Morning Report: FOMC statement 2/1/18

Vital Statistics:

Last Change
S&P Futures 282.0 -2.8
Eurostoxx Index 395.1 -0.4
Oil (WTI) 65.4 0.7
US dollar index 83.3 0.0
10 Year Govt Bond Yield 2.74%
Current Coupon Fannie Mae TBA 103.591
Current Coupon Ginnie Mae TBA 103.688
30 Year Fixed Rate Mortgage 4.19

Stocks are down small on earnings. Bonds and MBS are down small as well.

The Fed left interest rates unchanged, and released a somewhat hawkish statement. The changes weren’t really all that major, and they confirmed what we pretty much already know: the economy continues to strengthen, the labor markets remain tight, and inflation remains below target. The Fed Funds futures pushed up their probability estimate for a March hike by a few percentage points and the market is now handicapping a 77% chance of a 25 basis point hike in March. Bonds sold off a couple of basis points on the statement.

Initial Jobless Claims came in at 230,000 last week, a drop from the downward-revised 231,000 the week prior. Meanwhile, the Challenger Job cuts report increased to 44,500 as retailers shed jobs after the holidays.

Nonfarm productivity declined 0.1% last quarter as output increased 3.2% and hours worked increased 3.3%. Unit labor costs increased 2.0%, with compensation increasing 1.8%. Manufacturing productivity really took off, as output increased over over 7% while hours worked increased 1.5%. Productivity is incredibly hard to actually measure, but it is the secret to increasing living standards. A lack of productivity growth since the late 90s has acted to depress wage growth.

Some loan officers have noticed that FHA and VA pricing has been lousy lately higher up in the rate stack. This is an industry-wide phenomenon. For some reason, there is not much demand for the higher coupon Ginnie Mae TBAs, which means borrowers aren’t seeing the pickup in lender credit they would expect as they go up in rate. It has been so bad, that we are seeing state downpayment assistance programs suspend pricing until things work themselves out. I am not sure what is driving this – the knock on Ginnie mortgage backed securities has always been prepayment speeds. Between FHA streamlines and VA IRRRLs, the prepay speeds have been much higher than trading desks have been modeling. Ginnie has issued new guidance and regulations in order to prevent serial refinancings. So far, that hasn’t translated into demand for the higher note rate TBAs. Loan officers, don’t be afraid to contact us with pricing issues – we will do what we can to try and help.

The DC appeals court yesterday affirmed the CFPB’s structure, largely along partisan lines. The Court also lowered the penalty to PHH, so it isn’t necessarily a given that this will go to SCOTUS.

Construction spending increased 0.7% MOM and is up 2.6% YOY. Residential construction was up 0.4% MOM and 6.2% YOY.

D.R. Horton’s affordable home program targeted to the first time homebuyer is growing, and it seems like this segment is becoming the focus of the homebuilding industry, especially since demand in general (and tax law changes) are affecting the luxury end of the market. D.R. Horton started the unit in 2014, and was bucking the trend in building of buying up urban land and focusing on renters. Instead, they bought land in the less-fashionable suburbs and focused on entry-level homes. You are starting to see other builders attack this segment as well.

97 Responses

  1. i’m in the picture!

    Liked by 2 people

    • Congratulations! This is your moment!

      I feel like that number is wrong. Or misleading. Like one number is the percentage of super wealthy people and one is a percentage of real dollars that they might see in extra money (I’m assuming it doesn’t take into account the state tax hit, because why would it?) … But an apples to apples comparison would look at both the real dollars returned and the real income of those folks. Or have a companion chart that demonstrates the total federal tax burden paid by that top 1%.

      Meh. Charts. Lies, damned lies, statistics, polls, then charts.

      Like

      • KW:

        Or have a companion chart that demonstrates the total federal tax burden paid by that top 1%.

        Exactly.

        “An outrage! 100% of the tax reform goes to people who pay taxes.”

        (BTW, given the notion of “tax credits”, I bet even that isn’t true.)

        Liked by 1 person

      • Note the use of the word “change” instead of “cuts”.

        Could just as easily be tax increases.

        Liked by 1 person

        • jnc:

          Note the use of the word “change” instead of “cuts”.

          Great catch…I didn’t notice that. I really don’t know how these politicians can look themselves in the mirror.

