Morning Report: Inflation is tame, gas is not

Vital Statistics:


Last Change
S&P futures 2708 9.25
Eurostoxx index 360.56 -1.71
Oil (WTI) 56.32 0.07
10 year government bond yield 3.11%
30 year fixed rate mortgage 4.94%


Stocks are higher as oil stabilizes. Bonds and MBS are up. The 10 year is trading at 3.11%, quite the drop from the 3.27% levels of last week.


Inflation remains largely under control according to the Consumer Price index. The CPI in October rose 0.3% MOM and 2.5% YOY, right in line with street forecasts. Ex food and energy, it was up 0.2% MOM and 2.1% YOY.


A couple of trade groups wrote letters of support for Kathy Kraninger as head of the CFPB. The agency has been led by Mick Mulvaney, who also head OMB, as Acting Director. Kraninger is the supposed replacement. If she isn’t confirmed by the Senate in the lame duck session, the nomination returns to the President and Mick Mulvaney stays in charge for another 210 days. Kraninger promises to reform the CFPB in the same way Mick Mulvaney is, by ending “regulation by enforcement” and being more transparent about what the rules actually are.


It usually pays to keep tabs on markets unrelated to your own. While people have been focusing on the oil market, and the bear market in oil, we are seeing the opposite effect in natural gas. Oil has lost about 24% over the past month. Natural gas gained more than that this week. Seriously. Natural gas closed last Friday at around $3.70 a contract and closed yesterday at around $4.70 a contract. Many commodities, especially natgas, is extremely sensitive to weather forecasts – if you go to the New York Stock Exchange, you’ll see CNBC on the trading floor. If you go to the a commodity exchange like the Chicago Mercantile Exchange, they have on the Weather Channel. So, if you get a forecast for an extra-cold winter, the price can skyrocket. As the link above explains, while we are the Saudi Arabia of natural gas, supply is not the driver here, storage is. And if we have an unusually cold winter, the amount of gas in storage can fall to dangerously low levels, which means higher prices. There are rumors going around of a hedge fund that is short Natgas and in trouble, but who knows? Regardless, it is something to watch.


natural gas


Speaking of keeping tabs on other markets, watch the corporate bond markets. General Electric has issues. While everyone is aware of what is going on the stock price, the bonds are down about 15 points since early October. In bond market terms, for a household name like GE, that is a lot. Bonds trading in the low 80s aren’t necessarily distressed, but this is GE we’re talking about. If this snowballs, we should see a tightening of credit overall. It probably won’t affect the MBS market and mortgage pricing, but it will almost inevitably act as a drag on interest rates overall, and it could keep the Fed at bay.


Chart: Financial Stress Index:


financial stress index

45 Responses

  1. So PM May and the UK as a whole are caught between two rocks and three hard places.

    1] Her deal preserves UK’s free trade status with EU but subjects UK to EU rules as the QPQ.

    2] This is worse than “no Brexit” b/c UK has no say in EU policy as part of the deal.

    3] She had to acquiesce or risk losing NI and Scotland from the UK, because without the free trade rules both Scotland and NI would pretty much be forced to exit the UK.

    4] Brexit hardliners see this as the worst possible outcome. Anti-Brexits see this as the worst possible outcome.

    It seems to me the Brexit vote doomed whomever was in power next. No way does this get pretty.

    My question as an outsider is this: if her Parliament will not back her and the UK is unceremoniously dumped, thereby losing much of its market in Europe and all of its market for stuff like strawberries, and then NI and Scotland leave so that htey can rejoin the EU, what recourse does the UK have? I guess to stop production of perishable goods for the foreign market and shift strawberry farms to dairy production? Brit cheese survives transport and is very good.

    But really, what are the effects of hard Brexit coupled with breakup of the UK on England, Scotland, and NI?


    • Republicans are being confronted with one of the worst losses for their party since Watergate

      Not to be pedantic, though, the Republicans didn’t have control of the house during the Watergate era.

      Also, that was a drop (according to NPR) for 49 seats.

      This time, they started out with 236 seats and looks like they will still have more seats than the Democrats did at the beginning of the 115th congress. They want to make this a bone-breaking defeat, and it really is just par for the course with a little extra juice for Dems thrown in by Trump being so controversial and motivating to contrary voters.

      Eh, 2020 is the real test (and should be real fun: I’m thinking that if Trump wins in 2020, the popular vote loss will be bigger than in 2016–almost all in California–and the rage will be palpable.


    • Conservatives Would Like Nothing Better Than For Democrats To Get Rid Of Nancy Pelosi

      Hah! I think that’s right.

      There’s almost no way they don’t replace with Pelosi with someone who hurts them more, either by motivating the Republicans or alienating the base.


