Morning Report: Shutdown day 1/19/18

Vital Statistics:

Last Change
S&P Futures 2799.3 3.0
Eurostoxx Index 400.2 1.4
Oil (WTI) 63.0 -0.9
US dollar index 84.4 0.0
10 Year Govt Bond Yield 2.62%
Current Coupon Fannie Mae TBA 102.375
Current Coupon Ginnie Mae TBA 103.25
30 Year Fixed Rate Mortgage 4.03

Stocks are higher this morning as we head into the deadline to keep the government open. Bonds and MBS are flattish.

Consumer sentiment slipped in early January, according to the University of Michigan Consumer Sentiment survey. The reading fell to 94.4 from 97 in December.

The House passed a 1 month continuing resolution yesterday and all eyes turn to the Senate, where Democrats are demanding action on immigration in exchange for a vote to keep the lights on. If they can’t come to a deal, the government will shut down at midnight. This will be a little different than it was during the Obama years: Obama wanted the public to feel the pain of the government shutting down, so he made it as visible as possible. Trump is going to do the exact opposite. National Parks will still be open, although the rangers will be off duty. Tax transcripts were held up the last time the government shut down, so hopefully everyone planned accordingly.

So far, the markets are treating the drama in DC as a sideshow. The US dollar, bond yields, and stock prices don’t care. The 10 year is trading right at technical support right now, so if it breaks through that level, technical analysts are thinking the next level is 3%.

Are credit scores preventing people from getting mortgages? Some are arguing that the old FICO scores are outdated and the GSEs should open up credit scores for competition. There is always the fear that competing credit scores will create a race to the bottom, where the most lax score wins, but that is probably overblown. Most originators won’t touch the lowest permissible scores to begin with, so changing the number will probably only result in them changing their overlays to maintain the same credit profile as before.

They say all real estate is local, and from what we have seen prices are rising rapidly. Are there pockets of weakness still? In fact there are, in the super-rich bedroom community of Greenwich, CT. Last quarter, prices fell at high end by almost 14%, the most since 2008 when Lehman Brothers collapsed. Sellers are tired of waiting years to get the price they want, and are finally getting realistic about the new market conditions. One estate, which was originally listed at $65 million ended up going for $21 million. The bottom line for Greenwich is that the financial industry, which really supported the area, has changed and probably isn’t coming back to pre-bubble levels. This also explains Connecticut’s budget issues as well – the rich communities in Fairfield County largely supported the state.

Labor shortages are starting to push up wages, especially for skilled workers. Yesterday’s initial jobless claims number was the lowest in 45 years. The markets and the Fed are forecasting 3 rate hikes this year. The risk is probably that this estimate is too low. The markets have been bumping up their March forecast. which currently stands at a 73% chance of a 25 basis point rate hike, up from 61% a month ago.

The CFPB made its budget request for the first quarter, and the number is…. $0.00. The agency has $177 million in the bank (so to speak) and has a budget of $145 million, so they aren’t asking for any more money.

The Senate is working on a housing reform plan that would wind down Fannie and Fred and replace them with up a large number of private guarantors with a catastrophic government backstop. The Senate differs from FHFA here – FHFA wants a small number of guarantors to operate under a regulated utility model to prevent a race to the bottom, while the Senate envisions no limit. One other big change – the elimination of affordable housing goals, which will be replaced with incentives. This will almost certainly anger liberals, who were able to kill housing reform in 2014 over that exact issue.

Want to be master of the universe? Try the Monetary Policy Game.

54 Responses

  1. Something to keep in mind vis-a-vis government shutdowns:

    “Immigration agents keep working during a shutdown. Most EPA researchers don’t.
    The government’s most conservative functions stay open during shutdown.
    By Dara Lind
    Jan 19, 2018, 10:20am EST”

    Liked by 1 person

    • Wonder if the CFPB is shuttered.


      • vox says no.

