Morning Report: Initial Jobless Claims in perspective 9/13/18

Vital Statistics:

Last Change
S&P futures 2898 9.5
Eurostoxx index 378.25 1.14
Oil (WTI) 69.66 0.71
10 year government bond yield 2.95%
30 year fixed rate mortgage 4.64%

Stocks are higher this morning on positive trade comments out of China. Bonds and MBS are up.

The European Central bank left rates unchanged, which is helping bonds rally.

Inflation at the consumer level came in weaker than expected, with the Consumer Price Index rising 0.2% MOM and 2.7% YOY. Both numbers were 10 basis points below Street estimates. Ex-food and energy, they were up 0.1% / 2.2%, which pretty close to the Fed’s target. Falling health care costs, which make up about 10% of the index, helped offset increasing housing costs.

Increased housing costs are fueling a rise in home improvement activity. Both The Home Despot and Lowes are surging following results. Consumer Comfort rose for the first time in 5 weeks. Despite the run over the last month, the index is at highs not seen since 2000 (as are most of the consumer confidence / sentiment indices).

Initial Jobless Claims fell to 204,000, which is another 50 year record. When you take into account population growth, the number becomes even more dramatic:

Hurricane Florence has been downgraded to a Category 2 hurricane, but it is still expected to pack a wallop and dump a lot of rain. The hurricane is expected to dump 20-30 inches of rain over the area, which means flooding issues well inland. Servicers should expect to see an uptick in DQs going into the end of the year. Note that fewer households have flood insurance this time around. “Residents of these states are materially less prepared than they were in the past to deal with the financial consequences associated with major flooding events,” said Robert Hartwig, a risk-management and insurance professor at the University of South Carolina’s Darla Moore School of Business.

Ex-US Treasury Secretary Jack Lew is getting into the mortgage business, joining the advisory board of Blend, which is a consumer finance start-up that handles online mortgage applications for the GSEs and some of the larger banks.

Doug Kass made the great observation about the business media and the 10th anniversary of the financial crisis, recalling Mickey Mantle’s observation: “I didn’t know how easy the game of baseball was until I entered the broadcasting booth.”

HUD Secretary Ben Carson plans on doing more to remove zoning impediments to multifamily construction, though his approach will be different than the Obama Adminstration’s. He plans on using Community Development Block Grant funds to encourage changes in zoning. The Obama admin sued localities directly, with the most prominent case being Westchester County in New York. Westchester County ended up being able to fend off HUD for the most part, which kind of shows the futility of that exercise. Westchester should have been a lay-up. Separately, the House is looking at regulatory costs and multifamily construction, which supposedly account for 30% of the cost of multi fam homebuilding according to NAHB.

47 Responses

  1. Cue the sad violin:

    “McConnell screws Dems ahead of election with October session

    The majority leader wants to deprive Democrats up for reelection the chance to campaign.

    By BURGESS EVERETT
    09/11/2018 05:56 PM EDT ”

    https://www.politico.com/story/2018/09/11/senate-democrats-mcconnell-midterms-2018-815705

    Liked by 2 people

  2. Did Kavanaugh not take “no” for an answer when he asked some girl to prom?

    https://www.npr.org/2018/09/13/647511365/democrats-refer-kavanaugh-allegations-to-fbi-deepening-divide-over-his-nominatio

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    • Feinstein said the individual “strongly requested confidentiality, declined to come forward or press the matter further, and I have honored that decision.”

      Um….by referring it to the FBI, she very clearly has not honored a decision to decline to press the matter further. Peace is war. Black is white. Words meaning nothing and anything to these people.

      Liked by 1 person

      • Truth. Also, it’s a political move, as the FBI would have a hard time building a case for an attempted sexual assault by minors on another minor at a party over 30 years ago. There’s really not much the FBI can do here, except open themselves up to new accusations of partisan sabotage.

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  3. Cynthia Nixon lost to Cuomo. Too bad.

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    • What’s really too bad is that one of them was bound to win.

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      • Yeah, well, that was always going to happen. That’s a known known, and ultimately Cuomo is a known known. Nixon was an known unknown. That would have been more interesting than Cuomo. And the result of a Cuomo governorship will be another Cuomo after him, I expect, where as the outcome of Nixon might have been someone further right (though still left, I expect). But now we’ll never know!

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  4. Thought you all might be interested in this one.

    You all may recall a thread we had several years ago about the pros and cons of Dodd-Frank imposing mandates on the use of clearing houses for settlements of derivatives trades. (See the back and forth between Mike, Brent, and I on this thread: https://all-things-in-moderation.com/2012/05/22/morning-report-52212/#comment-23236)

    One of the things I mentioned at the time was this:

    What D/F has done is not actually fix this implicit single-party default problem, but rather has made it explicit by directing the risk into a known entity (the clearing house) by law rather than an unknown entity by force of the market. Rather than mitigating the need for any future bailouts, it just means the government now knows who it will have to bail out when things go bad. (That’s not entirely fair…the initial margin requirements are designed to provide a cushion to the clearing house and thus make it less likely that they will default. But the point remains.)

    This thread was brought to mind today with this, from the FT:

    One of Norway’s richest men has blown a hole of more than €100m in a stability fund that ensures the safety of derivatives-trading in European electricity markets.

    Coming in the same week as the 10th anniversary of Lehman Brothers’ collapse, the trading losses will focus attention on the robustness of standards promoted by policymakers globally after the financial crisis….

    …Authorities singled out clearing houses as pillars of global market stability to withstand the next financial crisis. These entities stand between two parties in a trade to help prevent the fallout from defaults rippling through the market.

    Nasdaq said the size of his positions blew through several layers of safeguards designed to protect the clearing house from hefty losses. Mr Aas was clearing his own trades, rather than going through a broker. Aside from having lost his initial margin on the trades, he will also lose the €36m he provided as additional margin as the trade soured.

    That prompted Nasdaq to cut the entire trade on Wednesday and the exchange confirmed that the loss accounted for all of the exchange’s own default fund of €7m and swallowed €107m, or two-thirds, of its €166m mutual default fund that clearing house members must contribute to.

    https://www.ft.com/content/43c74e02-b749-11e8-bbc3-ccd7de085ffe

    Ultimately all of the protections built into the system worked, albeit barely, but it does demonstrate that risks still exist (and really can’t be entirely mitigated), and it is somewhat disturbing that a single individual can wreak such havoc on the clearing system.

    Liked by 1 person

  5. BTW…I missed it yesterday, but happy 7 yr anniversary to ATiM.

    https://all-things-in-moderation.com/2011/09/13/welcome-to-all-things-in-moderation/

    Liked by 1 person

    • Very on-the-nose for the #metoo crowd.

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    • The friend that “doesn’t recollect” sounds suspicious. Wouldn’t be surprised if something happened, but human memory is notoriously unreliable, especially when alcohol is involved. It could have been Kavanaugh’s friend and some other guy, it could have been Kavanaugh’s friend doing it while Kavanaugh laughingly tried to get him to stop, and of course it could have happened exactly like that because they were both young, stupid, and drunk or it could have not happened at all. Given the proximity of #metoo it is conveniently timed.

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    • Gotta say my initial gut feel is that there is maybe a 10% chance it is true, 60% chance it is completely exaggerated to the point of misrepresentation, and a 30% chance it has been made up out of whole cloth.

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  6. Fascinating 10 point spread on generic Congressional preference polls among likely voters.

    https://www.realclearpolitics.com/epolls/other/2018_generic_congressional_vote-6185.html

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  7. Gonna be a whole lotta butthurt when Mueller ends up indicting Tony Podesta.

    https://m.dailykos.com/stories/1795785

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    • Mark:

      Interesting article. Good to see the confirmation hearings weren’t entirely devoid of substantive and meaningful discussion. I do have 2 comments. First, on the article, the author says:

      If Kennedy, a supporter of the nominee can manage this, one would think that Democratic Senators who object to Kavanaugh’s originalism could do the same. But, for whatever reason, they did not even try.

      The reason is obvious. It is because Democratic Senators do not object to Kavanaugh’s originalism as such. They object to the policy implications of his originalism. They have no principled objection to anyparticular method of interpretation, and will embrace any method that will produce the policy result they desire, and reject any method that fails to do so, all on a case-by-case basis.

      On the substantive issue that Kennedy and Kavanaugh were discussing, the varying interpretations of the 2nd A in Heller, it seems to me that the problem arises only because of a failure to apply the original understanding of the words of Constitution. After all, the only reason the Heller case was even before the Court at all was because of the incorporation of the 2nd amendment, supposedly imposed by the due process clause of the 14th amendment. But an original understanding of that clause does not impose incorporation. If we reject the idea of incorporation, as a pure originalist/textualist would do, then we never even get to the point at which we need to decide between Sclaia’s and Breyer’s dueling histories.

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      • After all, the only reason the Heller case was even before the Court at all was because of the incorporation of the 2nd amendment, supposedly imposed by the due process clause of the 14th amendment. But an original understanding of that clause does not impose incorporation.

        I don’t understand what you are saying here. Each new part of the Constitution – each amendment – can be viewed through the eyes of original understanding of the words of that new text. For example, imposing the federal privileges and immunities of all citizens of the US against every state is clearly the original intent of the 14th Amendment. So over time as litigants say they have rights as against Congress so therefore they have the same rights as against state leges those are serious arguments requiring an original understanding of the amendment.

        The disputes of interest on originalism were not between Breyer and Scalia. Those were usually disputes between originalism and “living constitutionalism”.

        Stevens and Scalia had the disputes about originalism from within the confines of originalism. They wrote books about it. They were interesting. And they are both relied upon by all serious appellate lawyers because they are so analytical and attempt so much. Of course they often lead to the same conclusion but there is such a wealth of legal history behind originalism that it isn’t an exact science.

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        • Mark:

          For example, imposing the federal privileges and immunities of all citizens of the US against every state is clearly the original intent of the 14th Amendment. So over time as litigants say they have rights as against Congress so therefore they have the same rights as against state leges those are serious arguments requiring an original understanding of the amendment.

          Sure, but incorporation was grounded in the due process clause, not the privileges and immunities clause. (The P&I clause related to how states treated citizens of other states relative to their own citizens, essentially preventing states from discriminating against citizens of other states with regard to things like owning property or conducting business.) So the relevant question is whether “due process” was originally understood to include the idea of “substantive due process”, thus preventing states from ever legislating against certain “fundamental” rights of SCOTUS’s choosing. And I think that is a pretty difficult case to make.

          (BTW, the idea that incorporation was grounded in the P&I clause was something that you disabused me of several years ago. I had written that my understanding of incorporation was that it rested on the P&I clause, and you replied “That is your misunderstanding, not my understanding. Incorporation doctrine relies entirely upon the due process clause.“ You were correct, as further research proved to me.)

          Stevens and Scalia had the disputes about originalism from within the confines of originalism.

          Apologies, that is correct. I should have said Stevens, not Breyer.

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        • Yes, the doctrine rests on incorporating and extending due process. Yes, “substantive due process” is one of the big headaches, of definition of terms, and of prospects for abuse. I chose to focus on P&I here for a different reason.

          I have used the P&I clause as a basis for arguing what the original intent was of the Amendment. Arguing intent from background provided in contemporary and closely related text is a legit way to get to “originalism” but it is different from pure “textualism”. Trying to make each clause stand on its own is often the exercise that I think is used by lawyers to obscure rather than to clarify. It certainly was how the post Reconstructionist Court virtually read the much of the intended effect of the 14th out of existence.

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        • Mark:

          I have used the P&I clause as a basis for arguing what the original intent was of the Amendment.

          You and I litigated this point at length last year, so no point in going through it again I suppose. But that aside, I thought that one of the points to textualist originalism – the public meaning of the words at the time – was to avoid the whole “intent” dilemma, given that various legislators could each have a different intent when signing on to legislation. Certainly the history of the 14th shows that it is far from clear that Congress (much less the state ratifiers) was acting out of a single intent with regard to the P&I clause. Hence the superiority of textualism relative to original intent.

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    • You can tell just how rich the first world is that (a) functioning people living lives outside of poorhouses or mental institutions can actually say and believe such things and that (b) that it gets covered in a major international publication.

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  8. When did Socialists become right-wing?

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    • The left will never, ever accept the fact that Nazis and Socialists resemble each other more than they resemble the limited government / laissez faire Republican party…

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      • It’s not a matter of “not accepting” it for *most* of them, certainly not the rank-and-file. They just can’t put the puzzle together, so they look at all the pieces and think “it’s probably that Republicans are Nazis, I’ve spent enough time thinking about this, off to Twitter!”

        Some of them probably can put the pieces together, but see the critical difference as being nationalism-vs-globalism, not everything else. A lot of folks on the left make the argument that Soviet communism was effectively right-wing because of the nationalism of the Soviets–the only different between the Soviet government had the kind of government that conservatives really want.

        Which is a 180° shift from their take on the Soviets from the 50s to the 80s, but, you know. Next generation always assumes they are smart and have all the answers and what not.

        But the primary change in progressivism since the fascist and the Nazis has been the embrace of globalism and the abandonment of nationalism. Otherwise there seem to be no meaningful distinctions. Other than what the progressive left is, at the present, actually capable of doing in the moment. But they’d embrace a benevolent dictator who can protect us from another Republican ever getting elected again without a second thought, I suspect.

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    • Cognitive dissonance makes people want or physically need to believe things that aren’t true in order to quiet the dissonance. Ergo, they don’t believe socialism and progressivism were at the root of German Nazism and Italian fascism. Though of course they were.

      Although I do see ironic parallels on how folks on the left (including the author) like to discuss conservatives and the right without how German progressives liked to discuss the Jewish problem. But my take may be biased.

      Like

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