Morning Report: Friday’s jobs report and the FOMC 2/5/18

Vital Statistics:

Last Change
S&P Futures 2848.0 -9.0
Eurostoxx Index 382.4 -5.7
Oil (WTI) 65.0 -0.4
US dollar index 83.6 0.0
10 Year Govt Bond Yield 2.83%
Current Coupon Fannie Mae TBA 103.591
Current Coupon Ginnie Mae TBA 103.688
30 Year Fixed Rate Mortgage 4.26

Markets are lower this morning as last week’s weakness continues. Bonds and MBS are flat.

Not a lot of data this week (typical in the week after the jobs report), but we will have plenty of Fed-Speak all week.

The services economy continues to hum, as the ISM non-manufacturing PMI hit 59.9.

Bonds rolled over Friday on the jobs report, which showed stronger-than-expected wage growth. The 10 year bond yield has increased dramatically since last fall, and it certainly looks like bond yields want to test that 3% level.

Despite the big sell off in the bond market on the jobs report, the Fed Funds futures didn’t really do much – they are predicting a 78% chance of a 25 basis point hike in March, which is where it was mid week. Janet Yellen has previously said she wanted to “let the labor market run hot” and Jerome Powell is considered to be more or less the same philosophically as Yellen was on the issue of monetary policy. I suspect the Fed is comfortable to maintain the current pace of rate hikes, to get off the zero bound and allow the economy to digest the new levels. They don’t need to be aggressive quite yet, and IMO they are looking at the employment – population ratio as much as the increase in average hourly earnings. If you look at it from their standpoint, they have a duty to maximize employment as well as control inflation. Even though the unemployment rate says “full employment” the employment to population ratio and the labor force participation rate do not. Some of the drop is demographic, but not all of it. Here is a way to put the drop in the labor force participation rate into perspective: The big increase in the labor force participation rate started in the 1960s and was driven by women entering the workforce. Half those gains were given back during the recession. Until that number moves up, the Fed is going to stay dovish unless we get a massive upward surprise on inflation.

Won’t all of these raises were are seeing force the Fed’s hand? More and more companies are increasing compensation and capital expenditures. Keep this in mind: one-time bonuses are probably not going to do much for inflation, especially if they are saved / used to pay down debt. That said, the increase in paychecks from tax reform starts this month.

The Atlanta Fed raised its Q1 GDP estimate to 5.4% on Friday. They have been a bit of an outlier in terms of growth predictions, but still – 5% plus is an eye-popping number.

Forbes has a list of the best housing markets for 2018… Lots of Midwestern and Southern cities, and none of the usual suspects like SF, Seattle, etc.

Acting CFPB Director Mick Mulvaney has taken the office of Fair Lending and Equal Opportunity and moved it under his direct control. Consumer advocates are unhappy, but this looks mainly like a shuffling of the organizational chart. The big change – Mulvaney will be in charge of enforcement, which is in keeping with the philosophy he outlined in his memo to the CFPB.

40 Responses

    • “My fury has been bottomless. I drink my morning coffee from a cup that says, “I hate to wake up when Donald Trump is President.” ”

      Says everything about this person.

      “Trump is not just ruining our nation, he is ruining me.”

      No, you are doing that all on your own.

      Liked by 1 person

      • Leftists are not responsible for anything, not even their own emotions and behavior….

        Liked by 1 person

        • This is an interesting observation. I encountered people with Obama-derangement syndrome, who were clearly cut of that same cloth, in terms of letting who the President was have a huge negative impact on their lives because . . . well, because they wanted to think he was having a huge negative impact on their lives. Their own lives had not appreciably changed.

          I cannot ever imagine them writing an article like this, though.


    • My fury has been bottomless. I drink my morning coffee from a cup that says, “I hate to wake up when Donald Trump is President.” The constancy of my outrage has been exhausting, yet I have not yet found a way to quell it — nearly each day has brought a new reason to stoke the fire.

