Morning Report: Donald Trump, the Fed and housing affordability 7/20/18

Vital Statistics:

Last Change
S&P futures 2801 -3.75
Eurostoxx index 385.19 -1
Oil (WTI) 69.83 0.37
10 Year Government Bond Yield 2.85%
30 Year fixed rate mortgage 4.50%

Stocks are lower after the Trump Administration threatened more tariffs on Chinese goods. Bonds and MBS are down.

Donald Trump jawboned the Fed a little yesterday, saying he was “not thrilled” with interest rate hikes.  “I am not happy about it. But at the same time I’m letting them (the Fed) do what they feel is best.” For all the histrionics in the business press, this was pretty mild stuff. As a general rule, presidents respect the independence of the Federal Reserve and don’t criticize policy all that much. Obama never criticized the Fed’s monetary policy but of course he never had to deal with a tightening, so there wasn’t much to complain about. Alan Greenspan was considered “The Maestro” by the business press, so both Clinton and GWB gave him a wide berth. That said, Richard Nixon criticized the Fed, and Jimmy Carter installed a political hack (G William Miller – who was a complete disaster) to run the bank, so it isn’t like political meddling is unheard of. FWIW, the correlation between rising bond yields and criticism of the Fed is about 1, so expect more as we move from a secular bull market in bonds to a secular bear market.

Trump has doubled down by tweeting about the Fed and the dollar this morning: “China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing field….The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates – Really? Farmers have been on a downward trend for 15 years. The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries. They put on massive Tariffs and Barriers. Canada charges 275% on Dairy. Farmers will WIN!”

These comments are smacking the dollar this morning, which is pushing up the 10 year yield. The comments have made no changed to the Fed funds futures, which are still predicting an 85% of a 25 basis point hike in September and a 58% chance of another hike in December.

Note Russia is dumping Treasuries. Most of its position has been liquidated. This was in response to sanctions imposed earlier this year.

Housing affordability has been falling as rates and prices rise. The most affordable places in the US are the Northeast and the Midwest. The Midwest is the most affordable despite having the highest regional mortgage rates. There is a surprising amount of variation between mortgage rates in different parts of the country – a range of 25 basis points. The Northeast has high prices (but low rates) and the Midwest has low prices (but high rates). Affordability is back to 2009 levels.

At least one commentator thinks housing has peaked for this cycle. As a general rule, housing construction is an early cycle phenomenon – in other words it generally leads the economy out of a recession. Since this expansion is very long in the tooth, it would follow that housing might have peaked. The problem with that theory is that housing didn’t show up in the early recovery – it kept falling well after the recession ended. FWIW, between the shortage we currently have and the fact that building margins are still healthy indicates housing has room to run.

29 Responses

  1. Good read:

    “How to Survive America’s Kill List
    When a U.S. citizen heard he was on his own country’s drone target list, he wasn’t sure he believed it. After five near-misses, he does – and is suing the United States to contest his own execution

    By Matt Taibbi
    July 19, 2018 ”

    https://www.rollingstone.com/politics/politics-features/how-to-survive-americas-kill-list-699334/

    Liked by 1 person

  2. This reminds me of how the left approaches the “well regulated militia” language in the Second Amendment.

    https://www.theatlantic.com/politics/archive/2018/07/the-fourteenth-amendment-is-a-battleground-for-citizenship/565655/

    Liked by 1 person

    • jnc:

      This reminds me of how the left approaches the “well regulated militia” language in the Second Amendment.

      Agreed, it is precisely the same…establishing what you want the Constitution to mean first, and then searching for a way to rationalize it.

      BTW, I think the article was good, but sort of went off the rails in the last two paragraphs.

      Liked by 1 person

  3. For those who haven’t seen the transcript, Obama’s speech in South Africa is worth a read.

    Liked by 1 person

  4. I listened to The Federalist Podcast with Bari Weiss/NYT and it’s fascinating and revealing. I highly recommend it.

    https://itunes.apple.com/us/podcast/the-federalist-radio-hour/id983782306?mt=2&i=1000416270847

    Like

  5. This is fascinating… What Americans actually care about…. Note how much they care about the stuff the media cares about… Nothing…

    Russia? Doesn’t register
    Abortion? 1%
    Gay rights? Doesn’t register
    School Shootings? 1%
    Gun control? 2%
    Environment? 2%
    Gap between rich and poor 1%
    Climate change? Doesn’t register