          Like

        • Shit. I totally missed that. So that’s how they bundle in the state tax hit into their b*llshit number. The Minister of Propaganda will be pleased!

          Like

  2. I think this may be the most absurd and simultaneously most woke headline Vox has ever produced.

    “America’s ugly history of using police and prisons to stop sexual violence”

    https://www.vox.com/the-big-idea/2018/2/1/16952744/me-too-larry-nassar-judge-aquilina-feminism

    Like

    • Whut?

      “On Wednesday, the FBI took the extraordinary step of creating an unsigned document—a document in the name of the whole agency, rather than any individual—opposing the release of the Trump–Nunes memo.”

      Deep state’s got to deepstate.

      “The handling of the memo—which is the fruit of cooperation between Nunes and the White House, created expressly for the purpose of demeaning both the FBI and DOJ”

      I’m just amazed at how the left, generally, has decided the FBI should be allowed to act without oversight or accountability. And how the worst thing that could possibly happens is transparency about what they are doing. The American people should totally be kept in the dark for their own good.

      “In exchange for the intelligence community’s willingness to reveal closely guarded national secrets to a select group of members and staff for the purposes of oversight, the committees and the congressional leadership pledged to handle that information responsibly and without regard to politics.”

      What do you want to bet that there is nothing in the memo that needs to be considered a closely guarded national secret?

      Also, I’d be interested in what part of the constitution that this particular bit of theater is causing to be in crisis? I don’t recall anything in the constitution suggesting that congress and the president serve the post-constitutional bureaucracies.

      Like

    • The big guy weighed in….

      Liked by 1 person

  3. Worth noting:

    “Altria Group Inc., one of the Richmond area’s largest private employers, says it is giving all of its non-executive employees a one-time, $3,000 bonus, thanks to the corporate tax cut passed by Congress in December.”

    http://www.richmond.com/business/local/altria-group-will-pay-bonus-to-all-non-executive-employees/article_925cfa32-f05f-54c7-bb13-0eb0718797d4.html

    Altria is the parent company of Phillip Morris the cigarette manufacturer.

    Like

    • They should also give everybody a free carton of cigarettes.

      Like

    • List of the companies giving bonuses or raising pay in the wake of the tax cut:

      https://www.atr.org/list

      I haven’t added it all together but this looks like $100 of millions or even billions of dollars making its way into the domestic economy via raises and bonuses to workers. I gotta think that’s going to have a positive impact.

      Like

      • My own company, Pfizer, is copping a bonus.

        Liked by 2 people

        • I think paying these corporate bonuses and tying them to the tax bill is great politics. Helps undercut the standard progressive/populist propaganda about corporate tax cuts just lining the pockets of the rich.

          Liked by 1 person

        • I think it’s an unfortunate reaction to corporate bashing from the Democrats, but long term it will be corrosive and lead business to seek to curry favor with whichever party is in power.

          That happens now and happened previously of course with certain companies, but it will be even more of a widespread norm than before.

          The degeneration into crony capitalism will get even worse.

          Liked by 1 person

        • I agree with you, I also think there is another couple of dynamics occurring. The first is corporate peer pressure/wanting good PR, and the second is a tight(er) labor market and a desire to keep employees in their job.

          I don’t know how much of a factor those two dynamics are but I think they are factors.

          Like

        • I think it’s an unfortunate reaction to corporate bashing from the Democrats, but long term it will be corrosive and lead business to seek to curry favor with whichever party is in power.

          While the threat of crony capitalism is always present, companies rewarding a president for tax cuts and more business-friendly taxes with bonuses or pay hikes for their workers seems like the best form of crony capitalism I can imagine.

          Ideally, the currying favor bit wouldn’t happen, but if it does, this seems like the best way I can imagine it happening. If this becomes the trend for pursuing friendly legislation, as opposed to rewarding politicians with cushy lobbying jobs or crazy book deals or insane fees for boring speeches . . . awesome.

          Like

        • KW:

          While the threat of crony capitalism is always present, companies rewarding a president for tax cuts and more business-friendly taxes with bonuses or pay hikes for their workers seems like the best form of crony capitalism I can imagine.

          I agree. In fact I don’t see it as any kind of crony capitalism at all. Crony capitalism occurs when the government imposes restrictions on markets or market participants, not when it eliminates them.

          Liked by 1 person

        • I fully expect favoritism from regulators and politicians to be awarded to those companies that cheer lead the loudest and withheld from those that don’t.