      The problem is this kind of thing is now viewed as a virtue, and not an indication of emotional or psychological problems that require treatment.

      She is doing this to herself. I would be willing to go out on a limb and say that nothing for her life, as a practical matter, is any different now, or has been since he was elected, than it would have been under HRC. I would wager that not a single thing Trump has actually done has had any actual consequence in her life. Every negative thing she has experienced, emotional or practical, has been based on her own behavior in obsessing over a media figure. Eventually, Trump might do an executive order that outlaws her hairstyle, and that would be tangible, but everything she’s bitching about she is doing to herself. This should not be laudable or treated as normal. Whether you are doing it over Trump or Obama,

      Disagree with policies and executive orders, sure. Choose to use it to ruin your own emotional state, every day? Why?

      sized him up as a Trump voter

      Zero self-awareness. I mean, none. Would she size-up any black person she happened to meet as a drug dealer? I mean, WTF? But I forget. She’s been given a permit by the Ministry of Permissible Bigotry and Prejudice.

      As I drove home, I felt the full extent to which Trump has actually diminished my own desire to be kind. He is keeping me so outraged that I hold ill will toward others on a daily basis. Trump is not just ruining our nation, he is ruining me. By the end of the drive, I felt heartbroken.

      Again, this indicates emotional problems on the part of the speaker. It’s unfortunate that we’re so far beyond getting that that this woman will never get help for it.

      It felt like a sign, that maybe if we treat one another with the kindness and gratitude that is so absent from our president and his policies

      These things should not follow each other like night follows day. If a public figure you pay way too much attention to is an ass, why in the world should that influence your behavior or attitude towards your neighbors?

      How do we hold onto the fire fueling our resistance to the cruelty Trump unleashes, but also embrace the world with love?

      Uh, just be nice to people, no matter who the president is? Treat people as individuals and not units in a given identity group?


  1. Oh the irony of Paul Krugman:

    “For tax cuts aren’t free. Sooner or later, the federal government has to pay its way. Even if you don’t think the budget deficit is currently a big problem, except under very special circumstances anything that reduces revenue will eventually have to be offset by later tax increases or spending cuts.

    And those special circumstances – basically a depressed economy that needs a fiscal boost – don’t apply now, with the U.S. close to full employment.”


    “It’s time to start calling the current situation what it is: a depression.”


    “The Third Depression

    Paul Krugman
    JUNE 27, 2010”

    Apparently the economy recovered to full employment even without the amount of stimulus that Krugman wanted.

    Liked by 1 person

    • Joe, from 20000 feet it looks ironic, but classic Keynes would have favored deficits in a recession and surpluses in a boom.

      While there is a school that now favors deficits all the time, I did not think Krugman had joined it. Hasn’t he been critical of that school?

      Or did he join it?


      • I don’t know specifically, but he seems to change his tune based primarily on who holds the reigns of power in Washington. These days.


      • “but classic Keynes would have favored deficits in a recession and surpluses in a boom.”

        Sure, but that’s not on the menu these days. It’s more MMT. Deficits, and then bigger deficits.

        The bigger point is that Krugman’s previous position was that the US would remain in a long Depression and not return to full employment absent significantly more deficit financed stimulus spending. Now he’s going off against the Republican tax cut because it’s adding to the deficit at a time of full employment. Which presumably shouldn’t exist since there wasn’t more stimulus spending to end the Depression.

        Liked by 1 person

      • I think the economics profession has been stunned by the inability of the global economy to generate inflation despite such expansionary monetary and fiscal policy.

        Krugman has been pretty consistent in his thinking: Government should borrow and spend like mad right now because interest rates are historically very low and there is no inflation. He supports increased net government spending, however he only supports higher spending not lower taxes. And for contractionary fiscal policy, he would never support lower spending.

        Liked by 1 person

        • It’s his prediction of an ongoing Depression absent more stimulus that I’m taking issue with.


