Morning Report: GDP comes in better than expected 4/27/18

Vital Statistics:

Last Change
S&P futures 2673 -1.5
Eurostoxx index 384.63 0.87
Oil (WTI) 67.92 -0.27
10 Year Government Bond Yield 2.97%
30 Year fixed rate mortgage 4.62%

Stocks are flat this morning after GDP came in higher than expected. Bonds and MBS are up small.

The advance estimate of first quarter GDP came in at 2.3%, higher than the Street 2.0% estimate. Consumption rose 1.1%, in line with estimates, and inflation was lower than expected at 2%. In many ways, this was a Goldilocks type report, with decent growth and controlled inflation. The savings rate increased to 3.1%, compared to 2.6% in the fourth quarter. One note of caution: the first quarter has had some quirky measurement issues over the past several years, which has subjected it to subsequent upward revisions. The tax cuts will probably have a similar effect this time around.

Wage inflation is picking up, according to the Employment Cost Index which rose 0.8% for the quarter and is up 2.7% for the year. Wages and salaries increased 0.9% compared to 0.5% in the previous quarter. For the Fed, these two reports this morning are great news. Real wage growth (2.7% increase in wages and salaries less a 2% increase in inflation) with moderate growth and inflation.

Consumer sentiment slipped from March’s 14 year high in April to a still strong 98.8.

The Fed Funds futures are predicting a 93% chance of another 25 basis point hike at the June meeting.

North and South Korea pledged to de-nuclearize the peninsula and declare an official end to the 50 year old Korean War.

Freddie Mac is introducing its 3% down product for first-time homebuyers – HomeOne. With an Affordable Second, the LTV can go as high as 105%. Income and geographic limits are intended to reach a broad audience.

The CFPB has fixed the “black hole” issue in TRID.

38 Responses

  1. Liked by 1 person

    • i like how Gen X is ignored again. hey, we’re starting to finally make it. time to alter the deal!

      Liked by 1 person

    • I love how they talk about this as a market failure… There is nothing, absolutely nothing, “free market” about the US residential real estate market…

      Still, I wonder when these tech companies are going to figure out that you don’t need a centralized campus, and let their employees work remotely where the cost of living is cheaper… How many people would be willing to take a small pay cut to work from home? Especially if the cost of commuting goes away?

      Liked by 1 person


    Interesting take on the Korean situation and the Kanye West thing.


  3. A NYT reporter referring to HRC as a victim of her is everything that’s wrong with the media:

    You write that, “Hillary and her campaign never had a strategy to change the conversation.” Can you expand upon that?

    Look, I don’t want to blame the victim here. I do think the coverage was voracious about her emails. But I also think the campaign was not great at changing the conversation. I counted 47 interview requests that were turned down. We asked her for interviews about national security, about her work on the Children’s Defense Fund, about her economic policies. Every single time was either ignored or turned down, and I have to think that some of those interviews would have knocked emails off the front page and made news. So it was a frustration. At the same time, I understand their instincts: They were thinking that all anyone wants to talk about are emails, and she is in the lead, so why risk it? But I think some of those stories, if we had been able to get interviews, would have made the front page and put policy on the front page.”

    Liked by 1 person

  4. I absolutely loathe having to defend officers, and that may be the driving factor of my anger here.

    What’s interesting is that in order to block a Trump nominee the Democrats were willing to portray the Obama White House as a drunken, chaotic mess. And Obama, who said so many nice things about Jackson, kept quiet for it instead of coming out to defend him.

    What’s been done to Jackson worked and will continue to work as long as people roll over and surrender. These nominees that have been smeared need to do what Clarence Thomas did and say “fuck you” to the Senators.


  5. It is nice to see more and more people recognize that leftism is a religion…

    If fact, it probably resembles radical Islam more than any other…


  6. Thought this was funny:


  7. This article’s a scream!


    Though Trump has often made such arguments, to do so alongside a foreign guest of Merkel’s stature amounted to nothing short of a diplomatic affront.

    Trump, hell, America is just so ungrateful to Europeans.

    Trump is treating Europeans with condescendence and is unwilling to see relationship in terms of respectful partnership or alliance,” Ulrich Speck, a German political analyst with the Aspen Institute, wrote after Merkel’s encounter with Trump. “He looks at them as bothersome clients

    Baby, who’re you gonna believe, me or your lying eyes?

    The German leader was clearly on the defensive, insisting repeatedly that Germany was committed to fulfilling its obligations within NATO, despite falling well short of the alliance’s spending targets.

    How dare he!

    After the speaking to the press for about 20 minutes, Trump ended the news conference abruptly.