        For progressives who see consumer protection as an important function of the federal government, this is arbitrary, even insulting (though partisans can take some glee in knowing that the Consumer Financial Protection Bureau itself is unaffected by shutdown). For libertarians and business-minded conservatives who see overregulation and red tape as a serious chilling effect on entrepreneurship in America, it’s an (admittedly extreme) version of the regulatory state they’d like to see to begin with.

        Liked by 2 people

      • I think fear of things like shutdowns and more realistically reduced appropration funding was one of the big reasons it was set up the way it was.

        Independent source of funding with a director who couldn’t be easily replaced.

        One of the biggest mistakes the Democrats made this year was Cordray resigning.

        Liked by 1 person

  2. American society deserves to collapse

    “Why people are (mostly) joking about eating Tide Pods
    You shouldn’t try the Tide Pod Challenge, despite the memes. But it’s not weird to want to.
    By Alex Abad-Santos
    Updated Jan 19, 2018, 12:15pm EST ”

    A friend in the military posted on Facebook that all the sergeants in his unit just had to come around and confiscate all the laundry pods because one idiot actually ate one.

    Picture of all of the detergent piled up in the barracks.


  3. They’ve got their catchy name now.

    “The “shithole shutdown” is the perfect encapsulation of Trump-era governance”

    I think they are overestimating the outrage at Trump’s comment and the appetite for shutting down the government over it.

    Liked by 1 person

  4. Senate Ds are on the floor talking about how they want to expand CHIP but the time to do it was months ago. uh, okay.


  5. also — assume it shuts down and the Rs take a hit. why would they slit their own throats by doing anything on DACA then?

    Liked by 1 person

  6. Interesting from Andrew Sullivan about third-wave feminism…

    As the father of a teenage boy, and a scout leader, I can tell you the boys behind the Millennials aren’t buying any of this shit. They mock it.

    I suspect Generation Z is becoming a backlash against Millennial wokeness the way my generation was a backlash against hippy-dippy boomers…

    Liked by 1 person

  7. I am a contributor to a new film stet (with a fictional byline). It just went live and I already like it better than most film sites I’ve been to.

    It’s called FilmGoblin.

    Here’s the article I wrote as a Harry Knowles Style self-appointed film geek god:

    Liked by 1 person

  8. If the shutdown continues long enough to pinch, I think the Ds take the heat. While both parties and particularly DJT are to blame for not having moved this along in an orderly fashion, the liberal pundits are surely incorrect in their view that the Rs will take the blame from the public. Because, in the end, the Ds did exactly what Ted Cruz did last time.

    Meanwhile, I heard one R Senator point out that only 4 of the last 44 appropriation bills were truly the result of Regular Order. This is probably true, I haven’t checked.


    • Mark:

      While both parties and particularly DJT are to blame for not having moved this along in an orderly fashion…

      Why is DJT particularly to blame?


      • For telling the Congresspersons he met with on national TV that he would sign whatever deal they brought him but then rejecting the Graham-Durbin bipartisan deal causing McConnell to say he wouldn’t call for a vote on something until he knew DJT would sign it.

        So the wheels got stuck because DJT was not true to his word to the bipartisan Congresspersons he met with. Even some Rs were p.o.’d enough to vote against the CR.

        Liked by 1 person

        • Mark:

          I agree that Trump should never have said he would sign whatever Congress passed. That was absurd, but it seems that not even Graham and Durbin took him seriously, otherwise why would they have taken their deal to him first before getting it passed in congress? And would the deal have even gotten through Congress in any event? I’m skeptical.

          Liked by 1 person

        • I always took it to mean a passed bill, not an outline of amnesty.

          I’m curious what everybody else thinks.


        • McWing:

          I always took it to mean a passed bill, not an outline of amnesty.

          That is what he actually said, ie that he will sign whatever Congress passes.

