Morning Report: Trump talks down the dollar

Vital Statistics:


Last Change
S&P futures 2905 -14.5
Oil (WTI) 54.68 0.64
10 year government bond yield 1.69%
30 year fixed rate mortgage 3.86%


Stocks are lower after a bunch of non-US political headlines over the weekend. Bonds and MBS are up.


Overseas, currencies and bond yields are focusing on elections in Italy and Argentina, as well as protests in Hong Kong. Protestors shut down the Hong Kong airport over the weekend.


The week ahead will have a few important data points, but nothing likely to be market-moving. We will get inflation at the consumer level tomorrow, retail sales / productivity / industrial production on Thursday, and housing starts on Friday. There doesn’t appear to be any Fed-speak this week, so things should be quiet absent overseas political developments. Congress is on vacation until Labor Day, so things should be quiet in DC as well.


Building materials prices rose 0.7% (NSA) in July, but are down overall year-over-year. Despite tariffs, softwood lumber prices are down 20% over the past year, while other products like gypsum are down less. Roofing materials (tar / asphalt) were flattish-to-down as well. Rising home costs are due more to labor, land, and regulatory costs than they are due to sticks and bricks.


After rising for a decade, average new home sizes are falling as builders pivot away from luxury buyers to first time homebuyers. In 2018, the average size of a single family dwelling was 2,588 square feet, down from 2,631 the year before. Builders had largely decided to relegate the first time homebuyer to the resale market and focused on McMansions and luxury urban apartments during the immediate aftermath of the housing crash. Townhomes are also increasing in popularity, with 69,000 sales last year, the most since 2007. This is the sector growing the fastest.


Prepay speeds were released on Friday, and we saw some eye-popping CPRs on the government side: 2018 FHA had a CPR of 30.7%, while VA was almost 50%. People who loaded up the boat on MSRs in 2017 and 2018 have been killed.


The Fed is looking at the idea of a countercyclical capital buffer as a way to mitigate the credit cycle. The idea would be to have the banks hold more capital (i.e. lend less) when the economy shows signs of overheating and then allow them to hold less (i.e. lend more) when the economy goes into a down cycle. This would only apply to the Citis and JP Morgans of the world – banks with more than 250 billion in assets. “The idea of putting it in place so you can cut it, that’s something some other jurisdictions have done, and it’s worth considering,” Fed Chairman Jerome Powell said at a late July press conference. It is an interesting idea, although reserves are typically sovereign debt, and this sounds a bit like adding buying pressure to a market that certainly does not need it.


Trump tweeted about the dollar, arguing that it should be weaker. Note this is a yuge departure from the strong dollar policy that every other president has supported. “As your President, one would think that I would be thrilled with our very strong dollar,” he tweeted. “I am not! The Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers like Caterpillar, Boeing, John Deere, our car companies, & others, to compete on a level playing field. With substantial Fed Cuts (there is no inflation) and no quantitative tightening, the dollar will make it possible for our companies to win against any competition. We have the greatest companies in the world, there is nobody even close, but unfortunately the same cannot be said about our Federal Reserve. They have called it wrong at every step of the way, and we are still winning. Can you imagine what would happen if they actually called it right?”


The strength in the dollar is more due to the relative strength of the US economy versus its trading partners, along with various carry trades. A carry trade is where you borrow money in a low yielding currency like the Japanese yen and invest the proceeds in a high-yielding government bond like the US Treasury. The net effect of a strong dollar is to make our exports more expensive to foreign buyers, make imports cheaper for US consumers and to lower interest rates in the US. The problem is that the ones who benefits from a weaker dollar (exporters) are loud and visible, while the beneficiaries (everyone else) aren’t even aware they are benefiting from it. Note that as the US has pivoted from a manufacturing-based economy to a service / IP based economy, the currency has a smaller and smaller impact on things.


Chart US dollar index (1989 – Present):



17 Responses

  1. Is “legal immigrant” newspeak for non-citizen in the US legally? Or are we really talking about denying US citizens benefits?


    • Brent:

      Is “legal immigrant” newspeak for non-citizen in the US legally?

      Seems like it.

      What I want to know, and what the article never spells out, is how exactly it came to be that non-US citizens are receiving welfare benefits in the first place. I’d bet anything it was the result of an administrative “rule” established under Clinton or Obama (maybe even Bush), and this is simply reversing that “rule”.


      • there’s a 5-year bar. haven’t looked into this in awhile, but after 5 years, you get benefits like a citizen. medicaid, etc.


      • At least in the case of permanent legal residents ( i.e. green card holders) it definitely predates Clinton, Bush and Obama.

        For Medicare, I believe it may go back to the inception of the program.

        I suspect the expansion from permanent legal residents who have been in the country for x amount of years (usually 5) to more categories of legal immigrants is probably more recent.


  2. The comments on this post are a lot of fun to read.


    • There’s nothing sacred about the Constitution, period.
      As importand and forward-looking as it is, it is still severely flawed, mostly how it enshrines that a small-state minority wield disproportionate power.

      Well, you can tell where they’re coming from.