          Liked by 1 person

        • jnc:

          I fully expect favoritism from regulators and politicians to be awarded to those companies that cheer lead the loudest and withheld from those that don’t.

          And this would be different from long-standing standard operating procedure, how exactly?

          I would understand your view if it was the case that some new regulation that benefited a certain business or industry was implemented, and in response that business or industry issued worker bonuses specifically identified as a consequence of the new regulation. This could certainly be seen as an invitation for more “crony capitalism” type government interference. But what we have seen is a reduction in regulations for all corporations across the board. I have to say that if corporations could entice politicians to eliminate the corporate tax entirely by promising to pay one-time across the board worker bonuses, that is a deal I would take in a heartbeat. I just don’t see how “crony capitalism” can be seen as becoming more probable due to the way corporations react in response to a decrease in government involvement.

          Like

        • “And this would be different from long-standing standard operating procedure, how exactly?”

          It’s not. But it’s going to get worse now. The link is more direct and explicit, like everything else with Trump.

          “But what we have seen is a reduction in regulations for all corporations across the board.”

          I haven’t seen that at all.

          Like

        • jnc:

          I haven’t seen that at all.

          I consider taxes to be regulations, and so I also consider a reduction in taxes to be a reduction in regulations.

          Like

        • OK, so it’s the redefinition game.

          Like

  4. Anybody else here watch The Americans? I love that show. My recent “review” of it can be found here:

    https://filmgoblin.com/tv/binge-watch-americans-fx/

    Lots of spy stuff and I really want the two lead Russian spies to make their marriage work! While having to sleep with other people as part of their work.

    I highly recommend the Americans (available on Amazon Prime now!) if you haven’t seen it.

    Like

  5. How the left has defined conservatism and libertarianism as racism…

    https://thelibertyreview.com/ideology-leads-youre-saying-interview/

    Like

    • Thus, when someone like Cathy Newman hears someone like Dr. Peterson speak, she’s not just trying to manipulate the conversation by putting words in his mouth; her ideology actually leads her to hear what she claims he is saying.

      The cognitive dissonance Scott Adams speaks of!

      In this way, it no longer matters what one actually believes; the “true motive” can be determined by one’s political actions. Thus, fiscal conservatism has been inherently defined as a form of racism, by both social science and society at large.

      The 1973 paper is interesting, but I don’t think it explains this. I think this sort of hyper-simplification of opposition and the “other is evil” thinking is inherent in tribal thinking. I suppose it helped define a particular group that could then become an identity group and become a tribal battle . . . but people embrace this narrative easily, and I think it’s because it makes “people who think like me are good people, people who don’t are bad people”. It’s at once self-flattering and allows for a constant catharsis of all those other, clearly evil people. Irrespective of any academic ideological narrative.

      Like

  6. The 75% approval rating for the SOTU.

    https://www.aol.com/article/news/2018/01/31/poll-75-percent-of-state-of-the-union-viewers-approved-of-trumps-address/23349441/

    CBS was quick to point out that the approval ratings for SOTUs are always high and mean nothing, just like I’m sure they did with Obama.

    Like

  7. @Scottc1: On the house memo being released. I’ve read the summary. Seems predictable enough to me. Any evidence that national security has been tragically compromised by the release of this memo?

    Like

    • I can’t see how national security has been or could have been compromised. And if it is true that the original FISA request would not have been made absent the HRC-solicited dossier, and that the top DOJ and FBI people knew it was a politically produced document when the requests were made, it seems like a big deal to me.

      Liked by 1 person

      • It sounds like the FBI didn’t know (as far as I can tell) and stopped associating with him when they found out. DOJ I’m not so sure.

        Like

        • KW:

          It sounds like the FBI didn’t know (as far as I can tell) and stopped associating with him when they found out.

          The way I read it, the FBI stopped paying him when they found out he was hawking the info to the press, not when they found out he was working on behalf of HRC’s campaign. And apparently they knew it was a politically-produced document when they made the FISA request.

          Like

        • “And apparently they knew it was a politically-produced document when they made the FISA request.”

          Sure. Doesn’t mean it’s wrong. FISA requests are something like 98% approved anyway.

          The bigger issue is using FISA to bootstrap a criminal investigation. The evidentiary standards for FISA are lower because it’s supposed to be about only stopping foreign espionage, not criminally prosecuting US citizens.