          Liked by 1 person

  9. If I were Trump, I would announce that due to the government shutdown, anyone who wants to sell bottled water in the national parks is welcome to without a permit…

    Liked by 1 person

  10. Everyone should take 30 minutes and watch this Jordan Peterson interview. It’s spectacular. Count the number of times the woman interviewing him says “So what you are saying is…” and then follows it with something totally different from, and sometimes the exact opposite of, what he actually did say, It’s quite fascinating to watch someone so utterly unwilling or unable to understand Peterson’s points.

    Liked by 1 person

    • It demonstrates a lot of things:

      1) The left has never heard anything but caricatures of arguments from the other side, which is why she continues with the “so, what you are saying…” crap.. Which has developed the severe case of intellectual laziness that you see on display here…
      2) The left cannot operate outside of their carefully constructed intellectual bubble
      3) This woman wouldn’t know what a multi-variate equation was if it bit her in the ass
      4) The left honestly does believe “muh feels” trumps actual reality…

      Liked by 1 person

      • Why is this person doing interviews? Why are they in the news at all? When you can’t accurately state what the person just said, and want to keep insisting they are saying things they are not, and then don’t understand any of the reasonable and straight-forward answers, you are not competent to conduct interviews. Also, incapable of handling surprises with aplomb.

        This person should not have a job.


    • Posted that last week, it’s good!

      Liked by 1 person

    • Note how the Left is spinning it… “Republicans Pounce”


      • Ms Newman, 43, suffered further distress yesterday when her 13-year-old daughter found a pornographic mock-up on Instagram of her mother with Dr Peterson.

        Wow. Did she just discover the Internet? That must have been traumatic.

        Newman quizzed the Toronto University professor of psychology about his radical views on the differences between men and women in the workplace and the limits of free speech.

        Weren’t his views basically just a recitation of known, researched facts?

        But many of the professor’s admirers attacked Ms Newman as soon as the interview finished. One described her as being a member of the ‘Low IQ Left Establishment’ and another said she should be ‘ashamed of such a catastrophic interview’.

        So they are lumping in normal criticism with porn mockups and death threats?

        And who are these people doing the death threats? Either they are trolls, or progressives trying to distract from what was actually said, or idiots/psychos who think the way you express agreement with someone is threatening to kill people who disagree. Which the media then tries to portray as “your typical non-progressive”.


        • Scott Adams’ take on the Peterson/Newman interview: a perfect example of cognitive dissonance in action. Newman quite literally cannot understand what Peterson is saying, because it is contrary to her held beliefs but also irrefutable, and so she keeps “hearing” things that he hasn’t actually said.


        • He’s right. I mean, exactly right.

          I can understand not agreeing with Adams, but he’s got to be provoking hallucinations in the minds of most of his rabid critics, because they seem to be unaware of how often he’s right, especially in terms of his predictions.

          His explanation not only fits, but is about the only explanation that fits so exactly.


      • The Daily Mail is the newspaper for birds in the UK, so it isn’t surprising they would take this approach…


  11. The super bowl ads are going to be insufferable this year.. Competitive virtue-signaling.

    Of course the Patriots are in it, so I officially do not care…

    Liked by 1 person

  12. lulz

    “technical system for retaining text messages sent and received on FBI mobile devices failed to preserve text messages for Mr. Strzok and Ms. Page from December 14, 2016 to approximately to [sic] May 17, 2017.”
    The reason?
    (M)any FBI-provided Samsung 5 mobile devices did not capture or store text messages due to misconfiguration issues related to rollouts, provisioning, and software upgrades that conflicted with the FBI’s collection capabilities. The result was that data that should have been automatically collected and retained for long-term storage and retrieval was not collected.

    Technical glitches obviously do happen but I can’t help getting a bit of a Lois Lerner flashback upon hearing that five months of messages are missing from the time right after Trump was elected until 10 days before Robert Mueller was appointed as Special Counsel. So if you were hoping for any follow up on that comment about an insurance policy, it looks like you can forget it. That’s a well-timed glitch.


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