Morning Report: Incomes rise

Vital Statistics:


Last Change
S&P futures 2943 16.5
Oil (WTI) 56.33 -0.34
10 year government bond yield 1.51%
30 year fixed rate mortgage 3.77%


Stocks are up ahead of the 3 day weekend. Bonds and MBS are flat.


No word yet from SIFMA regarding an early close, so assume the bond market is open all day.


Personal incomes rose 0.1% in July, which was a deceleration from the previous few months. June was revised upward from 0.4% to 0.5%. Disposable personal income rose 0.3%, and spending rose 0.6%, which came in above expectations. The core PCE index (the Fed’s preferred measure of inflation) rose 0.2% MOM and 1.6% YOY, which is below their 2% target. The headline PCE rose 0.2% / 1.4%.


Consumer sentiment fell in August according to the University of Michigan Consumer Sentiment Survey.


Pending Home Sales fell 2.5% in July, according to NAR. “Super-low mortgage rates have not yet consistently pulled buyers back into the market,” said Lawrence Yun, NAR chief economist. “Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.” Regionally, they declined 1.6% in the Northeast and fell 3.4% on the Left Coast.


As bond yields have fallen, mortgage rates have not kept up as investors have been sweating prepayment speeds in the MBS market. The biggest issues have been rate volatility, which negatively impacts mortgage backed security pricing, along with fears we are entering a new refinance cycle. Also, many mortgage bankers set their staffing levels for the year back in late 2018, when it looked like we were in a tightening cycle and volumes would be much lower. “Do not expect much, if any of a drop in mortgage rates in the coming weeks,” said Mitch Ohlbaum, president, Macoy Capital Partners in Los Angeles. “It’s not because they shouldn’t, it’s because the lenders are already beyond capacity with refinances and frankly do not want any more volume.” There is probably some truth to that, but that is fixable. The volatility in the Treasury market and convexity risk is killing MBS investors. The classic example of a MBS investor is Annaly, a mortgage REIT, which has gotten clocked this year and cut its dividend.


NLY chart


PIMCO is advising the Fed to “aggressively cut rates” given the recent economic data suggests a slowdown. Their point is that recent data is “understating” the extent of the slowdown. They raise the point that labor market momentum has decelerated more than forecasters were predicting. Of course, at 3.7% unemployment, we are pretty much at or close to full employment. Wages are generally a lagging indicator, but this morning’s personal income disappointment was partially driven by a decrease in asset income, which probably just reflects falling interest rates.

15 Responses

    • Few of our past presidents were wholly conversant with constitutional law, but most seemed to be wary of the electrified wires of the system of separation of powers that defined limits they dared not transgress.

      If this it the kind of tripe that this professor of political science has been teaching, Rutgers should be issuing a refund to every single student that has ever taken his class.

      Liked by 1 person

      • I’ve find it interesting that someone who wonders about a public that would recklessly put Trump in office (a fair question, I think) seems so incompetent and ignorant of his own specialty (and, I think, is lying about how much he used to pimp for the founding fathers in the pre-Trump era) that I would wonder what sort of people recklessly hired him and then allows him to teach children?

        What do you want to bet if you dug into his course history there’s some Howard Zinn stuff in there?

        Many individuals who spoke privately about Trump’s ignorance and caprice, such as former Secretary of State Rex Tillerson, slunk silently into retirement without getting on the record their obvious contempt for Trump. Even the vaunted truth-teller Defense Secretary James Mattis, whose departure was attributed to policy differences with the president, has not aired those differences so that the public could be able to evaluate whose version was the more credible.

        Why? Would would Mattis or Tillerson do something like that to appeal to people like the writer? And that kind of assertion requires a certain degree of imagined mind-reading and omniscience that human beings don’t actually have, so–great for a history teacher.

        Attributing to President Trump the most innocent interpretation of his abuses of power, such as the recent order to American companies to leave China, he has been exposed as a constitutional imbecile.

        Speaking of imbeciles. That’s not an abuse of power–to say “Hey, you companies get out of China!” Without even an executive order, and certainly no actual coercion or penalties or enforcement, how would it be an “abuse of power”? Or is every time Trump runs off at the mouth an abuse of power?

        More ominously, he is a man with dictatorial tendencies that exceed even of those past presidents most contemptuous of checks and balances.

        Like FDR? Woodrow Wilson? James Madison?

        He has elevated the Second Amendment’s protection of gun ownership to a level above that of the First Amendment’s protection against the abridgment of a free press

        Now he’s just making shit up. Where has he done that? I mean, seriously? What does that even actually mean?

        and he tampers dangerously with the 14th Amendment’s clear message on birthright citizenship.

