Morning Report: GSE reform

Vital Statistics:

 

Last Change
S&P futures 2981 9.25
Oil (WTI) 55.12 -1.14
10 year government bond yield 1.57
30 year fixed rate mortgage 3.74%

 

Stocks are higher this morning after the jobs report. Bonds and MBS are flat.

 

Jobs report data dump:

  • Nonfarm payrolls up 130,000, lower than expectations, and the ADP report
  • Unemployment rate 3.7%, unchanged
  • Labor force participation rate 63.2%, unchanged
  • Employment-population ratio 60.9%
  • Average hourly earnings up 0.4% MOM / 3.2% YOY, above expectations

Overall, a disappointing report given the big ADP number, but the ADP generally predicts the final numbers, which means this data probably gets revised upwards. The employment-population ratio continued to edge up, which is good, although we still are nowhere near pre-crisis levels. This indicates that wage growth will remain in a Goldilocks range: enough to beat inflation, but not too hot to worry the Fed.

 

employment population ratio

 

The Trump Administration released its GSE reform plan. The plan states that ” the existing Government support of the secondary market should be explicitly defined, tailored, and paid-for, and the GSEs’ conservatorships should come to an end, subject to the preconditions set forth in this plan.” The government’s guarantee should “stand behind significant first-loss private capital and would be triggered only in exigent circumstances.” “Single-family guarantors should be required to maintain a nationwide cash window through which small lenders can sell loans for cash, and also should be prohibited from offering volume-based pricing discounts or other incentives to their lender clients.” The government support for the GSEs under the preferred stock purchase agreement would be replaced with an explicit, paid for guarantee backed by the US government for paying principal and interest on MBS. The plan would end (or at least modify) the “net worth sweep” which would allow the GSEs to rebuild capital. The GSEs would still have a role to promote affordable housing. FNMA stock is looking down about 6% on the open.

 

Michael Burry, of The Big Short fame, sees a bubble in indexing and passive investment ETFs. Passive investments now account for half of the stock market as more investors pile into these low-fee investment vehicles. “Trillions of dollars in assets globally are indexed to these stocks,” Burry said. “The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.” Certainly the leveraged ETFs – the triple long and triple short types – will become hopelessly illiquid in a market distortion. Burry runs a hedge fund, so he is talking his book a little but like all investment crazes, the more money that goes into the asset class, the more marginal each incremental trade becomes. Eventually, you might see a return to active stock management as they begin to outperform, especially small caps.

44 Responses

  1. Your GSE Reform Plan link doesn’t appear to work.

    Here’s the Washington Post write up on it:

    https://beta.washingtonpost.com/business/2019/09/05/trump-administration-unveils-plan-revamp-housing-market/

    “The plan would end (or at least modify) the “net worth sweep” which would allow the GSEs to rebuild capital.”

    Do they need Congress for this part or can Treasury do it unilaterally?

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  2. Found this editorial from Ted Rall interesting:

    https://www.wsj.com/articles/progressives-keep-calm-in-the-trump-era-11567723745

    Trump derangement syndrome is therefore familiar. But it’s also different in an important respect: While it’s epidemic among centrist Democrats, most progressives are immune.

    “Re-electing Donald Trump would take us into a dangerous moral direction from which it will take a wrenching turn to get us back,” insists MSNBC’s Chris Matthews, who once worked for Speaker Tip O’Neill. “Instead of delivering us from evil, it will deliver us to evil.” New York Times columnist Charles Blow issued this histrionic call for impeachment: “Trump has dragged this country into the gutter, and his targets have no choice but to get in the gutter with him and slug it out.” If Mr. Blow isn’t your idea of a centrist, consider that in 2016 he blithely dismissed Bernie Sanders ’s challenge to Hillary Clinton : “Sometimes you have to cut deals to reach ideals. That’s politics.”

    Sure, progressives oppose Mr. Trump, but we’re calm about it—enough so that many of us never got caught up in the phony scandal of Russian collusion. “It’s Safe to Impeach Donald Trump,” the Nation matter-of-factly proclaimed last month.

    Good old Ted needs to spend some time on PL… BTW, i got excoriated over the weekend for saying Trump isn’t Hitler and we don’t have Buchenwald on the border. Separating kids even temporarily to find out if they are being trafficked is tantamount to genocide.

