Morning Report: LEI shows strong growth ahead 7/19/18

Vital Statistics:

Last Change
S&P futures 2808 -8.25
Eurostoxx index 386.86 -18
Oil (WTI) 68.23 -0.53
10 Year Government Bond Yield 2.87%
30 Year fixed rate mortgage 4.51%

Stocks are lower as earnings continue to come in. Bonds and MBS are down.

Initial Jobless Claims fell to 207,000 last week, which is the lowest level since 1969. Despite the tightness of the labor market, wage growth is tough to come by.

I have discussed at length the disconnect between the Northeast and the rest of the country when it comes to the real estate market. It turns out that not only does the real estate market lag, so does mortgage banking. Last year was a rough year for mortgage banking, and the typical profit per loan was about 31 basis points. That varied by region, with the Midwest in the lead at 39 basis points while the Northeast lagged at 8.

The Fed’s Beige Book characterized the economy as strong, and said that labor shortages are beginning to impede growth. Engineers, skilled construction workers, truck drivers, and IT professionals are in short supply. So far increasing input prices are not translating into higher inflation – corporate margins are taking the hit. Residential housing continues to improve ever so slowly, and commercial real estate is flat. Overall, the picture points to a strong economy, with room to run. The lack of pricing pressures gives the Fed the leeway to go slow as they get off the zero bound.

The Conference Board echoed this assessment, with the Index of Leading Economic Indicators increasing 0.5% in June. The LEI is still rising faster than the CEI (basically the future indicators are showing that growth should accelerate) which means we have no sign of a slowdown.

Kathy Kraninger, the Administration’s nominee to run the CFPB, will appear before the Senate Banking Committee today. Little is known about her views on financial regulation. Congressional aides have said that she will have enough support to pass the Committee on a party-line vote. In her prepared remarks, she said she will continue Mick Mulvaney’s work of balancing the need for consumer protection with the need to treat the financial sector fairly. Suffice it to say, having come from OBM, she doesn’t really fit the type of bureaucrat who would normally be tapped to run the CFPB, and that may be the point. If her nomination bogs down, Mick Mulvaney can continue to run the agency.

Interesting stat: 70% of the Millennials who own a home have buyer’s remorse. Many used their retirement savings to fund the down payment, which is generally a bad move. Many first time home buyers completely underestimate closing costs as well. Others underestimated the costs of upkeep, which is around $16,000 a year. I suspect many of these lessons are learned by every generation who buys their first home.

The CoreLogic Mortgage Fraud Risk Index rose 12% in the second quarter compared to a year ago. An increase in borrowers taking on loans for multiple properties (i.e more professional investors) appeared to drive the increase.

14 Responses

  1. The supposed consideration of offering American diplomats for Russian depositions is insane.

    Maybe it’s fake news.

    Or maybe DJT is that awful.

    Liked by 1 person

    • Mark:

      I wonder what your take is on the wisdom of the indictments of the Russians in the first place. I have in mind Andrew McArthy’s argument from the other day:

      So, is Russia now presumed innocent of hacking the 2016 election?

      If not, it is difficult to understand any proper purpose served by Special Counsel Robert Mueller’s indictment of twelve military officers in the Kremlin’s intelligence services for doing what everybody in America already knew that they did, and has known since before Donald Trump took office — indeed, since before the 2016 election.

      Make no mistake: This is nakedly politicized law enforcement. There is absolutely no chance any of the Russian officials charged will ever see the inside of an American courtroom. The indictment is a strictly political document by which the special counsel seeks to justify the existence of his superfluous investigation.

      Oh, and by the way, the answer to the question posed above is, “Yes, it is now the official position of the United States that Russia gets our Constitution’s benefit of the doubt.” Here is Deputy Attorney General Rod Rosenstein announcing the Friday the 13th indictment: “In our justice system, everyone who is charged with a crime is presumed innocent unless proven guilty.”


      • It has been done before a few times, really, most recently that I recall, a WD PA indictment named Chinese agents for going beyond trade espionage to espionage against the USA. It has FP value when used correctly. After the Chinese indictments, which would never go to trial, BHO’s State Department was able to get a “back away from the edge” deal from China, because the speaking indictment let the Chinese know we were inside their heads, so to speak.

        Because I consider Mueller’s brief to be centrally about illegal Russian interference [and not about DJT except peripherally if evidence leads that way] these indictments also show that we can name names in Russia and see into their devices. It thus supports efforts to back Russia off, if State is given a free hand. There is with this type of indictment the looming threat that we can do more to f-ck you than you can do to us.

        The article that George posted indicated that BHO’s State Department wanted to use its inside knowledge to back Russia off in 2015-6 but the ubiquitous Susan Rice inexplicably stifled them, in one respect. The interviewed source of the story says their efforts were not completely stifled but that in the one way they were reeled in the State Department was unhappy.