          Liked by 1 person

        • jnc:

          Sure. Doesn’t mean it’s wrong.

          If, as the memo claims McCabe acknowledged, the only reason they even sought the FISA warrant was the contents of a document they knew was politically motivated and produced by a partisan campaign, then I think it does suggest something is wrong.

          Liked by 1 person

        • Motivations are irrelevant if the information is accurate. Most tips come from someone with an axe to grind.

          Like

        • Motivation goes to credibility. The Dossier was never verrified and yet it was thricely used for FISA warrants. It’s certainly a factor, just not the only factor.

          Liked by 1 person

        • The standard for FISA warrants is pretty low. I think the dossier would clear it, in the case of Page.

          Steele is a former British intelligence officer. That probably clears the credibility test right there.

          Whether the standard needs to be raised in general and whether FISA truly provides proper judicial oversight are separate issues, but I’m not shocked that the FISA court would approve a warrant based on the information provided.

          Like

        • jnc:

          The standard for FISA warrants is pretty low. I think the dossier would clear it, in the case of Page.

          Even if it was known by the judge that it was funded by and produced for the target’s political opposition campaign without 3rd party verification? If so, that is a really low standard.

          Like

        • @scottc1:

          “The way I read it, the FBI stopped paying him when they found out he was hawking the info to the press, not when they found out he was working on behalf of HRC’s campaign.”

          Right you are. So . . . what deep state? You crazy conspiracy theorist right wingers!

          Like

        • “Even if it was known by the judge that it was funded by and produced for the target’s political opposition campaign with 3rd party verification? If so, that is a really low standard”

          I assume you mean without 3rd party verification, and yes, and yes it’s a low standard. Hence the statistics:

          “Over the entire 33-year period, the FISA court granted 33,942 warrants, with only 12 denials – a rejection rate of 0.03 percent of the total requests”

          https://en.wikipedia.org/wiki/United_States_Foreign_Intelligence_Surveillance_Court#Allegations_of_bias

          Note I was wrong previously. I said it was something like 3% rejection. It’s .03 percent.

          Like

  8. The butthurt is strong in this one.

    Like

  9. I’m less than impressed by the memo, but the reaction is telling.

    From the Washington Post:

    “President Trump’s decision to release the controversial GOP memo placed him in direct defiance of the recommendations of the country’s intelligence community, whose top official tried this week to change his mind amid concerns that the document’s disclosure would jeopardize national security.”

    https://www.washingtonpost.com/politics/never-any-hesitation-trump-was-quickly-convinced-to-support-memos-release/2018/02/01/b67a0246-076d-11e8-8777-2a059f168dd2_story.html

    Just who does he think he is to “defy” the intelligence community?

    Trump is unfortunately the wrong person for this, but I’ve come to believe this confrontation with the “intelligence community” is long over due.

    This seems pretty spot on:

    “A White House official said Kelly returned a few hours later and shared with the president his opinion: that releasing the memo would not risk national security but that the document was not as compelling as some of its advocates had promised Trump.”

    Liked by 1 person

  10. Kos kids not taking memo release well.

    https://m.dailykos.com/

    Sure are buttthurt over a dud. Their hysteria is moronic and unhinged.

    Liked by 1 person

  11. This could actually be an interesting test of libertarianism in practice.

    “Making a Crypto Utopia in Puerto Rico

    By NELLIE BOWLES
    FEB. 2, 2018”

    Like

  12. Trump tax cut = a little over $300 per month for me from the straight withholding on the salary. TBD on other income.

    Liked by 1 person

  13. An associate at FilmGoblin has made the case that 1.2 billion dollar earning Last Jedi is a financial failure for Disney. All I know is I’m done paying theater prices for this stuff.

    https://filmgoblin.com/box-office/the-last-jedi-destroyed-star-wars/

    Like

  14. This is a great podcast between a Lefty Trump hater and a rightie pro Trumper. It’s fascinating to listen Jeffery Goldberg fail, time and again to understand the allure of Trump while Mollie Hemingway perfectly understand the left and Never Trump.

    https://itunes.apple.com/us/podcast/the-atlantic-interview/id1305908387?mt=2&i=1000401111977

    About a half hour long and well worth the time.

    Full disclosure, Mollie turns me on in a MaryAnn, MILF way.