    Liked by 1 person

    • BTW, i got excoriated over the weekend for saying Trump isn’t Hitler and we don’t have Buchenwald on the border. Separating kids even temporarily to find out if they are being trafficked is tantamount to genocide.

      If it was good enough for Obama does that make him Hitler too?

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      • It was wrong then, and if i had known about it then i would have been mad then too.

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      • You don’t have to compare Trump to Hitler to make a case that he’s made the situation at the border worse and inhumane and the family separation policy should end.

        Liked by 2 people

        • But you would have to think that the parents have no agency when they’re asked if the want to repatriate and stay together or attempt an asylum claim and be separated.

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        • There’s no purpose served by separation other than to make the process itself a deterrent to applying.

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        • True, but it’s still the parents decision. They know the risks. Now that there’s a Remain in Mexico policy to avoid the Flores order illegal crossing are down 30%.

          The parents make the choice, not the State.

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        • jnc:

          There’s no purpose served by separation other than to make the process itself a deterrent to applying.

          Do you think there should be no deterrent to applying? That an asylum application should just be a free lottery ticket that might hit?

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        • There should be no deterrent to APPLYING for asylum. The prophylactic should be the adjudication. The standards for the adjudication could be made more rigorous, or less, but the application is not the stage for deterrence.

          The deterrent on the front end is appropriate for illegals. Asylum seekers are not illegals. Thus intercepting those who do not line up to apply but rather sneak across the border is correct, and should be supported with fencing where appropriate [usually in or near twin border cities] and beefed up BP, customs, and drone surveillance at rough crossings [river, mountain, desert, or in the hold of a cargo ship or plane, or in a box truck].

          I suspect JNC agrees with that last paragraph as well; I agree with all he wrote.

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        • do You believe the illegals from Central America are trying to game the system?

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        • I think your first question should be “Are there any migrants claiming asylum who do not fit the asylum rules?” The answer to that question is always “yes”. That is why we have the framework for an adjudicatory process, although now stripped bare by years of neglect. More hearings officers, assigned lawyers and interpreters, and humane detention facilities for asylum claimants would be cheaper than the gift to building contractors now proposed at the expense of military base budgets.

          Separately, you could ask about non-asylum seekers who enter illegally, who are all presumptively illegal aliens, and are playing “catch-me-if-you-can”. Whether from Central America, South America, Ireland, China, Newfoundland, or Cuba they are “gaming the system”. Visa overstayers, supposedly the biggest crowd of illegals now, are “gaming the system”. We need to catch them, and send them back, under almost all circumstances.

          Asylum seekers, whether they fit the asylum profile or not, are playing by the rules. They deserve to be played by the rules.

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        • We disagree. The illegals traveling w/ kids coming en mass from Central America are doing so to game the amnesty rules. I bet you believe that as well. The Remain in Mexico policy seems to be working as the apprehension numbers are coming down as word spreads that gaming the system isn’t working re catch and release due to the moronic Flores Agreement.

          I don’t think our amnesty rules are a suicide pact that ties our hands as a percentage of the Central American travels here because it’s economically better for them. The other thing you’re ignoring is how damaging to legitimate amnesty seeking people this manipulation of the rules is doing. Real victims of religious and/or political persecution are being hindered as the citizens see the manipulation and starts casting suspicions on ALL applicants. It’s like welfare fraud, from an ROI perspective it makes no sense to prosecute welfare frauds (or Medicare fraud) but not doing so erodes public trust in the system which then erodes support for it, it also increases the fraud as people realize there is zero risk to committing it. It’s just common sense.

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        • I bet you believe that as well.

          I don’t believe that. But our definitions may be different. Migrants around the world are way into the millions, now, and I don’t think most of them are simply looking for work, or school for their kids. I think the motivations are generally for safety, either from gang wars, or real wars, or drug dealers, or starvation, or kidnappings and rapes. That they don’t fit narrow political or religious persecution, or even war and pestilence guidelines, doesn’t make them gamers, to me. I am not even sure what they have to show now to raise war refugee status, so I don’t know how someone running away to keep his son out of a drug war crossfire or his daughter from being raped can make that determination.

          A lot of these people will be sent back to unsafe and bad circumstances because they don’t meet the guidelines, but to me that doesn’t make them gamers. The ones who are actually entering without begging asylum are the gamers, IMHO.

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        • mark:

          Migrants around the world are way into the millions, now, and I don’t think most of them are simply looking for work, or school for their kids.