        • And that is correct… Japan followed Dr. Cowbell’s Rx to the letter and is only now recovering from the 1989 crash, while the US largely ignored him and is doing fantastic.


    • In a now-deleted tweet, which has nonetheless already become notorious, Paul Ryan tried to hype the benefits of his massive corporate tax cut by celebrating the example of a worker who’s getting $1.50 more per week. That’s roughly the price of a small French fries at McDonald’s.

      Must be nice to be rich, feted, entitled, and a jackass who only gets praised for sh*tting on the little people.

      It’s not much money, that’s true, but $1.50 extra week is a $1.50 he didn’t have before. And that the government wasn’t planning on giving him some other way. These people. They’re a frickin’ cancer. /echochamber

      Should we keep giving Ryan grief over that tweet? Yes, we should – and not just because it shows how out of touch he is.

      Words fail me. They should have sent a poet!

      Even if you don’t think the budget deficit is currently a big problem, except under very special circumstances anything that reduces revenue will eventually have to be offset by later tax increases or spending cuts.

      Correct me if I’m wrong, but if these were true, wouldn’t we be debt-and-deficit free? Or practically? If it had to be done, wouldn’t we have been doing it for the past 50 years?

      Also, fine. Do some spending cuts.

      So Ryan is patting himself on the back for giving a schoolteacher some French fries.

      Elitist . . . ugh.

      Also, why I hate pundits and the media, example 343235333222a:

      Orrin Hatch declared that we can’t “spend billions and billions and trillions of trillions of dollars to help people who won’t help themselves.” Right now they’re dragging their feet on funding for community health centers, complaining about the cost.

      First, why does the federal government need to fund community health centers? Why can’t communities decide to levy taxes to fund local community health centers if the local community wants that? Why should the fed be involved at all?

      Second, and more egregious, is that Hatch didn’t say that “we can’t”, he said “He had a rough time wanting to”. Why couldn’t The Krug just say that? Why is that unreasonable? Are we arguing that you don’t get more of what you fund? Or that we don’t pay out money to people who could be doing something productive if they had to?

      More evidence that the Nobel prize in economics means nothing. Nothing!


  2. Juiceboxers fretting that democracy is dying in the US:

    I always chuckle when the people who largely accomplish their political aims via the courts and the regulatory agencies start to complain about democracy vanishing…


    • They’re basically quoting the prequels, when Amidala says: So this is how democracy dies. To thunderous applause.


    • Oh my god that article is awful. The term “juice boxer” is really apropos.

      How Democracies Die contains quite a bit about Trump, but it is largely what we already know: Trump has authoritarian instincts — indeed, he checks every box on a test of authoritarian leaders — but thus far, he has lacked the discipline and the institutional capacity to upend American democracy.

      That’s just unserious garbage.

      Then in the the Civil War’s aftermath, the pursuit of equality fell before the pursuit of stability — in Reconstruction and continuing up through the mid-20th century, the Democratic and Republican parties permitted the South to construct an apartheid state atop a foundation of legal discrimination and racial terrorism, and it was in this environment that American politics saw its so-called golden era, in which the two parties worked together smoothly and routinely.

      That is ahistorical garbage. That’s not how it worked. And “the pursuit of equality” fell? It wasn’t the frickin’ “equality wars”. This is some Ministry of Truth level redaction.

      As was this right before it: Our democracy was built atop racism and has been repeatedly shaken in eras of racial progress. The founding compromises that birthed the country included entrenching slavery and counting African Americans as three-fifths of a person. The bloodshed required to end slavery almost ended our democracy with it — habeas corpus was suspended, a third of American states sat out the 1864 election, and the South was under military occupation.

      Mis-states the purpose of the 3/5th clause by implication, suggests that racism was a pillar of the construction of American democracy when, in fact, it was a very progressive notion of government by “our betters”: at the time, white, male, landowners. And “a 3rd of the states sat out the 1864 election”? Sat out? They had <iseceded. They could not vote in the US election any more than frickin’ Cuba or Mexico or Canada could vote in that election. The US was at war with them. They had their own president. And so on.

