Morning Report: Trade Detente?

Vital Statistics:


Last Change
S&P futures 2646.5 11.25
Eurostoxx index 355.63 4.9
Oil (WTI) 52.63 0.58
10 year government bond yield 2.77%
30 year fixed rate mortgage 4.48%


Stocks are up this morning on overseas strength. Bonds and MBS are down.


Stocks got a lift yesterday around 2:30 when the Wall Street Journal reported that the US was considering lifting tariffs on China in order to secure a trade deal. Stocks shot up on the news while the 10 year bond yield rose to 2.75%. We didn’t see much movement in MBS (FWIW, I don’t think I saw any reprices), but the weakness in bonds is continuing this morning. The Trump Administration did say that nothing has been decided and nothing is imminent. Treasury Secretary Steve Mnuchin is in favor of trade detente, while U.S. Trade Representative Robert Lighthizer is more hawkish.


Initial Jobless Claims fell to 213,000 last week as expected seasonal layoffs failed to materialize.


The new FHFA Director Mark Calabria has more of a libertarian bent than his predecessor, Mel Watt. For instance, he is skeptical of the whole originate to securitize model, which introduces more risk into the system in his view. He also doesn’t support the subsidies that make things like the 30 year fixed rate mortgage possible. For those that don’t know, the US residential real estate financing system is unique, with all sorts of subsidies to borrowers. 30 year fixed rate mortgages are unheard of overseas, with most mortgages being adjustable rate. Second, overseas banks “eat their own cooking” – in other words, they hold and service the loans they make. That is generally not the case in the US – most loans are securitized and sold to pension funds, sovereign wealth funds, etc. In other words, the borrower bears the interest rate risk and the bank bears the credit risk. In the US, the investor bears the interest rate risk while the taxpayer bears the credit risk.


Calabria comes in when the government / GSE system is pretty much the only game in town. Even Obama’s FHFA wanted to see the private sector take on a bigger role in mortgage finance, however the simple fact is that it hasn’t really stepped up yet. There are many reasons for this that I discussed here that are independent of policy levers. Given that reality, the chance that anything changes much in the mortgage space is pretty remote.



32 Responses

  1. Worth noting:

    “Chinese economy slows to lowest growth rate in 28 years

    By Anna Fifield
    January 21 at 6:13 AM

    BEIJING — The Chinese economy grew last year at its slowest rate since 1990, adding to the urgency for President Xi Jinping to reach a trade deal with the United States.”


    • Q4 was still 6.4%, which is pretty amazing, though you have to take government statistics with a grain of salt.


      • Don’t they need something like 5% just to keep up with population growth, or is that old info?


        • not sure. also don’t know if that GDP number is nominal or real.

          Still, averaging over 6.4% growth a year over 28 years is one hell of a streak.


  2. Thought this was interesting. I think I made a similar argument here several years ago.


    • Yes, but it’s incomplete. Child rearing is heavily subsidized on the income tax side of things and with free public schools.

      Usually the argument is that the DINKS are subsidizing everyone else.


      • jnc:

        Child rearing is heavily subsidized on the income tax side of things and with free public schools.

        I paid through the nose in taxes for my kids’ “free” public school.

        But ultimately what determines who is subsidising everyone else is income, not number of kids. High income families with 4 kids are still subsidising low income single people.


    • the comment section is interesting. people really think they have a contractual right to benefits. That’s just bizarre.


      • I don’t think it’s that bizarre. That’s how they have been sold since inception. Understanding how they really work is the exception, not the rule.


        • Exactly. Social Security “insurance” is the biggest mass fraud ever perpetrated by the government on the people.


    • I don’t see a distinction here:

      “I’ll get my news from legitimate journalists instead of from an online mob for whom Saturday-morning indignation is just another form of entertainment.”


      • Especially when CNN will spend all day discussing (and thereby validating) dodgy stories from Buzzfeed etc… The occasional disclaimer that it isn’t their story gives them plausible deniability, but they are simply pushing fake news stories because they like what the story says.


    • ” Why are we all so primed for outrage, and what if the thousands of words and countless hours spent on this had been directed toward something consequential?”

      this only happens when they’re wrong. here, it’s not that this person has a character flaw that would cause them to be outraged and try to take it out on her own kid, but because she was wrong about this case, it’s now an indictment of society.


