Morning Report: Government still shut down 1/22/18

Vital Statistics:

Last Change
S&P Futures 2811.5 0.5
Eurostoxx Index 401.9 1.0
Oil (WTI) 63.3 -0.1
US dollar index 84.4 -0.1
10 Year Govt Bond Yield 2.65%
Current Coupon Fannie Mae TBA 103.591
Current Coupon Ginnie Mae TBA 103.688
30 Year Fixed Rate Mortgage 4.03

Stocks are flat as the government shutdown goes into a third day. Bonds and MBS are flat.

For all of the sturm and drang about the government shutdown, the markets don’t care. Hopefully people who needed tax transcripts took care of business early.

Bond yields blew through support last Friday, and the Ginnie Mae TBAs are in a bit of a transition. The higher coupon TBAs hadn’t really begun trading with any sort of volume, which made it hard to get note rates above 5 1/8%. Since bonds are pretty much unchanged this morning we should see those note rates open up (hopefully) today.

Note some bond bears see the early part of the year as the time to sell bonds. This is similar to the “sell in May and go away” advice that stock investors sometimes heed. It turns out that since 1998, bond yields have increased ever so slightly in the first 5 months of the year, and have fallen pretty dramatically in the final 7 months. Is there any sort of economic explanation? No. Which means it is just a coincidence.

The upcoming week won’t have much in the way of market-moving data except for Friday, which will have durable goods and GDP. Fed-speak is also minimal ahead of the FOMC meeting next week. The markets are predicting nothing is going to happen at the Jan meeting. We will get some non-market moving housing data with new home sales, existing home sales, and the FHFA House Price Index. We are in the heart of earnings season, and that will dictate stock price movement.

The World Economic Forum begins this week in Davos, which means we will get to see a lot of economists get interviewed in the snow on CNBC and Bloomberg TV. Don’t expect to hear anything market-moving. The global economy is doing just fine at the moment, although I am sure bigwigs at the IMF, World Bank, and various Central Banks will find something to fret about. They should probably worry more about their economic forecasts. The Bank of England was dead-set against Brexit, and thought that leaving the EU would crash the economy. Their forecasts missed the mark by a country mile. As a general rule, investors should leave their political preferences at the door when it comes to making investment decisions.  Combining political ideology with economic / market forecasting is inevitably a recipe for disaster.

Economic activity continued to exhibit strength in December, according to the Chicago Fed National Activity Index. Production-related indicators (sales, orders, inventory) improved in December, while employment indicators were more or less flat compared to November.

The post-crisis financial regulatory environment has created a shortage of appraisers. While this has largely affected mortgage lending, banks are now using Broker Price Opinions (BPOs) for transactions that involve rental properties. These used to be called “drive-by” appraisals, as the analyst would drive past the property and look at it without entering. Nowadays, these appraisals are outsourced to India, where analysts basically come up with a valuation using Google Earth and comps. Even Fannie Mae used BPOs for a transaction last year. The ratings agencies will haircut the BPO valuation by 10% or so when doing a collateral evaluation.

One of the telltale signs at the peak of a market bubble, according to Charles Kindleberger in his book Manias, Panics, and Crashes is the emergence of swindles. The largest private bank in China has turned out to be a fraud. China has a massive real estate bubble on its hands, and it will burst at some point (this year, next decade, who knows?) However, once it bursts, the economic playbook says that China will export deflation the way Japan did in the 90s, which means lower interest rates and lower inflation overall.

Speaking of bubbles, the liberal Brookings Institute thinks that 40% of student loans from the 2004 cohort could default. This isn’t chump change, either: a total of $1.4 trillion in student loan debt is outstanding. This is another reason why the Fed is so interested in creating inflation (despite what they say about it). Inflation is a debtor’s best friend, as wages rise with inflation, but fixed rate debt stays the same, which reduces the drag on spending and economic growth over time. Until that happens, the first time homebuyer will probably continue to rent, at least at the margin.

Home prices increased 7% in 2017, according to Redfin. As usual, inventory remains the biggest problem in the real estate market.

46 Responses

  1. My offer is this: nothing. Not even the fee for the gaming license, which I would appreciate if you would put up personally.


  2. What a complete cave by Republicans:

    “The proposal: an amended three-week short-term spending bill (one week shorter than the original bill that failed last Friday) that funds the Children’s Health Insurance Programs for six years, and an assurance from Senate Republican leaders that an immigration bill will see a debate and a vote in the coming weeks.”

    They should get the house to pass a clean CR’s with no CHIP and no DACA/DREAMer provisions and keep holding a cloture vote every day.


  3. I honestly can’t tell if this Kossack is being sarcastic.

    2 AM
    Delver, just wait till those farmers and ranchers find out that the Japanese etc are buying their beef, corn and rice from Brazil etc because of lower tariffs on those countries in the TPP.

    Next up DT blows up NAFTA and we will see what it feels like to buy an avocado for $1 instead of .68 cents.

    Trade is much more complicated.

    Also, this is a serious comment.