      My god. Ultimately, I agree we’re doomed, but the rot isn’t just in the politicians, it’s apparently everywhere. Especially amongst the juiceboxers.


      • I think the fundamental divide between right and left these days is that they don’t agree on the definition of racism.

        The right takes a narrow view, and basically limits it to behavioral things – things you say or organizations you belong to. Basically, don’t belong to the KKK or tell racial jokes and you’re ok.

        The left takes a broad view and has no limiting principles to the definition at all. If you aren’t actively trying to reduce your privilege, you are not with the program. Period. You support a smaller HUD budget? Racist! You don’t like the new Star Wars movie enough? Racist! You stopped watching football this year? Racist!

        So you basically have a situation where the left refuses to try and understand what the right is coming from, because Nazis have nothing of value to say. And the right isn’t going to listen to the left and examine their assumptions because they view charges of racism as a boilerplate political weapon…

        Liked by 1 person

        • Brent:

          I think the fundamental divide between right and left these days is that they don’t agree on the definition of racism.

          This is surely true, but I think it extends to even more. They don’t agree on the meaning of all manner of things, like rights, freedom, violence, coercion. I said this years ago right here at ATiM, that we don’t really even share a common language anymore, which makes it impossible to even communicate.

          Liked by 1 person

        • “The right takes a narrow view, and basically limits it to behavioral things ”

          I’d say it’s narrower than that. Basically the dictionary definition:

          “the belief that all members of each race possess characteristics or abilities specific to that race, especially so as to distinguish it as inferior or superior to another race or races.”

          Liked by 1 person

    • This is probably true:

      “I’ll end this with a paragraph from Levitsky and Ziblatt that I’ve not been able to get out of my head, a paragraph that I almost wish I hadn’t read:

      The simple fact of the matter is that the world has never built a multiethnic democracy in which no particular ethnic group is in the majority and where political equality, social equality and economies that empower all have been achieved.”

      Klein is starting to realize that the path he is pursuing may not lead to a multicultural utopia. It may lead to the Balkans and Lebanon instead.

      My solution to identity politics is radical individualism and capitalism, because only self interest and greed are strong enough to overcome tribalism (maybe). To the extent that Klein and his fellow travelers try to marry identity politics with income redistribution, he’s not going to like the resulting backlash.


      • I think you’re correct. But they will continue to fantasize that a nation full of identity politics/grievance groups will somehow lead to utopia, and not constant war.


      • Also, “social equality” will never be achieved. Even Communist utopias had favored and unfavored social classes… People stratify themselves. It is what they do.

        Liked by 1 person

        • Brent has nailed this in more ways than one. The flaw in Klein’s thinking is not about multi-ethnicity it’s about “social equality”. There is no such thing except in the imagination of some.

          There can be formal equality before the law. There can be a social “safety blanket”. But there cannot be social equality without force and there obviously cannot be social equality BY force.

          However, the USA has been multi-ethnic for a long time and so have some other western nations. No time to be regretting that now.

          That identity politics feeds on feelings of being victimized is dispiriting. It is possible to have a secondary identity [aside from “American”] and be happy with it. I just don’t guess “be happy” is a political message that sells right this red hot minute.

          Liked by 1 person

        • “However, the USA has been multi-ethnic for a long time and so have some other western nations. No time to be regretting that now.”

          The question is what happens when it reaches the progressive utopia of majority minority?


        • I don’t think it makes a bit of difference. Texas and CA are no longer caucasian majority states. Some states have not been WASP majority for 90 years. Intermarriage increases. Protestants marry Catholics. Jews marry Christians. Anglos marry Latinos. Whites marry blacks. George lusts after Asian women [just kidding]. BFD.

          The real issue is the figment of fevered imagination that is “social equality.”

