Morning Report: LIBOR’s replacement debuts next week 3/26/18

Vital Statistics:

Last Change
S&P futures 2636.75 38.75
Eurostoxx index 368.03 2.21
Oil (WTI) 65.81 -0.07
10 Year Government Bond Yield 2.85%
30 Year fixed rate mortgage 4.46%

Stocks are higher this morning on optimism that a trade war with China can be averted. Bonds and MBS are down.

We will have a short week, with the bond market closed on Friday. On Thursday, we will have an early close. There will be a lot of Fed-speak this week, although not much in the way of market-moving reports.

Economic growth picked up in February according to the Chicago Fed National Activity Index. Production and employment-related indicators drove the increase.

San Francisco Fed Chairman John Williams is the front-runner to replace William Dudley at the New York Fed. Policy-wise he is considered a centrist, although not necessarily a markets guy. He is a long-term macro sort of guy – he doesn’t keep a Bloomberg terminal on his desk – which makes him somewhat of an odd pick to run the NY Fed which is all about markets.

Speaking of the NY Fed, it is set to launch its replacement for LIBOR next week – the SOFR (or secured overnight funding rate). Regulators are looking for a replacement for LIBOR after it was found that banks were manipulating it in order to help their own proprietary positions. LIBOR is a reference rate for many adjustable rate mortgages, as well as lines of credit so its replacement will affect the mortgage industry. The big difference between the two is that LIBOR is set based on the forecast of bankers, while SOFR will be based on actual transactions in the money markets. This makes it much less susceptible to manipulation.

Bond market observers will be watching as the Fed auctions off almost $300 billion in paper this week, with the biggest 2 year auction since 2014. Amid weakening demand for US Treasuries, the results could buffet rates a bit. Note China has threatened to stop buying US Treasuries in response to tariffs.

Mortgage banking profits fell in the fourth quarter to $237 a loan from $929 in the third quarter. This was the lowest reading since Q1 when it hit $224. Higher costs and decreasing volumes drove the decrease. Margins also fell as banks cut margins in a more competitive environment. 56% of the firms in the study reported positive pre-tax profit in the quarter, down from 77% in the prior quarter.

California is mulling a new idea to increase the supply of homes on the market, by giving a tax break to people 55 and older who downsize and move to a new county. Many homeowners are reluctant to move because they will get hit with higher property taxes on the new property.

19 Responses

  1. …by giving a tax break to people 55 and older who downsize and move to a new county.

    Move to a new county?

    So this helps people who are quite a bit older who want to retire away from the coast and frees up supply slightly on the coast. It makes working mature adults the proposal that if they extend their commute by 75 mi each way they can get a tax break.

    No thanks to the second idea at all.

    And it really isn’t designed to encourage movement out of the Inland Empire or the Imperial Valley.

    Lulu, you wanna move to Bakersfield? Calexico? I don’t suppose it would be a bargain to sell out of San B and move to Sacramento.

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  2. I doubt that Mueller is looking into the Daniels’ NDA. It will resolve itself in court.

    I assume Mueller is looking into the alleged NDAs that were to bind WH personnel even after DJT left office, thus making them personal to DJT and probably then easily classified as extortion of a bribe to sell a public office.

    These would be of interest because invoking the supposed WH NDAs would impede the investigation as it pertains to Russian interference. Of course if all the witnesses renounce any fealty to the NDAs then Mueller probably wouldn’t pursue the extortion-bribery tactic.

    I believe as do most lawyers that an NDA for a government official extending beyond the classified information system would violate the First Amendment as a prior restraint on free speech and in many cases a statutory duty to report to Congressional oversight committees when asked. So there should be no backlash against a WH employee who disregards his/her NDA unless classified material is involved.

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    • Mark:

      I assume Mueller is looking into the alleged NDAs that were to bind WH personnel even after DJT left office, thus making them personal to DJT and probably then easily classified as extortion of a bribe to sell a public office.

      I don’t understand the chain of thought that gets one from an NDA to an “extortion of a bribe to sell a public office”.

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      • I am told that for $1000 paid to your account I can be Minister of Cats.

        Extortion of a bribe.

        I am told that if I pay on your direction a thing of measurable value to you I can be Minister of Cats.

        Extortion of a bribe.

        I am told that if I promise in a writing subject to a liquidated damage clause
        never to disclose anything I know about you I can be your Minister of Cats.

        Extortion of a bribe.

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        • So, if a government job is a thing of value, can these asshol s stop thanking each other for their “service”?

          Also, if Obama, in late spring of ‘07 promised HRC the SecState job as well as clear the Democratic Party decks as well campaign for her if she dropped out and endorsed him as well as campaigned for him, would that be extortion of a bribe?

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        • For purposes of the prosecutor the value of the gummint job is irrelevant. The NDA is the thing of value.

          But your point is taken, regardless. Military service in combat is infinitely undercompensated so “thank you” works there.

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        • Also, if Obama, in late spring of ‘07 promised HRC the SecState job as well as clear the Democratic Party decks as well campaign for her if she dropped out and endorsed him as well as campaigned for him, would that be extortion of a bribe?

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        • Don’t think so. Not personal gain, but political dealing. Again, I don’t think the NDAs would raise an issue like this except that by continuing perpetually they are personal to DJT.