  2. Hunh, go figure.


  3. Fairfield county in Connecticut is considered “distressed” by Wells Fargo. They require bigger downpayments for jumbos in that county than elsewhere…


    • Brent:

      Fairfield county in Connecticut is considered “distressed” by Wells Fargo. They require bigger downpayments for jumbos in that county than elsewhere…

      Thank goodness I signed contracts last week! Closing Dec 10. Got absolutely crushed from when I bought (July 2006), but I am glad to be out. With the Dems gaining in the CT legislature and another D in the governor’s mansion, CT’s fiscal problems will only get worse. House prices will likely fall a lot further before they turn around.

      Liked by 1 person

      • Just wait till the government gets more involved in healthcare and squeezes Aetna and US Healthcare. Hartford / CT will be so screwed…


      • Scott and Brent, you guys have experience in the UK. Yesterday I asked what the actual effects of a hard Brexit will be for England, Scotland, and NI. I do know that England will lose its fresh fruit market in France because of customs hold ups but otherwise I don’t know what it specifically would mean.


        • To be honest, I don’t know. Haven’t lived there in 15 years…


        • Mark:

          I can’t speak to all of the effects of a hard Brexit, but I can tell you what we are planning for in my business. The immediate effect for us will be that we in the London office will no longer be able to market our business to European clients…we lose the “passport” as it is called. That means that, in order to continue doing business in the continent, we will have to set up a satellite office somewhere in Europe in order to be licensed to market to European clients. So we have set up and established a subsidiary in Frankfurt, and many of our marketing team are going to have to move there (or quit if they won’t, which many of them might do). Doesn’t effect me because I am on the trading, not marketing side. But it is a huge business and personal cost that, depending on the kind of Brexit that ultimately happens, may or not have been necessary. It also means we may have to restructure our entire booking model. Again, a huge expense that must be paid given the uncertainty, but may ultimately prove unneeded.

          The big fear in London is that a hard Brexit will result in a mass exodus of financial firms for the reasons mentioned above…and London has long been the financial hub of Europe. It would destroy the economy of the city. But I am a bit skeptical that this would ultimately happen because there are reasons that businesses and people want to be in London rather than Paris or Düsseldorf, so there will be tremendous pressure even from European businesses for accommodations to be made. But the risks exists, and so with the uncertainty, the market preparation costs must be paid.


        • Thanx.


        • BTW, the most bizarre and inexplicable thing to me about Brexit right now is that pretty much the only thing preventing a reasonable agreement is the border between Ireland and Northern Ireland. Northern Ireland wont accept a restricted border between either it and Ireland or it and the rest of the U.K., and so will not agree to any deal that has any such border, and May needs NI votes for anything to pass. But in the event of a hard Brexit, the border automatically goes in place. So you would think NI would be negotiating a compromise. But they are being hard asses. Hard to believe this silly border is hanging everything up.


  4. Koskidz go full Nixon Administration on Assange.

    Do they feel the same way about the publishers of the Panama Papers? The Pentagon Papers?


  5. Judge rules Acosta must be given back his press pass.

    I take it the judge is just being a partisan and making it up as he goes along?


    • Brent:

      Judge rules Acosta must be given back his press pass.

      I take it the judge is just being a partisan and making it up as he goes along?

      The actual law means even less now in the age of Trump resistance than it did before. And it didn’t mean that much before.

      Liked by 1 person

    • Finally got around to reading the article about Acosta. It is absurd.

      Judge Timothy J. Kelly of the U.S. District Court for the District of Columbia says the White House does not have to allow reporters onto the White House grounds. However, he notes First Amendment issues can arise if the administration allows some reporters on the grounds but not others, according to Buzzfeed News reporter Pat McLeod.

      Complete bullshit. The first amendment protects freedom of speech and freedom of the press. It doesn’t protect freedom of access to the White House.

      Kelly also says Acosta was not provided due process when the White House decided to revoke his pass.

      So what? The due process clause says that no one “shall … be deprived of life, liberty, or property, without due process of law“. Nothing in there about being deprived of a White House press pass without due process.

      The degree to which judges just make shit up in order to produce the result they want never ceases to amaze me.


      • I understand a WH press “hard pass” to be a thing of value, granted after a security investigation and not subject to withdrawal except for good cause shown. We should read the rules in place before commenting on the due process basis for the TRO.

        This trial court was constrained to rule exactly as it did by appellate law of fairly long standing, I believe.


        • Mark:

          We should read the rules in place before commenting on the due process basis for the TRO.

          The rules are irrelevant unless they deprive someone of life, liberty, or property. From the fifth amendment:

          “No person shall … be deprived of life, liberty, or property, without due process of law …”

          Was Acosta or CNN deprived of life, liberty, or property? No. Therefore the due process clause is irrelevant to the situation.


        • Was Acosta or CNN deprived of life, liberty, or property? No. Therefore the due process clause is irrelevant to the situation.

          Presumably, they consider a Whitehouse hard pass Acosta’s property.

          This might be a hard argument to get through higher courts.


