Morning Report: The Fed is at Jackson Hole this week

Vital Statistics:


Last Change
S&P futures 2923 32.5
Oil (WTI) 55.32 0.44
10 year government bond yield 1.61%
30 year fixed rate mortgage 3.78%


Stocks are higher on optimism of a trade deal with China. Bonds and MBS are down.


The upcoming week will be dominated by Fed-speak as they head to Jackson Hole. Economic data will be sparse, with leading economic indicators, and new home sales the only potential market-moving numbers. Jerome Powell is scheduled to speak on Friday where he is pretty much expected to hint at another rate cut at the September meeting. Note the Fed funds futures are pricing in a 93% chance of a 25 basis point cut, and a 7% chance of a 50 basis point cut.


fed funds futures


Homebuilder KB Home notes that consumer confidence took a hit in August, and this translates into lower home sales more than interest rates do. “I’ve always maintained over the years that consumer confidence means more than rates to the home buying decision,” said Jeff Mezger, CEO of Los Angeles, CA-based KB Home. “We’ve had some great years where interest rates were 8, 9,10%—because people find a way when they feel confident about the future.” Of course interest rates were way higher during the 80s and 90s and people still bought homes. Nominal wage growth was higher too. Further, he talks about why housing starts are weak: “Frankly, as an industry, that’s what is holding us back from getting to normalized levels,” said Mezger. “We’re only going to invest and build if we can get a return, and it’s difficult to find the combination of land, the cost to produce, the fee structure in that city and then what you can sell a home for based on the incomes in that submarket. So that is the challenge.” So, it is land, labor, and regulations that are the issue. Income growth might be what ends up squaring the circle.


Speaking of sentiment, the University of Michigan preliminary survey showed that confidence has dropped. Trade concerns and Fed policy increased fears of a recession, which translated into the numbers.


The Administration is set to introduce a new rule to codify lending discrimination and move away from the disparate impact standard that began during the Obama Administration. It appears that lenders will have protection if they use ” – third party systems” – i.e. algorithms – to make lending decisions. The actual guidance (from a leaked memo) is supposedly here.  While they don’t mention any algorithms by name, they are probably proposing that if you use DU or LP for lending decisions, you will have safe harbor from lending discrimination charges. If it turns out that DU or LP are biased, that is on the provider of these algorithms, not the lender. All of this is in response to a disparate impact lawsuit (Texas vs. Inclusive Communities), which allowed disparate impact theory to be used, however it did institute some restrictions on its use. The updated guidance from HUD will be to align current policy with that decision.

12 Responses

  1. Good Taibbi piece on Trump:

    “The most common remark you hear from Trump voters is that he’s “relatable” and isn’t “phony.” Blue-state audiences tempted to howl at this should try to understand this phenomenon, because it speaks to a legitimate problem Democrats have.

    The average American likes meat, sports, money, porn, cars, cartoons, and shopping. Less popular: socialism, privilege-checking, and the world ending in 10 years. Ironically, perhaps because of Trump, Democratic Party rhetoric in 2020 is relentlessly negative about the American experience. Every speech is a horror story about synagogue massacres or people dying without insulin or atrocities at the border. Republicans who used to complain about liberals “apologizing for America” were being silly, but 2020 Democrats sound like escapees from the Killing Fields.”


    • the next line is even better:

      Ronald Reagan once took working-class voters away from Democrats by offering permission to be proud of the flag. Trump offers permission to occupy the statistical American mean: out of shape, suffering from gas, poorly read, anti-intellectual, treasuring things above meaning, and hiding an awful credit history.


      • There’s lots of gems:

        “When Trump vanquished a giant primary field of Republicans in 2016, Democrats cheered. When they lost the general election, they acted like it was an unrelated surprise event, an outrage to decency itself.”

        ““The cool thing about Trump,” says 38-year-old Cincinnati native Jeremy Holtkamp, “is that it’s just about being an American.””

        ““He’s a fucking con man,” the would-be Ortega on the other side is chanting now. “Don the con . . . All power to the working class!”

        “We are the working class, buddy!” an older man shouts. More laughs.”

        And what should really scare Democrats:

        “As time progressed, the crowd’s profile widened. You met union members, veterans, and where it got weird was the stream of people who appeared to be neither traditional Republicans nor, seemingly, interested in politics at all. Among both young and old, people turned out who had no conception of Trump as anything but a TV star. This second group’s numbers seemed to have swelled.”


  2. I was very interested to read the recession piece yesterday Brent. It made me feel a little better overall! I need to come back here more often to see the state of the economy.

    I’m checking in to see how things are going. I have a message from Hover that the domain name is coming up for renewal again and wanted to make sure you guys are still producing posts and discussions. I’ll renew it again this week!

    Hope everyone is doing well and in good health.

    I’m doing fine. Just got back from a road trip with my daughter in law and grandson (he’s 13 now) which involved a lot of hiking and fishing through WY and MT. Enjoyed a few hikes in Yellowstone and caught a great video of a bison crossing the Yellowstone River. Trenton is into fly fishing now and he was able to get a lot of it in over the 9 days we were gone and caught some beautiful trout. I was able to hike to my heart’s content and even managed a climb up to almost 10,000 ft which is a bit higher than I do in CO……………that’s right I’m still crazy!

    Anyway, carry on and keep enjoying what you have here!


    • Great to hear from you!

      Rosanne and I have been traveling this summer on several short vacations. We drove down the PCH from San Jose to SLO in late June, were in Valley Forge in July, and in Louisville at the end of July. Driving back from Louisville on I30 between Little Rock and Texarkana, traffic slowed for construction and our rent car was hit from behind by a 25 ton crane. I was asleep in the shotgun seat and the side windows became pelletized. We were ambulanced to an ER, and after they picked all the glass out of me they sent us on our way. I have a doctors apptment tomorrow for my right arm, which gets lightning bolt pain if I sleep on my right side. I looked awful, I was told, bleeding from my head, but after I was cleaned up Rosanne remarked that it had been a long time since she had seen color in my hair.

      Arky State Police get an A from us, but Avis-Budget Emergency services get an F.
      We were never able to get through to them. 3 hours and ten minutes of reiterated messages, and dumb music, and the advice to call 911 if we were hurt.

      Only Hertz and Enterprise for us from now on, and I felt lucky to have turned 76 last week.


      • That certainly sounds like an ordeal Mark. Glad you survived it without too many problems. Rosanne must have been terrified to see you all bloody. Remember when Walter fell off the ladder on top of me and cut my arm pretty significantly. I think he took it worse than I did.

        76 sounds like a great age to me. I’m 69 now and feeling better than I did in my 40’s. Clean living and lots of exercise but I also managed to get my weight back up where I need to be which I think has given me more stamina!


      • Hey lmsinca, good to hear from you and glad things are going well.

        Mark, that’s crazy. Glad you and Rosanne are OK and I hope they figure out the issue with your arm.


    • Hope all is well, lms.


    • Hi LMS, glad you liked the piece


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