Morning Report: Shareholder activism and the banks

Vital Statistics:


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S&P futures 2767 -7
Eurostoxx index 368.05 -1.73
Oil (WTI) 56.06 0.47
10 year government bond yield 2.66%
30 year fixed rate mortgage 4.43%


Stocks are lower as investors return from a 3 day weekend. Bonds and MBS are flat.


We don’t have much in the way of economic data this week – the highlight will be existing home sales on Thursday and the FOMC minutes on Wednesday. Other than that, it should be a quiet week.


Industrial Production in January fell by 0.6%, while manufacturing production fell by 0.9%. Capacity Utilization fell to 78.2%, down from 78.8% the prior month. Volatile vehicle production largely accounted for the decrease. Note that December’s numbers were strong, which means the average for the two months was a modest gain.


Due to the government shutdown, Q4 GDP numbers have been delayed until Feb 28. Right now, the consensus seems to be for a high 1% / low 2% print – a definite slowdown from Q3, which would put 2018 annual growth around 2.8%. These forecasts are from Merrill, Goldman, and the NY / Atlanta Fed. Holiday retail sales disappointed, and some of the industrial data showed a slowdown as 2018 ended.


Mortgage delinquencies dropped to an 18 year low, according to the MBA. Fourth quarter DQs fell to 4.06%, which is down from 5.17% a year ago. The foreclosure rate ticked up to .25%. “The overall national mortgage delinquency rate in the fourth quarter was at its lowest level since the first quarter of 2000,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “What’s even more noteworthy, the delinquency rate dropped from the previous quarter and on a year-over-year basis across all loan types and stages of delinquency. With the unemployment rate near a 50-year low, wage growth trending higher and household debt levels relative to disposable incomes at a 35-year low, homeowners are in great shape, and mortgage performance is quite strong.”


HomeStreet Bank is greatly reducing its footprint in the mortgage business, and has retained Keefe, Bruyette to sell its retail mortgage operations. MountainView will auction off the MSR portfolio. HomeStreet will not exit mortgages entirely, but it will move to more of a traditional mortgage business built around its bank branches. Interestingly, the divestiture comes after pressure from an activist investor. Banks have historically been pretty immune from shareholder pressure – hostile takeovers in the banking sector are rare events. it will be interesting to see if this starts a trend of shareholder activism in the sector. One of the best trades ever was holding onto the pieces of AT&T when it was broken up by the government in the 1980s. With so many banking giants, I wonder what would happen if, say, Bank of America decided to spin off Merrill Lynch and its mortgage business. Could the 3 parts be worth more than the sum? As the banking sector deals with its first secular bond bear market in 40 years, it may turn out that the strategies that worked in the bull market (consolidation) won’t work in a rising interest rate environment. Note that the Elizabeth Warrens of the world would likely push in this direction as well, which makes it conceivable we could see a return of venerable names like Salomon Brothers or Smith Barney, Chemical Bank, or Manufacturers Hanover.

63 Responses

  1. Kev – you probably read the Brit finding that Facebook overrode user privacy settings to get info. I have never joined any social medium because of my suspicion they all do this. I am more trusting of Firefox and the Mozilla project in this respect than I am of chrome, chromium [both Google] or any MS or Apple based browser. The problem of course is that even on Firefox I default to Google as a search engine and even with max security settings on a linux based computer running in a “private window” over a VPN I think Google is collecting my data all the time. At home I usually don’t bother with going VPN but I always do in public.

    Talk me down on this.

    Liked by 1 person

    • “Talk me down on this”

      Don’t post anything private on the Internet in the first place. Assume you have no privacy at all for things you post on the Internet.

      My Facebook posts consist of me going to concerts, the beach, eating out and the like. No politics and nothing private.

      Keep in mind that all this data that’s being collected by Google and Facebook is for the purpose of serving you relevant advertising for things you may want to buy. The hysteria over the data collection has gone way too far. The media hate it primarily because they are a competitor for advertising revenue.