        This guy teaches history, right? And is familiar with legal interpretations, etc? I mean, if the Supreme Court said it had to be interpreted that way, I guess it would be, but I can see plenty of ways in which you could limit birth tourism and “anchor babies” and all the rest without violating the intent of the 14th. I don’t think that the 14th meant that anyone who crossed the border before giving birth–and then left again–had a baby US citizen on their hands.

        What’s more, I don’t see why–even if you conceded the 14th confers immediate birth citizenship to everyone within our borders–you have to issue them unqualified American passports. Etc. These are, generally, folks assimilating and planning to raise their kids in America.

        And of the first world countries, it’s basically us and Canada that offer birthright citizenship. Try that crap in France.


    • I’m sure he’ll get fired soon enough, given the new emphasis at the NYT on “all white supremacy, all the time”.

      Bret Stephens was most recently deputy editorial page editor for Rupert Murdoch’s deeply conservative and climate-denying Wall Street Journal, where, in 2015, he wrote that climate change — along with hunger in America, campus rape statistics, and institutionalized racism— are “imaginary enemies.” He will now take those views to the New York Times.

      Not for long, I expect. And there’s a strong data-basis for all those views (which, to be clear, is not evidence for 100% factual certitude, but is something more than intentional lying with lying propaganda because he’s a lying liar who lies). At the same time, those views are at odds with all the other thin-skinned whiners at the NYT, so I don’t expect him to last, because his presence will be making minorities and women at the NYT feel unsafe. And also, non-progressive language is the same as violence, so it’s basically as if the Times has hired someone to violently assault all the kind and decent purveyors of wisdom at the NYT who are not Bret Stephens and only sometimes David Brooks.

      I find it’s revealing of the focus of strong identitarians whose primary tribal group is their ideology. The NYT is 90% progressive-agenda-advancing, but with 1% Bret Stephens they’ve betrayed the tribe and must be burnt to the ground. But the left has always had a fondness for “1 drop” rules.


  1. Do any of us think that the unilateral trade war with China is a good plan going forward? [No, for me.]

    Did any of us think it was a good idea to begin with? [no, for me, but I was willing to believe the US could bring others on board until the tariff announcements against Canada, MX,Japan, and western Europe.]

    I ask now because this weekend both the store managers at a Best Buy and at Fry’s were complaining their companies were getting hurt so badly they might not recover. Fry’s has been a go to supplier of computer and electronic components and parts in CA and TX.


    • Trade wars are usually a mistake, however we did get some concessions out of our non-Chinese trading partners.

      Interesting observation about Best Buy. FWIW, the Street estimates for revenues and incomes for the holiday shopping season are flat-to-slightly increasing revenues and flat-to-slightly downward operating margins. They have been deleveraging, and buying back stock, so on a per-share basis earnings are way up.

      What was the issue with Best Buy? People not buying? or no inventory?


      • Low inventory in both places. Outright statements that corporate is starving them because corporate cannot buy stuff with Chinese components at anywhere near the prices they could a few months ago. Inventory that corporate has built from previous volume purchases was allegedly being held for internet sales, rather than shipped to retail stores.


        • Interesting, thanks.


        • I’ve noticed for several years that Best Buy inventory is becoming more limited, ditto Fry’s. If I’m buying electronics though, I’m usually shopping at Costco/Sam’s Club or, more likely, Amazon. I understand what you were told and I wonder how much the switch to online sales or the big box stores is having an effect. It’s telling that they’re reserving their inventory for online sales.


        • Agreed, George, as far as that goes, but suddenly there are no video cards, no ram, no cpus, no mainboards. Never been this bad.


        • Low inventory in both places. Outright statements that corporate is starving them because corporate cannot buy stuff with Chinese components at anywhere near the prices they could a few months ago.

          Why does this cause shortages rather than increase prices? That seems odd to me. I imagine sales would decrease, but sometimes when you need something, you need it, and would pay 15% higher or 25% higher prices to get it.


        • Because Amazon probably has more inventory then they do and they are trying to be flexible with what they do have.

          The other thing they can’t afford is to have the word get out on social media and the Internet that they raised their prices by 15%+ on an item that Amazon still has for lower. That will be the kiss of death for their brand and spillover to everything else they sell. Better to be out of stock and offer to have one in a day or two.

          Liked by 1 person

    • I thought it was good to address–or open up negotiations–with the upshot that some movement on tariffs for countries that put duties on American imports would happen if they didn’t make some compromises. I’m not sure Trump’s strategy was very good under the circumstances, but I do think he was right on one fundamental–there was no reason to keep subsidizing other government’s protectionism, at least not at the same level. It should be something that’s up for discussion and revision on a regular basis, not something where we’re always taking it in the pants “for globalism”.

      Canada and Japan could move a little on some stuff. We could move a little. I would have no problem with that approach.


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