          Why do you think this?

          The ones who are actually entering without begging asylum are the gamers, IMHO.

          What about the ones who enter illegally and then beg asylum when caught?

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        • What about the ones who enter illegally and then beg asylum when caught?

          Absolutely correct. They have not played by the rules. This is where your separation of juveniles is a critical point, because while the adults can be sent back summarily the children cannot. And there are more “families” fence climbing or swimming then there used to be. Still, these cases must be separated from asylum seekers who report at the border crossings to present their claims.

          We are currently improperly handling the ones who appear at the southern border crossings and [procedurally] correctly beg asylum. I have no idea how we treat other asylum seekers at northern border crossings or at ports of entry or who report themselves at Key West voluntarily. Anybody have any info on that?

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        • Mark:

          Absolutely correct. They have not played by the rules.

          These are the ones we are talking about. These are the people who are subject to adult/children separation.

          …because while the adults can be sent back summarily…

          This is the problem…they can’t be. Once they claim asylum, their cases have to be adjudicated, even if they entered or attempted to enter illegally.

          We are currently improperly handling the ones who appear at the southern border crossings and [procedurally] correctly beg asylum.

          Unless they are Mexicans, they can’t possibly be [procedurally] correctly begging for asylum, because legitimate asylum seekers must seek asylum in the first country they come to.

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        • Mark:

          There should be no deterrent to APPLYING for asylum.

          I disagree. If one is applying for asylum after being caught trying to sneak into the country, then I definitely think there should be a deterrent.

          Asylum seekers are not illegals.

          In my understanding, that is simply incorrect. I thought the entire problem arises from people who first try to sneak into the country, and only claim asylum once they are caught. These people are both illegals and asylum seekers. When these illegals claim asylum, they are placed into a detention center while their claim is adjudicated, but the Flores agreement prevents children from being held in the detention centers, so either they must be separated from parents, or the parents must be released. Those are the only options.

          Am I misunderstanding the situation?

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        • Also, I thought it was the law that required separation. That is, I thought the law prohibits the government from holding children for as long as it takes to process an asylum request, and so they have to release the children but not the adults. Do I misunderstand the law?

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        • There’s no purpose served by separation other than to make the process itself a deterrent to applying.

          I know that is the left’s talking point, but is it actually true? I don’t know. Sounds exaggerated, and trips my common sense meter, but maybe it is true. I don’t know..

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        • Do we know that Trump has made things worse on the border? Do we have objective before and after measurements in terms of resources and procedures? Don’t differences in who and how many are showing up at the border make up part of the current circumstance, and if so, is that Trump’s responsibility?

          Not that he’s making anything better but I’m not sure if the actual situation is all that different from what it would be if someone else were president, although the coverage in the press certainly might be.

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        • At best, the BHO Admin offered a limited response to the crises enveloping Guatemala, El Salvador, and Honduras. That was on the Admin, entirely, but the R Congress refused initiatives to strengthen the border procedures [more judges, lawyers, humane detention facilities] and the BHO Admin thus relied heavily on ankle bracelets for asylum seekers pending adjudication. While the published stats showed that most appeared, of those who appeared in most years about 60% were granted asylum [it was about 40% in the Bush years and dropped below 50% again in 2017]. The dodgers stayed illegally. And this posed a signal to the three Central American nations in crisis that the USA was essentially OPEN.

          So the combination of BHO Admin policy and Congressional obstruction was a failure in its own right, but one that did not provide the mean visuals of this Admin.

          This could have been fixed then and it can be now. The wait time for adjudication is now two years. Ankle bracelets may provide a method useful in many cases [where citizen family members are essentially responsible for the applicant] but not in most, and that still means that more humane detention facilities, more courts, and more defense lawyers and interpreters are the way to go. This has been true for years and is not new to DJT. Making the visuals bad is new, and not done for a lack of funding possibilities [see “wall”]. I don’t give anyone a free pass on the problem. I don’t hear the D candidates for POTUS pushing the initiatives required [although Pelosi has in the past, and at one point offered DJT a wall package that included many of these initiatives as a compromise, which was rejected].

          At the most cynical level this Admin is pushing back against the appearance of easy entry from BHO and the R Congress that preceded and several D candidates pushing back against that reaction by essentially wanting open borders.

          It’s a real problem being addressed by bandaids for political talking points.