    • the point on posting political things is spot on.
      I suppose I’m pseudo-anonymous here, but if someone really wanted to find out who I am, they could probably do so.

      but posting political stuff publicly — it’s just an invitation for problems.


    • What JNC said. You are as secure as you can be. Use PayPal or credit cards for every purchase. But you cannot trust any aggregator of your information, ultimately. Always treat it like a public square. VPN in public is wise, tho. If just to avoid man-in-the-middle hijacks that could potentially deliver a malicious payload to your device.


  2. Feel the Bern!


  3. When you’ve lost Cardi B….

    “Cardi B: Jussie Smollett ‘f—ed up Black History Month’
    By Judy Kurtz – 02/19/19 11:35 AM EST ”


  4. Also, this should be the new quote of the day:

    Liked by 1 person

  5. The PL meltdown over Sanders announcing is a sight to behold. Apparently he’s on Putin’s payroll too, just like Trump.

    A vast conspiracy of Russia. the far left, the Republicans, the media and the FBI to thwart Hillary Clinton’s presidential aspirations.

    Liked by 1 person

  6. Trump can’t get anything past the eagle eyed reporters at Vox:

    “Trump is exploiting the Venezuela crisis in order to win the 2020 presidential election

    He’s using it as a way to label his Democratic challengers as socialists.

    By Alex Ward
    Feb 19, 2019, 1:30pm EST”

    Liked by 1 person

    • the left is trying so hard to have it both ways: selling socialism as cool, while arguing that all they really mean is higher taxes and universal health care.

      if the left and the media didn’t re-introduce socialism as a talking point, we wouldn’t even be discussing this.

      the most aggravating argument is: the fire department is socialist. public education is socialist. No, socialism doesn’t mean “anything not done by the private sector.”

      As if having a navy makes a country socialist.

      Liked by 1 person

  7. Not bad.

    Liked by 1 person

  8. I cannot seem to get through to liberal acquaintances all the reasons a”wealth tax” is a terrible idea.

    But my wife, the tax specialist CPA, asked one of her clients who was wondering about it, to think about changing careers and becoming an appraiser. When her client was puzzled, my wife said a wealth tax would create an instant demand for hundreds of thousands of appraisers, looking into every corner of the life of every American with a discernible asset. Clearly the government would find it more difficult to appraise his personal property and the value of his business than his home, so the appraisers would be much more intrusive, and that her client was kidding himself if he thought this tax would run on an honor system.

    Liked by 1 person


    found this interesting and very similar to what we’ve discussed. being a victim is a trendy thing.

    Liked by 1 person

    • Selma envy, as Jonah Goldberg termed it.

      Also it is a moral issue, where this is the excuse the left is going to use to justify brooming out the current establishment by hook or by crook. Also, simple political warfare, designed to maintain and support the narrative that your political rivals are evil.

      Liked by 1 person

    • JOHN MCWHORTER teaches linguistics at Columbia University

      I hope for his sake he has tenure. He suggests we’ve come further on race than we care to admit. That’s blasphemy to the identitarian left.


  10. A step in the right direction!

    Click to access 17-1091_5536.pdf

    Unanimous decision limiting civil forfeiture – Thomas interesting concurrence based on P&I clause.

    Liked by 1 person

    • I don’t know if it is an urban legend, but I had heard that the government confiscated the Woods Hole Oceanographic research vessel because the Coast Guard found a joint on it.

      Supposedly happened in the 80s.


    • Mark:

      Thomas interesting concurrence based on P&I clause.

      He continues to be far and away the best thinker on the court, and probably the only one that has any real fidelity to the Constitution.

      Liked by 1 person

      • He remains my favorite justice. Thank goodness he didn’t let Teddy Kennedy chase him off during his confirmation.


      • I finally read the whole opinion. Jeez, Thomas is a fricking originalist machine!

        It just amazes me that he’s the one I’ve heard white liberals accuse of being lazy and “unoriginal” and “not that bright” and “copying off of Alito”.

        He rocks so hard.


        • Thomas’ writing has seriously improved since pre-2014.