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        • .
          I am told that for $1000 paid to your account I can be Minister of Cats.

          Extortion of a bribe.

          I am told that for dropping out of the race and endorsing you I can be Secretary of State.

          Extortion of a bribe.

          Your position is that personal gain and political gain are always separate?

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        • Mark:

          I’m with McWing. Seems to me it takes quite a stretch to call a confidentiality agreement a “bribe” or the “sale” of a public office. If that is a “bribe”, all kinds of ordinary practices are.

          Liked by 1 person

        • Well, you are both wrong. As an aside –

          How in the world did you come up with the notion that a personal NDA for the protection of a public official in his capacity as a private person [demanded for entry to public employment] is an “ordinary practice”?

          As for:
          Your position is that personal gain and political gain are always separate?

          They might occur at the same time but they are two different concepts. People like 4 of the last 7 governors of Illinois didn’t understand the difference.

          See also:

          https://www.law.cornell.edu/uscode/text/18/201

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        • Mark:

          Well, you are both wrong.

          That’s that, then, I guess.

          How in the world did you come up with the notion that a personal NDA for the protection of a public official in his capacity as a private person [demanded for entry to public employment] is an “ordinary practice”?

          I wasn’t suggesting that it was an ordinary practice. I was pointing out that if that is a bribe, it seems to me that other things that are ordinary practices could be deemed to be as well. Like the type of quid pro quo deals that McWing has already mentioned.

          Basically my sense of the situation is this: It is not that these NDF’s are so obviously examples of soliciting a bribe and the selling of public office that an investigation would and should be triggered regardless of who was involved. Rather, it is that in an effort of coming up with some way of taking down Trump in particular, construing these NDF’s as “bribes” seems like a creative and possibly fruitful way of doing so, especially in the absence of any more obvious way of getting him. And the fact that even you referred to it as a “tactic” to be employed by Mueller and discarded if people start talking about other things, only works to confirm that sense of things.

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        • I posit you cannot separate personal gain from political gain.

          I admit your elavating an NDA to extortion of bribery versus a opponent dropping out of a race on the promise of a cabinet position (not a thing of value?) and a promise of a clear field for a POTUS run is certainly something.

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        • McWing:

          I posit you cannot separate personal gain from political gain.

          Both the Clintons and the Obamas personal gains seem to me to be a very direct function of their political gains.

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        • If the NDA were running in favor of the President in office regarding his official duties it would likely only be unconstitutional and unenforceable by the government for non-security disclosures.

          However, an NDA running in favor of the President after he leaves office and in his personal capacity is a personal favor of value to him, not in any way arguably to the nation. This should be easy for you to distinguish.

          Frankly, in a non-special counsel context, if a normal POTUS like every other one in my memory had done this, he would have been warned against it by the Justice Department Ethics Office first, and if not timely rescinded or modified, these NDAs, if they truly ran in his personal favor after he left office, would lead to a formal investigation.

          What would happen to that investigation would depend on the power interplay between Justice and the POTUS, which we know is tricky. By internal custom, Justice chooses to report to Congress rather than indict a sitting President.

          There is no federal executive agency that could charge the President that is not ultimately free and clear of presidential meddling. Congress might not deal with it until some underling refused to testify.

          That is also why it is likely only going to be used as leverage with any witness from inside the WH who tries to claim silence under his NDA. When Mueller reports to Rosenstein, if there are presidential crimes reported, this one is likely to be low on the list, or not on the list at all, because it only has to do with Russia if silence is invoked by a witness based on it.

          Mueller has stuck to the mandate of looking for Russian interference and Russian ties to the campaign. The indictments already in place are found here, as well as the guilty pleas:

          https://www.justice.gov/sco

          I have no idea how far this will go, but I don’t think anything outside Russian interference and influence is going to be at the center of it. Enough has been published about Jared Kushner to lead one to believe he is a suspect, not merely a witness.

          Personally, I doubt that Mueller’s investigation will result in a report to Congress that cries out “IMPEACHMENT!” Of course, it might easily bear enough information for a D Congress to Impeach, anyway. Guesswork, of course.

          Mueller has already made the point of Russian interference through propaganda with the indictment of the troll group. He has already made the point that senior DJT campaign officials were undisclosed foreign agents as was DJT’s first NS Advisor. That’s serious stuff. He’s doing his job. So I do not suppose that NDAs will be a part of the scenery unless potential witnesses invoke them.

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        • Mark:

          If the NDA were running in favor of the President in office regarding his official duties it would likely only be unconstitutional and unenforceable by the government for non-security disclosures….However, an NDA running in favor of the President after he leaves office and in his personal capacity is a personal favor of value to him.

          If it is unenforceable while the president is in office, why would it become enforceable after he leaves office? And if it isn’t enforceable in either case, how can it be seen as a benefit?

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        • I don’t have anything to add, but I am following this with interest.

          This is good:

          “People like 4 of the last 7 governors of Illinois didn’t understand the difference.”

          You can add a governor of Virginia to that too, even though he beat the rap.

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        • Again, are you saying that appointment to political office and the fruits that flow from said appointment are of no personal value?

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  3. ” Many homeowners are reluctant to move because they will get hit with higher property taxes on the new property.”

    Ah, the utopia created by the progressively engineered state!

    Like

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