          The Economist take from early this year:

          The Homeland Security budget passed in February provided financing for humanitarian work, but it reduced financing for detention centres on the grounds Congress preferred alternatives including monitoring asylum seekers in the community. That is an approach resisted by the administration. A bipartisan agreement on a properly financed policy covering families seeking asylum on the southern border should be an urgent priority.

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        • There is a lot more to be said about the crises in the three key Central American nations and our failure to respond under BHO and now under DJT.

          We had intervened in a Spanish speaking neighbor successfully in the recent past – Plan Colombia which was largely implemented in the GWB years but followed through on in the BHO years quelled violence there after 16 years. Meanwhile, the three CA nations have maybe 30 times the murder rate of the USA and comparable violence to nations at civil war. Columbia may have been that bad 20 years ago. Not a quick fix, and I am not sure the business class is as strong in the three countries as it was in Colombia.

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        • Mark:

          So the combination of BHO Admin policy and Congressional obstruction was a failure in its own right, but one that did not provide the mean visuals of this Admin.

          Isn’t odd, then, that visuals from the Obama Admin have been used to demonstrate/demonize what is occurring under this administration?

          https://qz.com/1291470/photos-immigrant-children-detained-at-the-placement-center-in-2014/

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        • Same bad story, but longer periods of detention with worse conditions now. I am not defending the previous Admin, just in case you thought I was.

          Unless they are Mexicans, they can’t possibly be [procedurally] correctly begging for asylum, because legitimate asylum seekers must seek asylum in the first country they come to.

          I do not think that is American law. The EU applies it and I think it is an EU convention. I don’t think it has application anywhere outside EU; Pakistanis apply in Aussie without stopping at an intermediate country, for example.

          But if it is now American law I will stand corrected.

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        • Mark:

          Same bad story, but longer periods of detention with worse conditions now.

          Again, if conditions are worse now, it seems odd that visuals from the Obama era have been used to highlight how bad they are now.

          I do not think that is American law. The EU applies it and I think it is an EU convention.

          You are correct…I am confusing EU policy (the Dublin Regulation) with US policy. But it still seems a rather common-sensical policy, no? I mean, if the motivation of people from Guatamala really is to escape local gang violence rather than seeking more economic prosperity, why aren’t they seeking asylum in southern Mexico instead of making the dangerous trek north to the US border?

          And still, my understanding is that the people we are talking about are those that have illegally entered the US and then sought asylum after being detained, not people who have rocked up at a port-of-entry asking for asylum.

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        • “Do you think there should be no deterrent to applying? That an asylum application should just be a free lottery ticket that might hit?”

          No, there shouldn’t be a deterrent to applying, other than having an efficient system that will quickly adjudicate the claims and dispose of the ones without merit.

          The real issue is that there’s a vast disagreement over what level and what types of immigration should be allowed and that extends into what the criteria should be for asylum seekers.

          But resolving that requires changing the law. Since Trump can’t do that, he operates in bad faith instead. He intentionally limits the ability of asylum seekers to apply legally by blocking access at the legal border crossings.

          “Also, I thought it was the law that required separation. That is, I thought the law prohibits the government from holding children for as long as it takes to process an asylum request, and so they have to release the children but not the adults. Do I misunderstand the law?”

          The Flores settlement doesn’t require separation, but as you note it does require the choice to either separate the families or release the adults with the children.

          For myself, I’d take releasing all of them with ankle monitoring, etc, over the current separation policy. Trump makes a different choice.

          Basically Trump finds himself in the same position Obama did where he can’t get a consensus to change the law, so he’s pushing the limits of his discretion in the direction he wants. And just like Obama, it’s crossed over into bad faith.

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        • He intentionally limits the ability of asylum seekers to apply legally by blocking access at the legal border crossings.

          I think you’re wrong here, they are allowed to apply at the border crossings but they have to wait in Mexico while it’s being adjudicated. They’re claims are being processed, how is that acting in bad faith?

          For myself, I’d take releasing all of them with ankle monitoring, etc, over the current separation policy. Trump makes a different choice.

          Enough cut off their ankle monitors that faith in the system is compromised, hence the attempt to hold them in custody is the only reasonable alternative.

          I don’t see the bad faith here insofar as Trump has been very explicit. And transparent. Also, he has, to my knowledge, followed all court rulings, something Is wish he would not due as immigration and border control are the very definition of exclusive Executive Branch powers.