    Jan 22 · 08:19:55 AM
    McTurdle clearly enjoys humiliating his enemies and lying through his teeth. He tends to wear that creepy smirk-smile of his when he does that—that is, when he doesn’t adopt his faux somber face like he’s about to cry over some matter he clearly doesn’t give a shit about given how rich he is. He’s such a bullshit artist, like his boss, only more artful in how he goes about it. As opposed to Ryan, also a bullshit artist, aw shucks type. They’re all bullshit artists. You have to be to be a Repub.
    And now painted up WH spokeshussy Sanders, looking like a two bit farm girl with a cheap makeup job she got at the local Walmart, is talking down to Schumer and offering to send him someone to help him work out a deal, given how, she says, he’s not very experienced at “big policy negotiations”. This from someone who’s probably more used to negotiating the purchase of a used harvester than the federal budget.
    And yeah, that was a dig at stupid white rural people, who need to get over their butt hurt resentment towards us urban sophisticates for being, well, smarter than them. Which we are, always will be. Unlike you, we don’t spend all day thinking about our slow country cousins.
    Dems have to hold their ground and not accept any bullshit deals. A CR at current levels for a few weeks, sure, but no actual budget that doesn’t include DACA. We’re not deporting nearly a million young people who on average are ten times smarter and more productive than your average deplorable. Get that our of your heads. It’s NOT GOING TO HAPPEN.

    This is a fascinating comment.

    delver rootnose
    Jan 22 · 08:22:59 AM
    A hard shutdown would solve all this dithering. Send home all the air traffic controllers and immigration agents and see how fast a solution gets found.

    Ultimately, Kossacks are not sounding as if they’re winning this fight.


    • “Send home all the air traffic controllers”
      if only we privatized them!


    • “Next up DT blows up NAFTA and we will see what it feels like to buy an avocado for $1 instead of .68 cents.”

      OMG! Impeach! Impeach!


    • “They’re all bullshit artists. You have to be to be a Repub.”

      Uh-huh. And Democrats? If you trust any politician further than you can throw them, you’re an idiot.

      “And yeah, that was a dig at stupid white rural people, who need to get over their butt hurt resentment towards us urban sophisticates for being, well, smarter than them.”

      Uh-huh. I smell a plant. This is a deep embed on the Trump 2020 team.

      “A hard shutdown would solve all this dithering. Send home all the air traffic controllers and immigration agents and see how fast a solution gets found.”

      And how do they plan to do that, exactly? Have the Democrats pass legislation to intentionally hurt the majority of Americans in an obvious and visible way? That would be great, leading up to November 2018.


      • that is what obama would do… that is what anyone who worships at the altar of government would do.

        people who don’t worship at the altar of government would probably look at this situation and say “let’s see how long we can have this last without anyone even feeling it,” which supports the viewpoint that most of what the government does is absolutely superfluous…

        Liked by 1 person

  4. schumer is asking people to tweet to support daca — once the gov is back open.

    Liked by 1 person

  5. talked a D office. the polling wasn’t what they thought it would be.

    Liked by 1 person

  6. Lot going on in this picture.

    Liked by 1 person


    senate Ds bluffed. got called. and the base is not happy

    Liked by 1 person

    • If they got a six year CHIP reauthorization out of a 3 week CR, then they won a major victory.

      Just wait three weeks and ask for more.

      Their base must be even more unreasonable than the Republican one.


      • i think not passing CHIP was the R bluff. that wasn’t tentable either.


      • “Their base must be even more unreasonable than the Republican one.”

        Yes. And perhaps more monomaniacal? No DACA, no deal, baby!

        While they could “just wait three weeks and ask for more”, I think the frequency they can go to this well is limited. Even Republicans in congress will get tired of caving, if you ask them to do it every damned day.


  8. Worth a read:

    “Are Democrats becoming more like Republicans?
    Democrats are adopting tactics they condemned in the Obama years. But they still want to compromise.

    By Ezra Klein
    Updated Jan 22, 2018, 1:48pm EST”


    • jnc (from Ezra):

      Democrats are adopting tactics they condemned in the Obama years.

      And in other news, dog bites man.

      Liked by 1 person

      • I am amazed that tactical innovations are copied by the other party! Wait, I’m not. In war, you modernize or you lose. If one side has tactics that function in terms of winning battles–or elections–then the other side will do the best they can to use and improve those tactics.

        The problem is that in “hearts and minds” battles, the voters to get fickle. What works great one year may no longer work that well the next. But it terms of political machinations to get legislation passed or what have you, if it works for one, it works for all, until something specific happens to stop it.


    • The fate of the Dreamers is something that really, really, really motivates the far left, and for most everyone else is a “meh” issue… I just don’t see anything changing here…

      Liked by 1 person

    • “But they still want to compromise.”

      Uh-huh. Democrats want to compromise exactly as much as the Republicans do. Which is, not at all. They might, if they have to, if there is no other way but for the most part . . . they never want to compromise. They only will when you’ve got them over a barrel (which is apparently where the Democrats had the Republicans this time around).


      • That’s politics though, it’s about the accumulation and exercise of power, sometimes for it’s own sake.

        I don’t get this naive desire for compromise. It’s as false as objectivity, it doesn’t exist, why pretend that it does? Why be bothered that it doesn’t exist?

        Liked by 1 person

  9. Follow up commentary on the Peterson interview and the fallout.


    • I still say she couldn’t comprehend his arguments because she couldn’t escape the intellectual box that is modern identity politics progressivism…

      I would add that this is a result of “winning” arguments by shaming and silencing the other side, not by winning the battle of ideas..

      Liked by 1 person

  10. You cisheteronormative scum WILL find her attractive. The Cultural Ministry has demanded it, and so it shall be done!

    Liked by 1 person

Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: