Morning Report: October was not kind to MBS investors

Vital Statistics:


Last Change
S&P futures 2728 4
Eurostoxx index 364.84 0.76
Oil (WTI) 62.92 -0.35
10 year government bond yield 3.21%
30 year fixed rate mortgage 4.96%


Stocks are higher this morning on no real news. Bonds and MBS are down small.


The highlight of this week will be the FOMC meeting on Wednesday and Thursday. Typically they fall on Tuesday and Wednesday, but I guess they moved it for election day this year. No changes in monetary policy are expected and the Fed Funds futures market is assigning a 93% probability of no change in rates. Aside from the FOMC meeting, the only other market moving news will be PPI on Friday. Whatever happens Tuesday is probably not going to be market-moving. Best bet: Ds narrowly take the House, Rs retain the Senate, gridlock rules Washington.


October was a rough month for MBS investors, the kind folks who set our rate sheets. MBS underperformed Treasuries by 37 basis points, the worst since immediately after the election. Yes, the Fed is reducing the size of its MBS holdings, but that isn’t what makes MBS outperform and underperform. Volatility in the Treasury markets can be great for bond investors, but is is toxic for MBS investors, and when you have a period of high volatility in the bond market (shown below with a “VIX” for Treasuries) shows a marked increase. The Fed’s reduction of its balance sheet has been going on for years, and it isn’t all of a sudden going to manifest itself in rates.



Fannie and Freddie reported strong numbers and paid about $6.6 billion to Treasury between them. Fannie Mae has paid in total about $172 billion to Treasury since the bailout.


Jerome Powell thinks the current period of low inflation and low unemployment could last “indefinitely.” Historically, inflation usually increased as unemployment fell (which was measured by the Phillips Curve). He thinks that relationship has broken down over time. He notes that the last two booms were not ended by goods and services inflation, they were ended by burst asset bubbles. Since we don’t seem to have any asset bubbles brewing at the moment, this set of affairs could last a while. I wonder how much of the historical unemployment / inflation was due to union contracts which included explicit inflation cost of living increases. Regardless, he is correct that we don’t have anything resembling a stock market bubble or real estate bubble, and changes in inventory management have probably done a lot to get rid of the historical cause of recessions, which is an inventory glut.


Isn’t this a perfect encapsulation of the cognitive dissonance in the business press right now? They don’t like the guy in office, so they constantly feel like the economy is awful (Consumer confidence is definitely a partisan phenomenon). Classic example of why you always have to take consumer confidence numbers (and the business press) with a grain of salt….

Cognitive DIssonance


24 Responses

  1. So tired of the tribalism.

    I like Ace of Spades. But the are so down on everybody remotely to the left of Ace of Spades that it gets a little old for me. I like Jonah Goldberg. I like Ben Sasse.

    Of course, I also like Obama, so I guess I’m an outlier. Or also a cuck. I guess. Whatever.

    I like Ben Shapiro. And there seems to be to be about a thousand miles between Jonah Goldberg, author of Liberal Fascism and Suicide of the West, and Jen Rubin, president of the Conservatives for Hillary Clinton Fan Club.

    There’s something to be said for recognizing that the enemy of your enemy is potentially an ally. And also that if you agree on 75% of everything, that’s okay. You can disagree on 25% of things without having to be bitter, battle-to-the-death enemies.

    Jonah Goldberg is not a traitor to America because he doesn’t like Trump or agree with Trump’s biggest boosters.

    And I say that as someone whose willing to vote against whoever the Democrats run in 2020 (unless it’s Zombie Reagan) at this point.


    • I get what your saying though it is very hard to reconcile most of those whom you mention support for Hillary Clinton in ‘16. I haven’t forgotten Noonan, et al’s support for Obama in ‘08 either.

      I’m a grudge carrier, yes. I also can look somewhat objectively at their reflexive NeverTrumpism and pearl clutching. They don’t like the Republican base, ok, fine. I don’t feel a reflexive need to defend their conservative credentials either, even if they seem to feel the need to at all costs.

      Am I tribal? Yeah, I am.


      • I get it. I’m just speaking my truth. 🙂

        The reality is (or seems to me) that the tribalism is instinctual and non-productive. The balkanization is ultimately, IMO, not productive. And kind of misses the point, unless discrete issues are unimportant and irrelevant and the only thing we want to do is administer increasingly rigorous purity tests to see who is more #BestTribe than thou. And advertise our Superior Tribe Membership.

        And Goldberg was firmly in my camp as not voting for Trump or Hillary (I voted for the concept of 3rd parties, myself).

        Ben Shapiro supposedly didn’t vote for a presidential candidate. So they weren’t Hillary supporters, they just weren’t going to vote for Trump. Given I was in the same camp, I find that a completely supportable position, unsurprisingly. 🙂

        Ben Sasses also didn’t support Hillary, but also didn’t support Trump. Arguably that’s tacit support of Clinton, but I get it.

        Although I didn’t vote for Obama, I think he was all right (or as good as a Democratic president is likely to get) and generally liked him. But I don’t understand Noonan’s 2008 support for Obama . . . ahead of actually being president, he came across as a super-duper Marxist lefty. So I get the anger at Noonan and the approbation of a Jen Rubin, who has made an obvious and distinct hard left turn.

        But there is a difference in not liking a guy like Trump, and a complete repudiation of all conservatism. The vast majority of the NRO-anti-Trump cohort was on board for Kavanaugh. They disagree with Trump’s leftist critics about almost everything. Making them the bad guys sounds like a lot of purity testing, to me.

        Not that the anti-Trump right helps (they don’t) by getting into Twitter battles with the Super-Mega-Pure TrueConservatives™. But it does not seem particularly productive.

        Liked by 1 person

        • I understand your point, but in an era of very sharp political partisanship, the tribal aspect is important in getting your goals implemented. If you’re reflexively NeverTrump, it seems to me you’re saying, I prefer my purity to actually getting my policies implemented. That’s the same as saying that you don’t want your policies implemented.

          These are clarifying times I think, where politics finally matches it’s real definition, the accumulation and exercise of power.


        • You make a good point. Would president Hillary with a 2018 red wave been a better outcome? Probably not. Also, red wave (no matter how likely) not guaranteed in that circumstance.

          I just think there is both risk (and evidence of it happening) where it gets too broad. Just because I might not vote with a Jonah Goldberg or Ben Sasse (or just because I voted for a 3rd party in a state I knew would go to Trump) doesn’t mean I think they (or I) should be run out of town.

          The objections to Trump are legitimate. Should they overrule the virtues of a Trumpian president? I don’t think so, but I also don’t think the folks who have those objections are all of that position because they are secret crypto-leftists or naturally defeatist beta-soy-milk-drinking-cucks. Although I’m sure some of them are.

          At the same time, I should say, I think the same argument can be made about them. They do have their own purity tests, and instances where it costs them nothing to just roll their eyes and keep quiet they feel they have to mount an attack or burnish their anti-Trump credentials. Equally unproductive, to my way of thinking.

          I’m just the Rodney King of this stuff. Can’t we all just get along? 😉


        • Put another way: I think it’s completely insane to put Jen Rubin and Jonah Goldberg in the same #OtherTribe classification.

          It turns everyone into an NPC, not just the left.


  2. they were ended by burst asset bubbles.

    So, we’re reasonably sure real estate is not over-inflating? And how do you know if the stock market is a bubble before it bursts? I assume you do, I just don’t understand P&E ratios and that other stuff well enough to know myself.


  3. Antisemitic vandal in New York turns out to be Democratic activists! Who woulda thunk it?

    Before knowing his identity, politicians said the vandalism demonstrated why voting Democratic was needed and highlighted government programs to combat such incidents.


    • I always find it amusing that the most likely locations for these “hate incidents” are progressive utopias like Brooklyn, Portland, and Madison and not places, like, say Alabama.

      Liked by 1 person

      • I find it even more amusing that the assumption is these lefty utopias are some how creating these homegrown crazy right wing racists who think it’s a good idea to go vandalize things, and everybody immediately things: Oh, this is probably one of the three right wingers who live here! Has to be! Can’t possible be one of the 5 million lefties wanting to “shape the narrative” and “make a statement” or one of the very, very many on the identitarian left that actually hate Jewish people because they are Jewish.


        • The MSM also has a deep conflict with black antisemitism. Louis Farrakhan in particular…


        • Not sure if it’s a deep conflict. It’s like those guys are their eccentric uncles. “Oh, that’s just Louis, he doesn’t mean anything . . . Now, Trumphitler on the other hand . . . “


  4. This guy is an interesting person to follow for elections. He put his money where his mouth is.

    Liked by 1 person

    • punchy bet

      Liked by 1 person

    • I wouldn’t put that kind of money on an election outcome. But I still think it’s a very good bet.

      Until I’m proved wrong, my assumption is going to be the polling is still bad and it’s just less wrong than the 2016 polling, which was so wrong that coin flipping would have been more reliable.


      • As with any bet, a good or bad bet depends on the odds. I do think the polling is still a combination of wishful thinking and a desire to influence the outcome by demoralizing one side and encouraging the other…

        Liked by 1 person

        • Concur. Again, until proven wrong, I remain very dubious of the polling. Even if they aren’t trying to wish-fulfill, their modeling was clearly way, way off in 2016 and I have no idea what, if anything, they might have done to correct it. But it seems just as inconsistent with what I’m seeing (outside of Colbert and SNL) in the real world.

          But I’ve called it wrong on many occasions. So we’ll see.


      • I wouldn’t be shocked. I think it’s the Ds to lose, but they’re good at that.

        Liked by 1 person

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