    What DO they care about?
    Illegal immigration 22%
    Dissatisfaction with government 19% (probably DJT proxy)
    Race Relations / Racism 7%
    Unifying country 6%
    Lack of respect for each other 6%

    In other words, all of the stuff the Democrats (and the MSM) harp on (Russia, income inequality, climate change, transgender stuff, gun control) are non-issues to most people. If this is true, Democrats are on the wrong track with voters….

    http://www.climatedepot.com/2018/07/21/new-gallup-poll-americans-do-not-even-mention-global-warming-as-a-problem-36-problems-cited-but-not-climate/

    Like

    • I find this interesting, because of course certain people do care about it: the media, for one, so Democrats that want face time by default have to care about it, too. And certain Democratic media darlings/icons are in district where those numbers would probably be reversed, for that district.

      That being said, I do think this kind of gives the lie to the whole “the electoral college has failed us!” idea that if only we elected president’s by popular vote, Hillary would have won. I’m not remotely sure that’s true.

      I could vote for Johnson because I knew Tennessee was going to go Trump. I might have, anyway, because I’m not sure I could have brought myself to vote for HRC. But lots of people stay home, confident their state is going to go one way or the other, no matter what they do. A national popular election would change that metric considerably, and considering what people say they care about . . . I really don’t think it’s remotely guaranteed that popular presidential election would favor the Democrats. They just think it would, because of California.

      Like

      • The left’s issues with voter ID tell you that many of their votes are fishy…

        Liked by 1 person

        • That HRC’s popular vote win was, at the end of the day, *entirely* in California suggest that there, especially, some fishy votes were cast.

          But it still wouldn’t necessarily be enough if presidents were elected popularly and the entire population of the country knew it. They always think its a zero sum game, and if they just change this one thing, nobody will respond to the incentives, and nobody will change their behavior in reaction to that change. But they would. Might favor them, might not, but if the president was actually elected by the popular vote the vote would not have looked the same in 2016.

          To my point:

          https://thepoliticalinsider.com/california-counties-registered-voters/

          In CA, Ten Out of Eleven Counties with More Registered Voters Than Voting-Age Adults Support Democrats

          Like

        • … And, in California, the further you get away from the border, the less blue it becomes. Suspicious, if you ask me.

          Like

  6. I know nothing about this stuff, but presume that Andy McCarthy does. It seems amazing to him, and therefore amazing to me.

    http://www.powerlineblog.com/archives/2018/07/on-the-page-documents.php

    Powerline dude with further explication.

    http://www.powerlineblog.com/archives/2018/07/first-thoughts-on-the-carter-page-fisa-application.php

    I guess we know now why it was released on a Saturday night.

    Like

    • No reason for NYC to have 3 dailies…. NYDN was always kind of an orphan – tried to be the liberal NYT on news / local and the NY post on sports. Couldn’t do either.

      Like

      • When I was a kid growing up on our dairy farm in NJ I think there were 7 NY dailies!

        The NYT.

        The Herald-Tribune. It was like a center-right NYT with better sports and funnier features. My dad’s paper.

        The WSJ. My dad’s other paper.

        The NY Post. Then a left liberal nearly socialist rag of a tabloid!

        The NYDNews. The original tabloid, and then a solidly R paper. It had Dick Tracy and the daily batting and pitching stats for all three NY MLB teams. Our farmhand got it and I read the sports and memorized every player on all three teams and knew their stats, day-to-day. I played baseball and in our pasture hardball games I had better stats. I was 8, 9, 10, and 11.

        The NY World-Telegram. Like a second string Herald-Tribune.

        The NY Journal-American. The Hearst paper. A full size scandal sheet.

        There was also the Brooklyn Eagle, but as a Yankee fan I did not acknowledge its existence.

        Like

    • First instinct of the left – government bailout:

      New York Governor Andrew M. Cuomo urged Tronc to reconsider the layoffs, saying they were made without notifying the state or asking for assistance.

      “I urge Tronc to reconsider this drastic move and stand ready to work with them to avert this disaster,” Cuomo said in a printed statement. “I understand that large corporations often only see profit and dividends as a bottom line. But in New York, we also calculate loss of an important institution, loss of jobs, and the impact on the families affected. I hope Tronc does the same and recalculates its decision. New York State stands ready to help.”

      https://www.washingtonpost.com/business/technology/ny-daily-news-slashes-staff-in-half/2018/07/23/9cb9abe6-8e85-11e8-ae59-01880eac5f1d_story.html

      Like

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