        Now the indictment may have actual legal repercussions if some Americans are tied to the facts. Otherwise, it is a handmaiden to FP.

        There could be more to it. George is pretty sure the timing was done to box in DJT at Helsinki, apparently in the same box his security advisors wanted for him if we are to believe any press reports. I refused to speculate on that because I don’t know when the GJ heard the evidence presentation or when they returned their report. If it was in the last week or two, then all that could be said is that Mueller did not delay the indictment. It has been reported that Rosenstein briefed the President on what was going to be in the indictment earlier in the week, which makes me think the report was concluded late the previous week, sent to Rosenstein, who told the President, and then the indictment followed.

        But maybe they sat on it for a month and waited until the week of Helsinki. I currently have no way of knowing.


        • Thanks Mark. To be honest it never occurred to me to question the wisdom/purpose of the indictments until I read AM’s piece at NR. His objections make some sense to me, though. And if the indictments were intended to serve an FP purpose, wouldn’t/shouldn’t that be done in conjunction with the executive charged with conducting FP?

          As an aside, on this:

          Because I consider Mueller’s brief to be centrally about illegal Russian interference [and not about DJT except peripherally if evidence leads that way]…

          If that is indeed Mueller’s brief, then on what basis was he appointed as a special prosecutor? As AM pointed out, the appointment of a special prosecutor requires the existence of a conflict of interest within the Justice Department. Unless there was an upfront suspicion/belief that the Trump campaign was involved with the Russian criminal activity, what is the conflict of interest that prompted the need for a special prosecutor?


        • That was because Sessions recused himself from the ongoing DOJ/FBI investigation, and DJT fired the lead investigator, Comey. The two events taken together required a SP and all were in agreement at the time, except the POTUS himself.

          Your point about serving the FP is well taken and it was well taken when Susan Rice interfered on behalf of her White House, as well. Apparently DOJ and State have a departmental working relationship that does not go through the West Wing of the WH, in the first instance. And surely doesn’t when a Special Counsel is prowling around in foreign interference, as opposed to a mere United States Attorney for some District. I know that USDAs in the WD of TX during the height of the cartel years often did stuff in conjunction with State that never saw the WH desk. Spme pf that caused embarrassment later, I am sure.

          I think it is usually a matter of ordinary operations that link foreign criminals to the USA suggesting a courtesy call to State but certainly not requiring Presidential oversight.

          And this WH and State Department are not on the same page, just as this WH and DOJ are not. I think it is the WH that is out of step.


        • Why do you think the Whitehouse ordered a stand down when it came to the commie bastards meddling?


        • Makes no sense to me.


        • Mark:

          The two events taken together required a SP…

          Why? Unless Rosenstein or the newly appointed FBI director was seen to have a conflict of interest, I don’t see why those events require a SP. Wasn’t the problem that whoever Trump appointed to replace Comey would have an inherent conflict of interest because he was appointed by a target of the investigation? That is why I think you are wrong to characterize Mueller’s investigation as simply one about Russian “meddling”. The fact that the investigation was targeting the Trump campaign is the only thing that would have necessitated a SP.


        • I suppose so, when you include the Trump campaign.

          I think as Comey told him DJT was not a target. But the campaign post Flynn and with Carter and Manafort surely was. All of which was enough to inspire DJT to tamper with it by firing Comey, as he conceded on national TV. Which was then enough to require an investigator more insulated from command influence.


      • @gbowden41: Why do you think the Whitehouse ordered a stand down when it came to the commie bastards meddling?

        They didn’t want to get into a cyber-war with Russia? They didn’t want to risk it becoming a big enough issue to attract attention or get in the news?

        Before the collusion angle, there could have been a concern that the US battling Russian with cyber-warfare could give Trump or any Republican an opportunity to evoke Reagan and the GOP anti-communist credentials.

        They may have just seen such a battle as potentially giving Republicans leverage to portray the Democrats as ineffective against foreign threats, and so decided to avoid it, assuming president Hillary Clinton could tackle the problem next time around.

        I’m 100% sure that, at the time, none of them–not a single one–believed that Russia could possibly do anything to influence the outcome of the election. And I expect most of them still know that.


    • My friends in DC have told me that this is probably one of the worst of all possible situations — the town is in constant campaign mode — also making it hard to get anything done. Imagine that the fund raising is also going on 24/7. Citizens United opened up the funding process to unrestrained capitalism in our political affairs, our government, and our society as a whole.

      I didn’t realize that, previous to citizens United, politicians spent very little time campaigning or fundraising. Ah, back in the days when capitalism had no place in our political process and it was all just nepotism and cronyism and backroom bribes. Ah, those were the days!

      Conservatives are constantly accused of fantasizing and wanting to return to a past that never was. Apparently, it’s not just conservatives.


  2. Whoo boy


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