Morning Report: Jerome Powell spooks the bond market 2/28/18

Vital Statistics:

S&P Futures 2751.5 4.0
Eurostoxx Index 381.0 -1.3
Oil (WTI) 63.0 0.0
US dollar index 84.1 0.1
10 Year Govt Bond Yield 2.89%
Current Coupon Fannie Mae TBA 102.313
Current Coupon Ginnie Mae TBA 102.531
30 Year Fixed Rate Mortgage 4.4

Stocks are marginally higher this morning after the second revision to fourth quarter GDP came in as expected. Bonds and MBS are flat.

Fourth quarter GDP increased at 2.5%, which matched Street expectations. The price index was revised downward a touch and consumer spending was revised upward. For the year, GDP increased at 2.3% versus 1.6% for 2016. Inflation is picking up, as the price index rose 2.5% versus 1.7% in the third quarter. Excluding food and energy, the index was up 1.9%, compared to 1.3% in the third quarter.

The Chicago PMI decelerated last month, but still came in at a strong 61.9. The number was below estimates however.

Pending Home Sales fell 4.7% in January, according to NAR. This is down 3.8% YOY and the lowest since October 2014 after the Taper Tantrum. Despite higher rates and smaller inventory, traffic was up YOY in January, except for the Northeast, which could have been weather-driven.

Jerome Powell spooked the bond markets yesterday during his testimony in front of the House. He acknowledged that inflation is accelerating and that the economy has improved since the meeting in December, and that statement pushed bond yields higher. He said he didn’t want to “prejudge a new set of projections,” referring to the dot plot at the March meeting. Powell will testify in front of the Senate tomorrow.

The Fed Funds futures didn’t really do much in response: The March futures are now handicapping an 87% chance of a hike and the consensus is still for 3 hikes this year.

Mortgage applications increased 2.7% during the holiday-shortened week, with the refi index falling 1% and the purchase index increasing 6%. The average contract rate was 4.64%, unchanged from the prior week.

The NAR and ATTOM weigh in on the real estate outlook for 2018. Unsurprisingly, they expect the inventory issue to continue, and homebuilders to modestly ramp up production while constrained by labor shortages. They point out also that the churn of move-up buyers has largely collapsed post-crisis. The average tenure (or amount of time that someone has lived in their home) has doubled since the crisis, from just over 4 years to 8 years. This lack of churn depresses the number of homes available on the market. I wonder if the churn was simply an issue related to underwater homeowners – short sales are tough to do. Second, as the foreclosure inventory is largely worked through, with the exception of the Northeast and a few other states, distressed homes are drying up. I suspect the professional investors who bought these homes will want to ring the register at some point, but that will be a function of interest rates and home price appreciation.

Lowe’s missed Street estimates and is down 8% pre-open. It looks like this is a company-specific problem and doesn’t reflect on the home improvement market. The Despot beat earnings recently.

29 Responses

  1. I think a winning Democrat campaign platform for 2018 is repealing the tax cut bill along with banning and confiscation of all semi automatic weapons.

    http://abcnews.go.com/amp/Politics/wireStory/echo-obamacare-dems-divided-vow-repeal-tax-law-53406278

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    • what’s the one thing they could do to get the Rs united.
      gun control.

      it’s moot anyway.
      https://www.wired.com/2014/10/cody-wilson-ghost-gunner/

      He’s spent the last two years developing firearms designed to be printed as easily as ink on a page, neutering attempts at gun control. “This is a way to jab at the bleeding hearts of these total statists,” Wilson says. “It’s about humiliating the power that wants to humiliate you.”

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    • Partisanship and tribalism is so ingrained that people would rather vote for ISIS than the other team. Policy is pretty much meaningless.

      So it becomes all about turning out the vote and which side is more excited…

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    • Don’t forget amnesty for illegal immigrants.

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  2. The lefty adoption buzzword of “velocity” is fascinating. It’s used constantly and reinforced with the idea that getting shot by a non AR-15 is tantamount to a shaving nick. AR-15’s have taken on the aura of Super Lethality.

    Or should I say Super Velocity Lethality.

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  3. Apparently DJT said Take the guns first, go through due process second.

    Really? REALLY?

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    • Mark:

      Really? REALLY?

      Trump being Trump. But is it any more outrageous than the Dems saying that all semi-automatic weapons should be banned? The right to bear arms is no less a fundamental Constitutional right than is the right to due process. At least Trump’s suggestion would honor due process at some point, which is more than can be said for the left with regard to gun rights.

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    • See asset forfeiture in general.This is squarely in line with that.

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      • Agree with you JNC and I have never thought well of THAT either.

        Scott, “Trump being Trump” is lame. No one here would have given BHO or any other POTUS a pass for saying that.

        And yes, it is very different from any old gun ban proposal, which would have to meet the test of Heller.