          What did mark as as different from other western democracies for a long time was not “social equality” but “social mobility”. Social mobility is good and is achieved largely through encouraging entrepreneurship and capitalism and decent public schools and public health. Thanks to land grant colleges and no inherited aristocracy we beat Europe to social mobility by a century.

          Each wave of immigrants had ultimate success stories. The world being more complex now than it was when we had open immigration I favor placing skills and talent above extended family reunion, but that made me a pariah at PL, as you will recall. In any case, mixing and melting ain’t the problem. Playing the victim card is the problem.
          Daydreaming about “social equality” rather than “social mobility” is the problem.

          Liked by 1 person

        • George lusts after Asian women [just kidding]

          Only because it goes the other way.

          Liked by 1 person

        • Whatever floats your boat…


        • Mark:

          I don’t think it makes a bit of difference.

          I think it depends on whether “multi-ethnic” means literally just that, or if it carries along with it the baggage of multi-culturalism. If the latter, then I think it could make a big difference.

          Liked by 1 person

        • Could be. If the cultures were truly incompatible.


        • It’s the identity politics. You preserve a lot of your native culture and adapt to the host culture when your cultural identity is the overriding concern, and anything that seems to look like assimilation is bad because your group identity is the most important thing about you . . . that’s the problem.

          But human beings are wired to organize themselves by tribes, and justify that organizational structure, and elevate their own tribe above all others . . . makes resolution difficult. But the smart people who should know better shouldn’t spend so much time and energy feeding the identity politics monster. But they do.


  3. New quote is from Tom Paine.

    Liked by 1 person

    • We have both spent our professional careers strenuously avoiding partisanship in our writing and thinking.

      I call BS. This whole thing smells. That’s way too much “doth protesting too much” at the top.

      This, then, is the article we thought we would never write: a frank statement that a certain form of partisanship is now a moral necessity. The Republican Party, as an institution, has become a danger to the rule of law and the integrity of our democracy. The problem is not just Donald Trump; it’s the larger political apparatus that made a conscious decision to enable him. In a two-party system, nonpartisanship works only if both parties are consistent democratic actors.

      The argument is, then, that a person not brought up through the accepted political grooming channels, and who didn’t pay proper fealty to the king-makers (especially in the press) got elected and that’s a threat to democracy? But they are totally non-partisan guys, always super objective about everything.

      These people desperately want everybody who supported or enable Trump to be punished. That’s not going to happen.

      Their attitude should be: The rule of law is a threshold value in American politics, and a party that endangers this value disqualifies itself, period. In other words, under certain peculiar and deeply regrettable circumstances, sophisticated, independent-minded voters need to act as if they were dumb-ass partisans.

      Upon reflection, this makes zero sense. A: both parties endanger the rule of law. All the time. Individuals in those parties endanger the rule of law. So to speak. SCOTUS judges certainly seem to now and again. How is Trump’s endangerment of rule of law any different from any administration trying to game the system to achieve political ends?

      And also, are these guys smart? Do they expect this argument to work? On anyone?

      This just seems nonsensical to me. “Stop voting for individual candidates, but instead vote for the opposition party in lock-step conformity for reason! And, we’re like conservative and libertarian! That’s why we advocate not treating policies or politicians separately, but instead block vote against them because that will “teach them a lesson” or something.

      I read to the end. If these guys aren’t essentially paid shills, or doing some serious ninja-level trolling, then there’s no rational explanation for that article.

      If they’d take the same approach about both parties and suggested the correct maneuver was to vote out all incumbents, I might have taken them seriously. They found two DC NeverTrumpers who needed some cash to remodel their Georgetown houses. Or some equivalent. That’s my theory, and it’s as logical as anything they said. So I’m going with it.


      • I am pretty sure they didn’t hit their fainting couches when Mr. Pen and Phone refused to enforce immigration laws or even parts of his signature legislative accomplishment.

        Liked by 1 person

  4. Like

  5. Bill Kristol’s concern trolling of the GOP is getting tiresome.. Just switch parties and make it official…

    Liked by 1 person

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