been snowing in Houston for a couple of hours now.

    Gaia is angry my friend.


    • My theory of macroseasons explains our weather trends way better than climate change, and predicts weather/climate trends far more accurately. But I’m wrong and their right because being wrong with peer reviewed papers is SCIENCE!

      It’s almost a guarantee this year won’t be another “hottest year on record” unless they seriously are cooking the books. However, next year may not be, either, but could be warmer than this year and will immediately be hailed as evidence of global warming, that this years “cold snap” was the last time that will ever happen (because SCIENCE!). This 2020 or 2021 or 2022 will have some bitter, bitter cold, record low temperatures will be reached, and there will be some new reason this is evidence of global warming (now called climate change to soften the part where their predictions are always wrong).


  2. Further proof that “hate crimes” and “hate speech” basically means anything the left doesn’t like. Which is why they are pushing a “hate speech” exemption to the First Amendment. It guess it is always 1917 to to these people..

    Liked by 1 person

    • Part of the problem is Hollywood (like politics) are often filled with moralizers with no moral compass, and whiners and partiers without principle. Damon has no urge to stand up for the rightness of what he said earlier, because he has no principle and no courage.

      To borrow a favorite comparison of the left, if this were 1930s Germany, he would have signed up to be a brownshirt. Everybody’s doing it! Time for him to just take a backseat, put on the brownshirt, and be quite.


  3. Saw this at Ace. I kind of like the analogy.

    Enter President Donald Trump. He is a rude and crude person. He speaks like a Queens real estate guy on a construction site. And because he does not have good manners, he thoughtlessly breaks the rules with which the Left has sought to muzzle those who disagree with them. In this regard, I frequently compare Trump to Randle Patrick McMurphy, the loudmouthed, ill-mannered roustabout from Ken Kesey’s brilliant novel One Flew Over the Cuckoo’s Nest. McMurphy comes into an insane asylum controlled by a pleasant, smiling nightmare of a head nurse named Ratched. Nurse Ratched, while pretending to be the soul of motherly care, is actually a castrating, silencing tyrant. Her rules of good manners, supposedly fashioned for the benefit of all, are really a system of mental slavery. All of McMurphy’s salient character flaws suddenly become heroic in the context of her oppression. Only his belligerent ignorance of what constitutes good behavior can overturn the velvet strangulation of her rule.
    For Nurse Ratched, read Hillary Clinton, CNN, the New York Times, Yale University, Twitter, and Google/YouTube—all the tender ministers of polite silence and enforced dishonesty. If Donald Trump’s boorishness crashes like a bull through the crystal madhouse of their leftism—well, good. It’s about time.


    • Nurse Ratched is the perfect encapsulation of modern leftism.

      Liked by 1 person

    • he thoughtlessly breaks the rules with which the Left has sought to muzzle those who disagree with them

      I think the left and Democrats really misunderstand why Trump’s vulgarity doesn’t hurt him and even helps him. They think he’s just being vulgar and/or racist. When part of what he’s doing is saying things and asking questions that a lot of regular Joe’s have been told in no uncertain terms they are not allowed to ask or say.

      For Nurse Ratched, read Hillary Clinton, CNN, the New York Times, Yale University, Twitter, and Google/YouTub–



  4. I laughed


    • “”I cried tears of rage after hearing a second hand report of someone saying something mean” is not a really great look for someone who wants to be President.”

      I was just listening to a bunch of that stuff, including Kamala Harris. My immediate reaction is that none of these people are serious, in the sense that they live in anything like the real world. They are living in their own fantasy bubbles, and 99 times out of 100 that’s a losing proposition for influencing a majority of Americans to go your way.

      This is exactly right. It’s not a great look for someone who actually wants to run for president, and it’s a bad effort for 2018, where lots of Republicans are not excited by their representatives for a variety of reasons, and the Dems could easily make headway just by doing nothing and having their congress critters run agains incumbent Republicans on local issues.

      Instead, they are exciting Republicans to vote for Republicans in 2018 (and some swing voters, I expect) by being ridiculous and/or pissing them off every other day.


      • @KW
        …Dems could easily make headway just by doing nothing and having their congress critters run against incumbent Republicans on local issues.

        Yep. This was evidenced by the WI state senate campaign the D won. Apparently never mentioned DJT. Just health care and jobs which were local issues.

        @Brent: “monopsony” was his new word of the day, I guess.

        I’m going to write a post about a continuing Supreme Court case if I get ten minutes today. It’s about DOL and the limits of Chevron deference but because all the Justices agree on the policy I am more interested in how they split on the procedure.


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