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        • jnc:

          No, there shouldn’t be a deterrent to applying, other than having an efficient system that will quickly adjudicate the claims and dispose of the ones without merit.

          I disagree. The government does not have limitless resources to spend on adjudicating the asylum claims of every unfortunate person in the world who wishes to come to the US. Applying for asylum should not be free option, especially for those people who have already entered or attempted to enter the country illegally.

          For myself, I’d take releasing all of them with ankle monitoring, etc, over the current separation policy.

          I don’t think it makes any sense to spend resources trying to stop people from illegally entering the US, or apprehending those who have already successfully done so, only to grant them access if only they say the magic word “asylum”. You might as well simply have open borders.

          Basically Trump finds himself in the same position Obama did where he can’t get a consensus to change the law, so he’s pushing the limits of his discretion in the direction he wants.

          Perhaps it shouldn’t be his discretion, but if it is not well within his discretion to decide between his preferred policy and yours, whose discretion is it?

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        • “The other thing you’re ignoring is how damaging to legitimate amnesty seeking people this manipulation of the rules is doing.”

          I’m reasonably confident that Trump’s motivation here is not to protect legitimate asylum seekers. It’s to reduce asylum seeking across the board.

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        • It is to reduce both legal and illegal immigration. Do you think he has not been explicit and forthright in that?

          Also, do you think the current gaming of the system by bring in minors knowing that you’ll then be released is effecting the populations perception of all asylum seekers? Cause I sure do.

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        • You are right that it’s to limit all forms of immigration.

          “damaging to legitimate amnesty seeking people”

          doesn’t factor into it.

          And yes, the previous gaming has impacted it and driven the reaction, which is Trump.

          I just don’t think his current approach is good policy for a host of reasons that have already been covered. Nor do I think it’s “concentration camps” either.

          To a larger point you made, I also don’t view the pre-Trump situation as a “suicide pact”, and thus a crisis that merited the type of response that Trump has implemented. And I say this as someone who has no problem with the idea of a wall and other security measures but once people are in the custody of the US, there are minimal standards that should be upheld.

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        • “I think you’re wrong here, they are allowed to apply at the border crossings but they have to wait in Mexico while it’s being adjudicated. ”

          I’m thinking of the behavior prior to that policy going into effect where they blocked the border crossings rather than allow people to make an asylum claim.

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        • That seemed a reasonable response to an obvious attempt at gaming the system en mass. That’s the part about a suicide pact I was referring too, letting 10’s of thousands of obvious fraudsters in because we must slavishly follow existing policy defies common sense.

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        • “only to grant them access if only they say the magic word “asylum”.”

          The initial screening interview is more substantive than that.

          And if you don’t think asylum should be allowed, or should be harder to claim initially, then the answer is to change the law to reflect that, not actively undermine it.

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        • jnc:

          The initial screening interview is more substantive than that.

          How substantive is it, exactly?

          Also, if I understand this site correctly, the interview process only takes place at the border. If apprehended in the country by immigration enforcement officers, the illegal will be placed into a removal proceeding, during which he can ask for asylum, at which point the judge has to schedule a hearing. Even if the hearing doesn’t go as hoped, and the claim is rejected, it can then be appealed, giving him even more time in the country.

          https://www.politicalasylumusa.com/asylum-process/

          And if you don’t think asylum should be allowed…

          I never said or implied that.

          …or should be harder to claim initially…

          I don’t think it should be hard to claim, but nor do I think such a claim should be a free option for entry into the country.

          …then the answer is to change the law to reflect that, not actively undermine it.

          It seems to me that releasing illegals into the country to do as they will for however long it takes to have their claims evaluated (and, in fact, indefinitely if they decide to cut their bracelet) is far, far more likely to undermine both immigration law in general and asylum laws in particular than is holding them in a detention center sans their children. Frankly, I don’t see how it can be seen as even a close call.

          Like

  3. Interesting read:

    “The Overstock CEO’s Wild Maria Butina Story Raises Serious Questions

    Byrne’s story of informing for the “deep state” sounds outlandish, but it should be investigated
    By Matt Taibbi”

    https://www.rollingstone.com/politics/politics-features/maria-butina-russia-spy-fbi-860256/

    Like

    • Byrne has been long noted in the investment community as bat-shit crazy. He had a very public fight with short-sellers back in the day…

      Like

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