        FWIW, I don’t think that case was decided correctly, but it is the law. So be it.

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        • Mark:

          Scott, “Trump being Trump” is lame.

          Perhaps. I just think that when someone so routinely says outrageous things, at some point it stops being surprising.

          No one here would have given BHO or any other POTUS a pass for saying that.

          I’m not giving him a pass. I just don’t take what he says all that seriously. He’s a bloviator and says things without thinking all the time.

          That being said, it is certainly hard to imagine BHO being so impolitic as to actually say such a thing so bluntly. But that he might actually attempt to do such a thing in pursuit of a preferred policy goal is actually quite conceivable. It’s not as though BHO record of fidelity to Constitutional imperatives is pristine. And had he done so, I suspect that you would not have found it quite as scandalous as you seem to find Trump’s statements. Certainly I don’t recall you being as outraged at BHO’s many actual corruptions of the Constitution as you seem to be by Trump’s mere expressions of disregard for the Constitution.

          And yes, it is very different from any old gun ban proposal, which would have to meet the test of Heller.

          No, I don’t think that is the correct comparison. Presumably your outrage over Trump’s due process statement isn’t simply because it doesn’t meet some SCOTUS-invented test for due process. (In fact, given the parallel to asset forfeiture that jnc raises, which has not been disallowed by SCOTUS, it very conceivably could meet such a test!) I assume your outrage derives from the more general idea of Trump’s seeming indifference to what is in fact an important Constitutional right and principle, ie due process. (Certainly that is what I find outrageous – albeit not surprising – about what he said.) That being the case, the correct comparison would be to that not insignificant portion of the Democratic party (including BHO, no doubt) that is equally indifferent – if not actually hostile – to another important Constitutional right and principle, namely the right to bear arms.

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        • Outrage is too strong an adjective. Disgust.

          The right to bear arms is limited, less so by Heller than by previous Court standards, but it is limited.

          My friend Sandy Levinson wrote this article in 1989 and it opened the way for the current debate, and for Heller. It’s from the Yale Law Journal but is on the web for free here:

          http://www.guncite.com/journals/embar.html

          It is well worth the full read. Sandy closed with this observation:

          One would, of course, like to believe that the state, whether at the local or national level, presents no threat to important political values, including liberty. But our propensity to believe that this is the case may be little more than a sign of how truly different we are from our radical forbearers. I do not want to argue that the state is necessarily tyrannical; I am not an anarchist. But it seems foolhardy to assume that the armed state will necessarily be benevolent. The American political tradition is, for good or ill, based in large measure on a healthy mistrust of the state. The development of widespread suffrage and greater majoritarianism in our polity is itself no sure protection, at least within republican theory. The republican theory is predicated on the stark contrast between mere democracy, where people are motivated by selfish personal interest, and a republic, where civic virtue, both in citizens and leadership, tames selfishness on behalf of the common good. In any event, it is hard for me to see how one can argue that circumstances have so changed as to make mass disarmament constitutionally unproblematic.

          It shook the ground on 2d Amendment theory when he wrote it and the ground is still shaking. Sandy recognized the countervailing public safety issue, of course. Public safety is a duty of government at all levels and is either implicit or explicit duty in all constitutions. The tension there is palpable and has nothing to do with my skeet shooting. Legislatures and courts struggle to resolve that tension. There is not going to be one FINAL solution to this. But during the discussion or debate it is unhelpful and disgusting to talk about abandoning due process.

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        • Mark:

          Outrage is too strong an adjective. Disgust.

          Fair enough.

          The right to bear arms is limited, less so by Heller than by previous Court standards, but it is limited.

          As ever, it it seems we disagree on the nature of Constitutional rights. I think that such rights exist independently of anything the Court says, and so Court decisions can either be deemed to have understood and applied those rights properly, or not. As such, the idea that a Constitutional right could be “limited” by a court decision doesn’t make sense to me. The right is what it is regardless of what the Court says, and the Court has either recognized it or not.

          My friend Sandy Levinson wrote this article in 1989

          Ill read the whole thing, but I do like his conclusion.

          But during the discussion or debate it is unhelpful and disgusting to talk about abandoning due process.

          Well, strictly speaking he was calling for delaying it, not abandoning it altogether, although I will admit that attributing such nuance of thought to this or virtually anything else he says is probably not deserved. And while I agree with you, my point is just that such disgust certainly ought not be limited just to Trump. I just think that the idea that progressives such as Obama are engaging in a good faith internal struggle to balance a duty to protect the public from harm with a duty to protect the right to bear arms out of an appreciation for the reasons for that right’s place in the Constitution has no basis in reality. Progressives hate the existence of the 2nd amendment, would ignore if they could, and will do whatever they can to subvert it. In that sense I think they are even worse than Trump, who I would guess is more clueless about than hostile to a Constitutional right.