      • Standard leftist rhetorical playbook

        When you fuck up – it is an indictment of you
        When I fuck up – it is an indictment of all of us.


      • That’s perfect.

        I do appreciate that the next generation that was raised with all the social media bullshit is starting to develop some instinctive skepticism that others would do well to adopt.


        • They are. I was driving the boy scouts to an event and they started talking about some YouTube gamer guy they all watch.

          I guess some teacher told the students not to watch him because he is racist, but they recognized that she (and the media) were taking quotes out of context and making a bullshit argument by taking things out of context.

          They are hip to what is going on.

          Also, they consume absolutely no mainstream culture. They don’t watch TV, they don’t watch movies, they don’t do social media, they don’t listen to popular music. Unless that Gillette ad was discussed in school for some reason they probably don’t even know about it.


        • it’s really something else —
          “I’m a critical thinker .. who also believes whatever my team posts on twitter, even though I have no way to verify who that actually is.”


      • She should read Taibbi’s new serial E-Book, “Hate, Inc.How, And Why, The Press Makes Us Hate One Another ”


    • I do confess, I also find it amusing when there’s an inter-left fight about who belongs where on the hierarchy of victim-hood.

      ““We were there to teach, to teach the truth of the Bible, to show them our real history,” said Shar Yaqataz Banyamyan, one of five Hebrew Israelites on the Mall that day.

      The group has militant members and “a long, strange list of enemies” that includes whites, Jews, Asians, members of the LGBTQ community, abortion rights advocates and continental Africans, according to the Southern Poverty Law Center.

      Banyamyan said he and those with him Friday believe in using blunt language, but not violence. A video he posted to social media shows them insulting other marchers.

      “Where’s your husband?” one Hebrew Israelite asked a woman who had stopped to argue with the group. “Bring your husband. Let me speak to him.”

      At one point, the Hebrew Israelites began arguing with Native American activists, telling them the word “Indian” means “savage,” according to the video.

      While the groups argued, some students laughed and mocked them, according to Banyamyan and another Hebrew Israelite, Ephraim Israel, who came from New York for the event. As tension grew, the Hebrew Israelites started insulting the students.

      “Tell them to come over in the lion’s den instead of mocking from over there,” Banyamyan can be heard saying in the video. “Y’all dirty ass little crackers, your day is coming.””


      • those guys are nasty. if i’m thinking of the right group, they will set up outside a metro station and say nasty things about pretty much everyone. particularly women


  3. Let’s turn the rental market into the college market by not realizing that subsidies ultimately accrue to sellers in an inelastic market.

    “In 2018, Harris proposed legislation aimed at combating the high cost of rent in major U.S. cities.

    The plan would give tax credits to renters who make less than $100,000 a year but spend more than 30 percent of their income on rent (including utilities) — a widely used gauge of housing affordability.

    The size of the benefit increases for poorer families and decreases higher up the income distribution. The credit also would be refundable, meaning taxpayers could receive payments even if their tax liability were $0, and those in particularly expensive areas could earn up to $125,000 and still receive the credit.

    Harris’s plan would benefit at least 13 million Americans and is similar to a plan written by the Terner Center for Housing Innovation at the University of California at Berkeley, estimated to cost $76 billion.

    Will Wilkinson, vice president for research at the libertarian-leaning Niskanen Center, said Harris’s plan to put additional money in the hands of renters may simply lead landlords to increase prices rather than address the scarcity of housing that cuts into renters’ bargaining power.

    “The problem with housing prices is a lack of housing supply relative to demand,” said Wilkinson, who has instead proposed creating a pot of federal funding to reward states that rapidly create new housing stock. “Cities need to build a lot more units, and fast. A tax credit for renters may take the edge off in the short term, but it does nothing about the fundamental problem and could even make the problem worse.”

    Presumably they will propose more rent control on the back end to prevent rent hikes in response.


  4. This is good:

    “Beyond BuzzFeed: The 10 Worst, Most Embarrassing U.S. Media Failures on the Trump/Russia Story
    Glenn Greenwald

    January 20 2019, 5:39 p.m.”


  5. Can we at least admit among ourselves that it’s a funny costume? Part of me is saying, ” gutsiest move I ever saw.”


  6. Heh.


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