          Maybe he hired better clerks. Maybe he got much more interested in what he was doing. There was a long time when his work was derivative but I don’t think anyone would say that about the last five years or so.


        • Mark:

          There was a long time when his work was derivative but I don’t think anyone would say that about the last five years or so.

          I wonder who would have said it even before the last 5 years or so.

          From the author of a 2013 book about about Thomas’s writings and opinions prior to the last 5 years:

          Thomas is now approaching a quarter of a century of service on the High Bench, during which time he has written over 475 majority, concurring, and dissenting opinions. In Understanding Clarence Thomas: The Jurisprudence of Constitutional Restoration, I undertake a detailed analysis of these opinions as well as of his speeches and law review articles, and provide, thereby, overwhelming evidence that there never was any reason to doubt Clarence Thomas or what President Bush said about him. In them, Thomas has articulated a clear and consistent jurisprudence of constitutional restoration that seeks to restore the original general meaning of the Constitution.

          During his nearly quarter of a century on the Supreme Court, Justice Clarence Thomas has pursued an original general meaning approach to constitutional interpretation; he has been unswayed by the claims of precedent – by the gradual build-up of interpretations that, over time, can distort the original meaning of the constitutional provision in question and lead to muddled decisions and contradictory conclusions. As with too many layers of paint on a delicately crafted piece of furniture, precedent based on precedent – focusing on what the Court said the Constitution means in past cases as opposed to focusing on what the Constitution actually means – hides the constitutional nuance and detail he wants to restore. Thomas is unquestionably the justice who is most willing to reject this build-up, this excrescence, and to call on his colleagues to join him in scraping away past precedent and getting back to bare wood – to the original general meaning of the Constitution.

          This is from a 2011 article by Jeffery Toobin, who has long been a hyper-critic of Thomas:

          Thomas has long been a favorite of conservatives, but they admire the Justice for how he gives voice to their cause, not just because he votes their way. “Of the nine Justices presently on the Court, he is the one whose opinions I enjoy reading the most,” Steve Calabresi, a professor at the Northwestern University School of Law and a co-founder of the Federalist Society, said. “They are very scholarly, with lots of historical sources, and his views are the most principled, even among the conservatives. He has staked out some bold positions, and then the Court has set out and moved in his direction.”

          Thomas’s intellect and his influence have also been recognized by those who generally disagree with his views. According to Akhil Reed Amar, a professor at Yale Law School, Thomas’s career resembles that of Hugo Black, the former Alabama senator who served from 1937 to 1971 and is today universally regarded as a major figure in the Court’s history. “Both were Southerners who came to the Court young and with very little judicial experience,” Amar said. (Thomas is from Georgia.) “Early in their careers, they were often in dissent, sometimes by themselves, but they were content to go their own way. But once Earl Warren became Chief Justice the Court started to come to Black. It’s the same with Thomas and the Roberts Court. Thomas’s views are now being followed by a majority of the Court in case after case.”

          I’m curious….of who or what exactly do you think Thomas’s writings for his first 25 years on the court were “derivative”?


        • BTW, Mark, I am reminded of you daily here in the UK. Sky News, which is on in the office all day long, has a newscaster who hosts his own eponymous show daily. His name is Mark Austin. I’m just waiting to find out that his middle initial is I.

          Liked by 1 person

      • Disappointing that only one other “originalist” Justice joined with Thomas’ concurrence.

        His opinions are the best written on the court, even better than Scalia.

        His magnum opus continues to be Gonzales v. Raich where he and Scalia were actually on opposite sides of the issue.

        “Respondents Diane Monson and Angel Raich use marijuana that has never been bought or sold, that has never crossed state lines, and that has had no demonstrable effect on the national market for marijuana. If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything—and the Federal Government is no longer one of limited and enumerated powers.”

        Liked by 1 person

        • jnc:

          Disappointing that only one other “originalist” Justice joined with Thomas’ concurrence.