    Liked by 1 person

  8. WaPo commentariat paranoia runs deep –
    a commenter referred to the “…Koch controlled NPR.”

    Liked by 1 person

  9. How dare they accurately describe our strategy

    Liked by 1 person

  10. @JNC and Brent –

    I vaguely recall this scenario having occurred before but I have no specific recollection of when. Current version:

    Sprint is failing, in $30B of debt, but attractive enough to T-Mobil that it has offered over $20B plus debt assumption for the acquisition. This merger has been blocked, more than once, I think, by FTC and DoJ. Previously the blocking made sense, I think.
    Now the ground has changed in more ways than one. I am interested in the first ground that has changed. That is, Sprint is failing. No merger and it surely ends up in reorg, where the Bankruptcy Court will approve the merger, on grounds less satisfactory to Sprint shareholders, you can bet.

    Joe, am I right on that assumption?

    Following that line of thinking, I hope the regulators let the merger go through now.

    The other way the ground has changed is that other telcomms are going to emerge. Comcast is actively pursuing the field, for example. There should be no anti-competitive fallout from this proposed merger, now.

    Brent, do you recall a merger previously barred by the regulators subsequently permitted by them because the target was failing?

    Joe, do you recall a merger previously barred by regulators subsequently made the basis for an approved reorg plan? I am sure THIS has happened but I don’t recall a specific case, although I know of many reorg acquisitions that would not likely have passed muster outside the bankruptcy arena. I don’t recall if any actually were barred, first.

    Liked by 1 person

    • Not off the top of my head. Of course you had the bank mergers in 2008, but those were mostly done outside of bankruptcy court. I don’t recall a specific previous case where a merger was blocked by an anti-trust ruling by DoJ and then ended up happening anyway as a result of bankruptcy of one of the parties.

      Liked by 1 person

    • I have heard the failing firm justification used, however I am not sure how successful it has been. That said, I can’t imagine the judge caring about Sprint shareholders. Part of the issue with them failing is their heavy debt load. In BK, that debt becomes new equity, which means the interest expense gets cut pretty dramatically. Sprint may well be viable in that case.

      At the end of the day, it will depend on the Herfindahls. A 4 -> 3 deal is always going to be problematic and I don’t think potential competition counts for much..


      • That was my point- because “…can’t imagine the judge caring about Sprint shareholders” – then if the failure is imminent the regulators should take that into account before the likely reorg. And as I suggested, I don’t think it can be considered 4>3 any more with new players poised to enter. Better to think of it like the airlines maybe?


        • it is already such a concentrated market… HHI goes from 2827 to 3258. As a rule of thumb, anything over 1800 is considered problematic.Is Comcast Mobile or Time Warner Cell going to take significant share from Verizon and AT&T who control 2/3 of the market? T mobile and Sprint are the weaker third and fourth players in the market and will undoubtedly argue that the two of them together will be a stronger competitor to VZ and T than they are separately, and that may be true.

          If the judge blocks the merger, and S files for bankruptcy, consumers would be worse off if it goes through a chapter 7 liquidation – the market goes from 4 to 3 anyway. But if they go through a chapter 11 liquidation, theoretically S could emerge as a stronger competitor with a healthier balance sheet and consumers would benefit from blocking it.

          As far as potential new entrants go, I suppose the judge would assign it some weight, but the potential for competition probably won’t outweigh the fact that this is already a very concentrated industry..


  11. Oh please let this happen. I want to see the meltdown.

    “Trump should get the Nobel Peace Prize for North Korea talks, Moon says
    by Anna Fifield
    April 30 at 8:29 AM

    TOKYO — If anyone were to win the Nobel Peace Prize for the current effort to solve the North Korean nuclear problem, it should be President Trump. That’s what South Korea’s president said Monday when it was suggested that he himself should be in line for the award.

    President Moon Jae-in has gone out of his way to flatter Trump and credit him for creating the environment that has brought about the remarkable diplomatic rapprochement now unfolding.”

    Liked by 1 person

    • It’s hard to argue that a formal peace treaty betwixt North and South Korea after 65 years of hostility isn’t Nobel Peace Prize worthy, and if there is such an agreement I suspect they’ll get one.

      Trump will not however.

      Liked by 1 person

    • Moon Jae-in is smart. He’s knows Trump likes having his ego stroked, likes public praise, likes accolades. And that it’s better to be on Trump’s good side if you want to have prosperous dealings with Americans for the next 2-to-6 years than not.

      I expect there’s going to be more than just this done to benefit SK from America. It’s always mystified me that the American left has insisted on proving itself so unserious or so foolish in the pursuit of its goals that it didn’t immediately start flattering Trump and praising his progressive tendencies in order to amplify them, and worked to kiss-ass to get what he wants. Given the Republicans problems with Trump, there was a great opportunity to make Trump the most liberal president ever.

      But it presents them personally with bad optics, and that’s all they care about at the end of the day. Self-interest wins again!

      Pelosi said Trump might qualify for the Nobel peace prize. I wonder if there has been something meeting of the minds between Trump and her.


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