      I’m sorry, but the existence of these weapons is a threat to everyone, and your insistence that you use it lawfully is irrelevant, they are out there, bad people can get hem because they are out there. Your right to have fun doesn’t over-ride the citizenry’s right to be safe. And by the way, you’re an idiot.

      Ban Them

      Buy Them

      Burn Them

      Interestingly, in 2017 nearly 40K people died from guns–60% self-inflicted.

      About 600k people died from Cancer. 647k died from heart disease. Accidents killed another 170k (this included accidental drug overdoses). Lower respiratory diseases 160k. Stroke 146k. Alzheimer’s 121k. Diabetes 83k. Influence and pneumonia 55k. Kidney disease 50k. Much of which can be attributed to diet and lifestyle.

      The folks who want to ban sugar have a stronger case than the folks who want to ban guns. Just saying. In any case, the dominance of guns as an issue seems at odds with the number of deaths involved.


      • Their desire to ban and confiscate is interesting, whom do they think would do it and why would they comply?


        • They can’t seem to restrict sales, so how they are planning on confiscating is beyond me. No serious politician wants to create that kind of violence and chaos. They may get sales restrictions—but they aren’t going to make much of a dent in gun violence this way. But they are just emotional about it and want government to do something. Because of recent shootings. But how many of these wacko mass shootings are in that 40k figure? 0.25%? How many gun deaths are attributable to legal assault rifles? 1%? Their passionate focus is on a category of death that is relatively small, and then on a subset of those deaths that is infinitesimally small—such that a banning of sales and making illegal of these weapons would making no meaningful impact on lifespan or rate of death.

          Most of these folks are signaling their virtue, whether they know it or not. They aren’t serious about improving lifespan or reducing net death.

          And I have no interest in guns and no particular dog in the fight, and tend to agree the 2nd amendment was about states being able to martial their own militias—and not so much about individual gun ownership, which I expect was left to the states. And that gun ownership could be constitutionally much more regulated than it is now.

          But none of that is going to appreciably impact gun deaths, gun crime, or mass killings.


        • KW:

          I…tend to agree the 2nd amendment was about states being able to martial their own militias—and not so much about individual gun ownership…

          I think this is right, but probably because individual gun ownership was so ubiquitous and necessary to ordinary life at the time that the only conceivable reason the founders could imagine for the feds to want to take them away would be in order to prevent states from defending themselves from a federal army. Given that under the Constitution the feds were not granted any police powers with regard to ordinary, every day life, there would have been no reason to consider whether the feds should be allowed to legislate against gun ownership for the purposes of policing ordinary, every day life.

          …which I expect was left to the states. And that gun ownership could be constitutionally much more regulated than it is now.

          Agreed. I think it is very clear that the 2nd amendment was meant to restrict the federal government, not state governments, which is precisely why many state constitutions also include provisions protecting the right to bear arms from state government intrusions. But, of course, the real question is whether or not the 14th amendment expanded the reach of 2nd amendment restrictions beyond the federal government. I don’t think a sensible case can be made that it did, which is why SCOTUS had to use the hocus pocus of substantive due process doctrine in order to claim otherwise.


        • Hamilton opposed the Second Amendment which he viewed as copied word for word from the West Indies laws that enshrined white slaveholder power over the African population that outnumbered them 10-1. It was an issue that divided the abolitionists like Hamilton, Jay, and Adams from the Virginia planters. That may not have been the sole purpose, but it was definitely part of the discussion.


        • Mark:

          Hamilton opposed the Second Amendment which he viewed as copied word for word from the West Indies laws that enshrined white slaveholder power over the African population that outnumbered them 10-1.

          I’d be very interested in where he expressed this view. Do you have a link?

          I am aware that Hamilton opposed the Bill of Rights more generally because he thought that to explicitly prohibit the exercise of a power that had not actually been granted to the federal government was to invite the false assumption that any power not explicitly prohibited must be constitutionally legitimate. But I have never heard that he opposed the 2nd amendment because he wanted the feds to be able to disarm slave owners.


        • I will try to find the slavery stuff. I think it is in one of the biographies I still have.

          As you know, he discussed well regulated militias in F#29. His view was that the nation would never need a standing army if the states had well regulated, but not conscripted, militias that could be called to service in a national emergency.It is also true that he thought a national Army would threaten liberty.


        • He was probably right about a national army. Also, not sure federalizing the police force is a good idea. Hope we don’t do that.


  3. The most Westchester thing I have ever seen is a bunch of woke people on a FB page taking a minority-owned supermarket owner to task for not having any POC in the clipart he used to announce a job fair for his store…


  4. Watching the left shift gears on conspiracy theories will never not be funny.

    I’m glad the left finally agrees on the innate incompetence of government agencies. Now, they’ll surely drop the Medicare for All mantra, right?


    • I don’t see why an entity that blithely allows the Russian mob to murder people they are supposed to be protecting shouldn’t be in charge of healthcare.

      Or why if the government can’t keep the most notorious (current) criminal in the news under observation for any length of time, and give him plenty of time to kill himself (or to be murdered, or to just die) . . . why shouldn’t they be in charge of our healthcare? You think trying to get a nurse when you’re at the hospital is hard now . . . .


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