          Agreed. It’s another indication of how much the right has failed the nation, that despite having had the ability to appoint so many members to the court, Thomas remains essentially a voting bloc of one.

          Liked by 1 person

        • Thomas had some good crisp early dissents, no doubt: I remember Evans, for one, where he castigated the majority for conflating “extortion” and “bribery”, and as we all learned it in criminal law in LS he was correct and everyone else was wrong. But then he had dissents like Black which were riffing from someplace like Kennedy tended to do. If you love Thomas, you recall the solid dissents and forget the bumbling ones. So as not to confuse, and from memory, as I recall Black was convicted of burning a cross with intent to intimidate in VA. The First A. was his defense. Scalia, more clear then the majority [SDO’C IIRC] argued that the statute which demanded intent to intimidate took the case out of 1stA territory, but the jury instruction which said the jury could find intent from the act itself improperly shifted the burden of proof to the defendant. I think the majority came to the same conclusion but on the more esoteric basis that presumed intent forced a defendant to waive his right against self incrimination to disprove his intent.

          Thomas dissented and said that cross burning always expressed intent to intimidate and could never be defended on 1st A grounds, which was weird in the light of the flag burning cases, and which completely missed Scalia’s clear point on burden shifting. IOW, he was ready to rewrite the VA statute to eliminate the intent requirement entirely and decide the case on a statute that did not exist.

          That’s how I recall those two cases, from the 90s, anyway, but I would have to look back and cite you examples case by case to really make my point. Perhaps the all tightly reasoned vs. hit or miss stuff dates back before 2014 – I just know that since then the writing has been good, and the dissents other lawyers of various stripes disagree with have not been criticized for failure to make sense.


        • Mark:

          Scalia, more clear then the majority [SDO’C IIRC] argued that the statute which demanded intent to intimidate took the case out of 1stA territory, but the jury instruction which said the jury could find intent from the act itself improperly shifted the burden of proof to the defendant.

          That’s not quite right. Scalia did not argue that the jury instruction improperly shifted the burden of proof to the defendant. He argued that the jury could have understood the instruction to mean that it need not consider any evidence brought forward by the defendant regarding the absence of intent to intimidate, but that the ability of the defendant to overcome the inference of intent to intimidate was necessary for the law to be Constitutional. Hence, he said that the instruction was improper and the conviction should be vacated. From his opinion:

          As noted above, the jury in Black’s case was instructed that “[t]he burning of a cross, by itself, is sufficient evidence from which you may infer the required intent.” App. 196 (emphasis added). Where this instruction has been given, it is impossible to determine whether the jury has rendered its verdict (as it must) in light of the entire body of facts before it–including evidence that might rebut the presumption that the cross burning was done with an intent to intimidate–or, instead, has chosen to ignore such rebuttal evidence and focused exclusively on the fact that the defendant burned a cross.

          Thomas dissented and said that cross burning always expressed intent to intimidate and could never be defended on 1st A grounds…IOW, he was ready to rewrite the VA statute to eliminate the intent requirement entirely and decide the case on a statute that did not exist.

          No, that is definitely not correct, and is in fact almost exactly backwards. He did not argue that it could never be defended on first amendment grounds and he most certainly never re-wrote the statute by removing the intent requirement.

          He first argued that the very existence of the intent requirement meant that the law in question prohibited conduct rather than expression, and therefore the first amendment wasn’t relevant.

          It strains credulity to suggest that a state legislature that adopted a litany of segregationist laws self-contradictorily intended to squelch the segregationist message. Even for segregationists, violent and terroristic conduct, the Siamese twin of cross burning, was intolerable. The ban on cross burning with intent to intimidate demonstrates that even segregationists understood the difference between intimidating and terroristic conduct and racist expression. It is simply beyond belief that, in passing the statute now under review, the Virginia legislature was concerned with anything but penalizing conduct it must have viewed as particularly vicious.

          Accordingly, this statute prohibits only conduct, not expression. And, just as one cannot burn down someone’s house to make a political point and then seek refuge in the First Amendment, those who hate cannot terrorize and intimidate to make their point. In light of my conclusion that the statute here addresses only conduct, there is no need to analyze it under any of our First Amendment tests.