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        • Yesterday Ace allowed it’s possible that Trump was thinking of something like this:

          https://www.nationalreview.com/2018/02/gun-control-republicans-consider-grvo/

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        • Mark:

          Good article from Levinson. Thanks.

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        • Certainly I don’t recall you being as outraged at BHO’s many actual corruptions of the Constitution

          Remind me of the actul corruptions.

          DAPA was a violation of APA of course. Absent the threshhold APA issue it might have been unconstitutional, as well. The threshold issue was glaring and if a statutory issue disposes of a case then the constitutional issue is not reached.

          Some of BHO’s EOs didn’t pass muster IIRC, and I don’t recall any restrictive court decision that I disagreed with.

          What did you have in mind as so out-of-bounds that anybody could see through it?

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        • Mark:

          What did you have in mind as so out-of-bounds that anybody could see through it?

          Ilya Shapiro has provided a good start to such an analysis:

          https://www.cato.org/publications/commentary/top-10-ways-obama-violated-constitution-during-presidency

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        • Thanks.

          I agree with much of what Shapiro wrote. I even agree with the conclusion that BHO used the EO improperly more than any [peacetime] POTUS before him. I agreed with the courts when they struck down the EPA ruling on state pollution control and I probably agreed with every court ruling against that Admin.

          I was very vocal in my criticism of his Libya exercise without compliance to the War Powers Act. Especially at PL, at the time, where so many were defending it. PL is a place I don’t visit now.

          Now, I did not know about some of the stuff on that list – at least not well enough to comment. For instance, I thought it had been shown that IRS had NOT targeted conservative groups, but that it had a long list of political catchwords of all sorts. I think that was the gravamen of IRS’ testimony to Congress.

          When the political branches are in opposition as they were from 2011-2017 there will be more attempts by POTUS to sneak around Congress. That is a political reality. It can be met by a Congress equally determined to thwart, and ultimately by a Court ruling against the POTUS a lot. So I guess its a fair criticism of me to say that when the political branches align I wonder ALOUD who is guarding the henhouse.

          An aside: one hallmark that raises TR, HST, DDE, RWR, and WJC above other POTUSes with congressional opposition is that they dealt with it openly. The first two by campaigning directly to the electorate and the latter three by wining and dining and cajoling the opposition. In Ike’s case it was Monday night poker with Rayburn and Johnson in the WH, but I cannot see BHO doing that. Boehner, maybe. The sort of passive-aggressive dealing that characterized BHO with an opposition Congress marked him forever in the lesser category.

          Liked by 1 person

        • ” I just don’t take what he says all that seriously. ”

          agreed. he’ll say “take them all” today and “pass them out like candy” tomorrow.

          the inconsistency, however, its own problem.

          Liked by 1 person

        • nova:

          the inconsistency, however, its own problem.

          Agreed. You may recall that, back during the primaries when I was at my most vocal as an anti-Trumper, my biggest problem with him was that he was totally unprincipled and was just as likely to pursue progressive policies as conservative/libertarian policies. No principle = no consistency.

          Liked by 1 person

        • I always thought having a President Potato Head [generic reference, not specific to DJT] would simply go unnoticed for 4 years. I was probably w-w-rong.

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        • Mark:

          Since I linked to the Federalist article agreeing with you, I feel compelled to link to a legal site that agrees with me, right down to using the exact same words!

          Before anyone sets their hair on fire and cracks open their prepper seed kits, it’s worth noting that gun-violence restraining orders (GVRO) or the principle of GVROs were being discussed broadly. David French spelled out how GVROs work in fabulous detail here…Yes, I understand that if any Democrat said “take the guns first and deal with due process later”, the whole right-leaning world would be up in arms, sparking the next great Civil War. But it’s exceedingly silly to ignore the fact that for better or worse, this is Trump being Trump — throwing out a handful of ideas and seeing which ones stick.

          https://legalinsurrection.com/2018/02/relax-trump-was-being-trump-on-gun-control/

          BTW, the David French article referred to is the one McWing linked to earlier.

          Liked by 1 person

        • Full transcript.

          https://www.vox.com/policy-and-politics/2018/2/28/17064540/donald-trump-gun-control-full-transcript-roundtable

          For me, this is simply another in a long line of due process violations that are now commonplace.

          Asset forfeiture, various restrictions that now attach to restraining orders, the no fly list, and of course targeted assassinations by drones.

          Things like this are what’s going to turn the base against Trump (assume he actually follows through). Not all the BS that progressives keep hyping.

          Also Mark it’s pretty cool that you know Sandy Levinson. You really should write an autobiography.

          Liked by 1 person

    • I am assuming zero thought went into that statement.

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      • zero thought

        No doubt.

        Hmmm…that would be my honest excuse if I had said that.

        But in his case, perhaps it was the sum total of all his thoughts. Mere speculation, of course.

        Like

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