    Question, we know who Mollie voted for in the Primary (she says Ted Cruz) but she won’t say who she voted for in the General. I’m assuming it was Trump, more because she couldn’t abide a HRC win. Why won’t she say? I think she’s still embarrassed. My question is, why? For me, at this point, I regret not voting for him, rather than Sarah Palin (whom I wrote in.)

    Like

  15. Talk about your gaslighting.

    Like

  16. Solo movie looks better than the new trilogy.

    Like

    • I wasn’t excited about this until I saw the teaser.

      I liked The Last Jedi, though. mostly. lots of issues with it, I largely ignored the Finn storyline. but I liked Luke’s

      Like

      • Did not like Luke’s arc in TLJ at all. Really didn’t like most of the movie. A few good ideas, but way undercooked. Some good characters, but most–Rey, in particular–far too underdone for the role they played in the story. Vice Admiral Fashion Plate, played by Laura Dern, was awful (IMO). Whole casino planet was prequel-y and irrelevant at the end of the day. Final “conflict” was weak and ultimately made no sense. So far, there’s never been a Star Wars movie I didn’t see in the theater (including the Special Editions), but I’m tapping out. RedBox, Netflix, or HBO. Unless there’s really a compelling reason, and the non-Harrison-Ford Solo is grating on me so far like nails on a chalkboard.

        TLJ just seemed like such a missed opportunity to me. Finn’s potentially heroic sacrifice ruined by a superfluous character with the grating Hallmark-card line “We don’t win by fighting what we hate, but saving what we love” . . . when that’s exactly what he was trying to do. And she stopped him. And they all would have died it Rey didn’t have magical force powers and some crystal-fox-merchandising creatures hadn’t shown them a secret tunnel out.

        Luke’s arc was weak. Ultimately that was set up by TFA but still . . . a million other ways they could have gone with it. Could have gone the way they went only wrote it better. I just . . . can’t even.

        Admiral Ackbar dies offscreen while fashion-plate Dern’s grrrrl power Hillary-analog makes the Ultimate Sacrifice to save the rebels from the Trump Order or some sh*t. W.T.F?

        I’m out. Gonna watch them eventually for geek-culuture literacy reasons, but I’m done giving them my movie-theater money.

        If they do a Kenobi movie with Ewan MacGregor, I might recant.

        Like

        • “the non-Harrison-Ford Solo is grating on me”

          I didn’t think anyone could be Kenobi other than Alec Guiness, but Ewan MacGregor did a good job.

          I do know that I love the “classic” Star Wars look from the original trilogy much more than the new trilogy or the prequel trilogy.

          Seeing the original Imperial uniforms, set pieces, and ships vs the new crap makes a huge difference.

          And if Disney expects to suck, that may be a good thing. I think they thought the same for Rogue One and it was much better than Force Awakens.

          I didn’t bother to see Last Jedi in the theater.

          Like

        • I thought MacGregor was a good choice at the outset. The movies themselves were not great, but MacGregor was a fine Kenobi. He could lead a solo Kenobi film now and I’d be interested, like I said. But new Han Solo does not look like a good choice to me, at all. I mean, like, spectacularly tone-deaf. Maybe I’ll be wrong.

          You made the right decision on Last Jedi. I’m just afraid Solo will be a good film with an awful lead actor. A lot of it’s just me, but I can’t see me watching this film and not feeling like somebody just served me a delicious ice cream sundae topped with a steaming turd.

          Like

      • I should say Hamill’s performance as Luke was great. He did his best to salvage the awful writing. And was so good he nearly succeeded. But that’s on Hamill, not Rian Johnson or Kathleen Kennedy.

        A guy at FilmGoblin wrote a piece on white TLJ is actually a financial failure for Disney and Lucasfilm. While I’m not sure it’s entirely true, it’s an interesting analysis:

        The Lost Revenue : How Journalists Covered For THE LAST JEDI Disaster

        I do think a lot is going to be hanging on the performance of Solo.

        Like

      • “Admiral Ackbar dies offscreen”

        he’s a meme. if there’s anything wrong with that scene is Leia Poppins.

        and there’s a 0% chance Finn dies. They’re not killing off the black guy, particularly not first.

        Liked by 1 person

    • I remain unexcited. There’s a reason you saw almost no Solo. #NotMyHan

      I ain’t spending movie theater money on this.

      Like

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