          But even assuming the relevance of the first amendment, his “primary” disagreement with the majority (plurality, actually) revolved around whether “intent to intimidate” could be constitutionally inferred from the act itself, as the statute allowed. And this determination centered on a legally esoteric difference between a “presumption” and an “inference”. Thomas wrote:

          Even though under Virginia law the statutory provision at issue here is characterized as an “inference,” the Court must still inquire whether the label Virginia attaches corresponds to the categorization our cases have given such clauses. In this respect, it is crucial to observe that what Virginia law calls an “inference” is what our cases have termed “a permissive inference or presumption.” See County Court of Ulster Cty. v. Allen, 442 U.S. 140 (1979).3 Given that this Court’s definitions of a “permissive inference” and a “mandatory presumption” track Virginia’s definitions of “inference” and “presumption,” the Court should judge the Virginia statute based on the constitutional analysis applicable to “inferences:” they raise no constitutional flags unless “no rational trier could make a connection permitted by the inference.” Allen, 442 U.S., at 157. As explained in Part I, not making a connection between cross burning and intimidation would be irrational.

          Again, to be clear, Thomas was not arguing that a cross burning was necessarily done with intent to intimidate, and therefore could never be protected under the first amendment. He was arguing that it was perfectly rational to infer that intent to intimidate was the point of a cross burning, and that a statute could constitutionally allow such an inference as long as a defendant was allowed to overcome the inference by presenting contrary evidence, which, Thomas argued, was true of the Virginia statute.

          BTW, Thomas mostly agreed with Scalia, and even signed onto the first 2 parts of Scalia’s 3 part opinion. From what I can tell, he dissented from Scalia’s opinion only in regards to the ambiguity that Scalia thought arose from the jury instruction.


        • Shows my memory ain’t worth the paper it is written on!


        • I read the case now, for the first time in 15 years or so, and you are correct, of course. However, I do think that what Scalia was objecting to was that the instruction could shift the burden to the defense, and make it an impossible burden if the jury understood the instruction to allow them to reject other evidence than the inference. I think he was explaining how that would work with the jury as a practical matter. That is pretty much what you have written, I only mean to add that goes in the burden shifting column of objections to be raised at trial to instructions.

          I thought from memory that this case came up around 1995, but it was after 2000. So when I get a moment I will go back and actually review some of the early Thomas dissents/opinions.


  11. The old John Wayne interview that’s got the progressives appalled 48 years later is actually a very good read. A lot of the culture issues haven’t changed:

    Click to access John_Wayne_Playboy_Int2.pdf

    Impressive way to change the subject from Jussie Smollett and you know that Wayne isn’t going to be able to comment.


    • Wayne is also an avatar for manly-man rural capital-A American types. So he makes a good subject for deconstruction, and a sort of “here’s this white guy all those Trump supporters like proving they are racist” or something.

      But it always amazes me that the smartest and most thoughtful people—who are filled with empathy and understanding—don’t understand that 1971 was a different social and cultural environment at the time, and that Wayne grew up in the fricking nineteen-teens. They suddenly lose all interest in placing things in context when it’s a masculine white dude, or any historic white male.


  12. Preach it, whitey!


  13. My wife has said the new simplified tax forms have added layers of complexity to the point of justifying increased fees for CPAs and increased headaches for self preparers. She had wondered since December why no one was complaining except CPAs. Apparently enough complaints have come in to raise the issue in Congress.

    From the article:

    However, the National Taxpayer Advocate report also points to some of the potential problems with the so-called “postcard” tax form and its half-dozen related schedules: “The new schedules will force some taxpayers to cross-reference and transfer data such as credits, deductions and income, increasing the potential for errors to occur since the tax information is dispersed over many pages and needs to be tracked down and reported on different forms and schedules,” wrote Olson.

    “Indeed, recent press reports have commented on the redesigned Form 1040 and missing lines that now appear on schedules,”


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