      • First Amendment issues can arise if the administration allows some reporters on the grounds but not others

        What? In what sense? And does that mean that literally every journalist, so-called, in the country or on the planet should have access to every press event at the Whitehouse? That’s not practically possible.

        Or . . . Trump could just eliminate in person press-briefings entirely and do them all via Skype, and pick and choose which questions he wants to answer from 10,000 different journalists. Would that work for them? Somehow, I doubt it.

        The degree to which judges just make shit up in order to produce the result they want never ceases to amaze me.

        Concur. But a lot of that in the present moment is, I think, a kind of “license from Trump”. Arguably, in some ways, liberals and progressives are delighted by Trump, because he doesn’t play by the rules, so they feel they can be even less constrained.

        While I have said I think the whole Acosta kerfuffle is absurd from both sides–literally absurd, just entirely divorced from fact–I can see no argument where the Whitehouse shouldn’t be in 100% control of who gets press credentials to the Whitehouse briefing room. Nor do I see the Whitehouse’s obligation to help Acosta with his transparently obvious celebrity journalist ambitions. Although, frankly, with the way they pulled his credentials they did, in fact, do just that.


  6. These two comments are magnificent!

    November 17 · 12:43:06 PM

    George W Bush is a war criminal. He launched an illegal pre-emptive invasion of Iraq based on lies. The result was conservatively estimated to be hundreds of thousands of deaths. The negative impact of this disasterous action on the region will be felt for years. 
    Of course Trump has been POTUS for less than two years, but as it stands now Bush was much worse.

    ksmoore777 slatsg
    November 17 · 12:59:25 PM

    I disagree. Trump has devastated every regulatory agency, gutted regulations, poured wealth in the hands of the 1%, stacked the courts, trashed the economy, supported dictators, and set back the desperate efforts to save the planet.
    Bush was hideous. Trump and his minions are biblically hideous. They appear to be doing everything they can to bring on catastrophes that will reduce population on genocidal levels.


    • trashed the economy

      I don’t see no matter how irrational you are, or how spectral evidence, you would think it would be a good idea, at present, to include this as an indictment of Trump.

      I get this: They appear to be doing everything they can to bring on catastrophes that will reduce population on genocidal levels

      It is historically and statistically wrong on almost every level, but there’s nothing coherent in the media or culture to directly contradict such assertions. Ergo, easy to hold on to that kind of magical thinking. Same thing with “stacked the courts”, which is just a misunderstanding of what that term means. But the economy? Trashed the economy? On what basis? Some imagined future great depression as a result, 10 years later, of whatever Trump has done?

      Really should replace that with had “increased the deficit by 10,000 percent” or something.


    • Today’s left has Selma Envy. There isn’t any sort of legitimate struggle to get behind anymore, so they have to make one up.


      • I think it’s problem-seeking. Like ghost hunters who somehow manage to find evidence of ghosts everywhere they go. Irrespective of what has happened in the past, they are (and there will always be a large number of human beings) problem-centric, so they are looking for anything and everything that looks like it can be seen as a problem, through a lens of “this is a problem”. When there are no problems (at least, as historically we might define them) they start fantasizing answers to the question: “what is the problem here? how are we being victimized? how can our emotional states be explained by our victimization?” When that’s the focus, you’ll get answers.

        A lot of this stuff reminds me of the Salem witch trials. We’re rolling back around to a point where society is accepting spectral evidence. There don’t have to be clear and unambiguous examples or physical evidence or actual data of any kind: visions and dreams and spiritual insights are valid evidence in regards to modern victimization.


    • are benefiting from systemic racism

      One of the problems, perhaps the main problem around “racism” and “white supremacy”, is how fungible the terms are.

      System racism used to mean institutional racism, generally with codified or implicit biases that meant you didn’t get a bank loan, though an identical loan risk, that a white person did or would, or that a black person would be arrested for a crime a white person would not, etc., etc.. That there was an actual structure that biased things for white people, and white men in particular, via actual legal language or implicit, structural tricks and loopholes.

      Now it can mean almost anything, such as a white Jewish person’s cultural affinity for other white, Jewish people, or business deals put together because your white family has known and been friends with their white family for generations, or because you inherited money from your parents, who also inherited money and position, because they inherited money from a time when their was structural racism and Jim Crow . . .etc., etc.

      Meaning, essentially, that systemic racism is eternal, because there will have always been a time in the past when racism could have benefited your ancestors if you’re a white guy.

      Why that makes you vote for Trump I don’t know. All white males are benefitting from historical system racism in this structure, including Bernie Sanders, and all white women like HRC to a lesser degree. If that systemic racism explains white women voting for Trump, then pretty much all white women should have voted for Trump.

      Eh, they make my head hurt.


      • “Powers asserted that white women vote in ways that harm other disadvantaged groups because their “fathers…husbands…and brothers” are benefiting from systemic racism and thus they are as well.”

        Note she doesn’t say “sons” which is who they are really most concerned about.

        These people are dense as cinder blocks…


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