Morning Report: Oil markets and the Fed

Vital Statistics:


Last Change
S&P futures 3000.5 -9.25
Oil (WTI) 60.57 5.44
10 year government bond yield 1.85%
30 year fixed rate mortgage 3.98%


Stocks are lower this morning after an attack on a Saudi Aramco oil facility sent oil prices up nearly 20%. Bonds and MBS are up.


A Saudi Aramco facility that represents about 5% of global oil output was attacked, which caused the biggest spike in oil prices since the 1991 Gulf War. Saudi Aramco estimates that it will take months to bring that capacity back on line. A Yemeni movement aligned with Iran is claiming responsibility for the attack. President Trump has announced that the US Strategic Petroleum Reserve could be used to mitigate the effect on oil prices, and the US stands “locked and loaded” to prevent future attacks. While Iran has denied responsibility, cruise missiles may have been involved in the attack, which means Iranian technology. Iran and Saudi Arabia have been enemies for years and have been fighting a war by proxy.


A spike in oil prices has the potential to be inflationary, however it would more likely depress growth since it would act as a tax. This will probably push the Fed to cut rates as opposed to raise them to fight potential inflation. US consumers will be somewhat insulated, since most of the country gets its supply from US West Texas Intermediate which is a US-only market. Consumers on the East Coast will feel an effect since they get their oil from the North Sea Brent market, and many in the Northeast rely on heating oil. Front month heating oil contracts are up 8% pre-open.


Aside from the issues in the energy space, the big even this week is the FOMC meeting on Tuesday and Wednesday. The Sep fed funds futures have made quite the reversal over the past month, going from a 100% chance of a rate cut (the only uncertainty was over whether it would be 25 or 50 basis points) to a roughly 25% chance they do nothing and a 75% chance they cut by 25 basis points.


fed funds futures


The action in the Fed announcement Wednesday will undoubtedly be in the dot plot (which is the Fed Funds forecast) and the GDP forecast. A potential war in the Middle East has got to affect the numbers, and it will be interesting to see whether they bump up the inflation numbers and / or take down the GDP estimates. Regardless, political uncertainty tends to be negative for business, so I would expect to see more dovishness in the Fed Funds futures.


Last week was brutal for mortgage rates, as the average rate on the 30 year fixed rate mortgage rose 20 basis points last week. It probably represents a technical reaction to the massive rally we have seen in rates this year already. “These sorts of bad performances are most often seen in the wake of stellar performances,” said Matthew Graham, chief operating officer of Mortgage News Daily. “August was the best month for mortgage rates, and 2019 has been the best year since 2011. And that’s precisely why this terrible week is possible: It’s largely a technical correction to the feverish strength in August.” In other words, markets don’t go straight up and they don’t go straight down. Volatility begets volatility and you will see massive rallies in the context of a bear market and vice versa. Remember that volatility in rates is bad for MBS investors in general and that will flow through to rates.

36 Responses

  1. I see the left and the NYT are still going after Kavanaugh…Forced to admit the victim doesn’t remember the situation and declined to be interviewed.

    NYT really earning the Fake News award this year.


      • You can hardly blame them, as their readership decreases they have to protect what readers they have left. They are catering to their audience. I might argue they always have done that.


        • Their audience will continue to shrink. The band that embraces just the NYT’s brand of east coast progressivism is shrinking. Any direction they go, they lose readers now. Which would be fine if they were DailyKos or Brietbart, but they aren’t. They can’t ever go left enough to appease the antifa crowd completely (as every fashion article and food article would also have to work in, somehow, that Trump is a racist and all problems are caused by old white men) and the more they do that sort of thing the more they’ll lose of subscribers who only get the NYT for it’s non-news stuff (food section, book reviews, etc). I mean, they’ll keep a lot but still . . . . they need someone to come in there and rule that place with an iron fist. They’re just out of control.


      • KW:

        Yup. The old Gray Lady is now just tabloid propaganda.

        It’s become the National Enquirer for highly educated limousine liberals. What I find amusing is that the NYT will apologize for offending nameless and faceless victims of “sexual harrassment”, but is entirely unrepentant about smearing an actual, live person with an uncorroborated and highly dubious allegation presented as an established fact.


        • Indeed. And this case, doing it without the consent of the alleged victim. Which just seems weird. But they issued a huge apology for an accurate headline about Trump “urging racial unity”–like so many politicians before him–for it’s unacceptable accuracy.

          Which is not saying Trump was sincere, or cares, or isn’t a secret Klan member and also Nazi–but the “urging racial unity” was just factually what he did in that particular case. NYT’s headline was factually correct, and they apologized for the error. That is just mind-boggling to me.

          Also, I have a hard time taking complaints about Trump’s incessant lying and misrepresenting seriously, when anti-Trump folks immediately leap to complain about a factually accurate headline because it doesn’t read his mind to find the secret Nazi inside.

          They don’t care about lying. They love lying. It’s just a thing they can beat up Trump over, and that’s why they keep these list of “Trump lies”. But they are just offended by an empiric truth and plan accuracy, if it might possibly portray Trump in a semi-positive light.


        • KW:

          They don’t care about lying.

          They are very good at deception with plausible deniability. A good example from the smear article on Kavanaugh:

          A classmate, Max Stier, saw Mr. Kavanaugh with his pants down at a different drunken dorm party, where friends pushed his penis into the hand of a female student. Mr. Stier, who runs a nonprofit organization in Washington, notified senators and the F.B.I. about this account, but the F.B.I. did not investigate and Mr. Stier has declined to discuss it publicly. We corroborated the story with two officials who have communicated with Mr. Stier; the female student declined to be interviewed and friends say she does not recall the episode.

          The casual reader could and probably would easily take that to mean that Steir’s claims about Kavanaugh has been “corroborated”. But if you read it closely, “the story” they are actually “corroborating” is simply the fact that Steir notified the Senators and the FBI of his allegations. So they convey the impression that Steir’s allegations have been “corroborated”, but if called out on what would be, in fact, a lie, they can simply claim they were talking about something else.

          And if you think this wasn’t done deliberately, think about how odd the construction of that paragraph is, and how any misunderstanding of exactly which “story” has been “corroborated” depends on the specific construction that was used. Reporters don’t generally refer to their own reported facts as a “story” within the reporting itself, nor do they present their facts only to later tell you how their own “story” was “corroborated”. When have you ever heard a reporter say something like, for example, “Comey spoke to President Trump and told him he was not a subject of the FBI investigation. A senior White House official corroborated this story for us.”? Never, of course.

          What reporters do is either simply tell you the facts, knowing that they have been confirmed by some source: “Comey spoke to Trump and told him he was not a subject of the investigation.” Or they attribute the facts to a particular source: “A senior White House official confirmed that Comey spoke to Trump and told him he was not a subject of the investigation.” In the NYT smear-job, one would have expected that paragraph to read something like:

          “A classmate, Max Stier, who now runs a non profit organization in Washington, claims to have seen Mr. Kavanaugh with his pants down at a different drunken dorm party, where friends pushed his penis into the hand of a female student. According to two officials who communicated with Mr. Stier during the Kavanaugh nomination, Stier notified senators and the F.B.I. about this account, but the F.B.I. did not investigate and Mr. Stier has declined to discuss it publicly.”

          But that, of course, could not have led people to think that the relevant “story”, ie the story about Kavanaugh, has been corroborated at all. So they present the allegation as an established fact – Stier “saw”, not Stier “claimed to have seen” – and then tell another “story” about who Stier told his “story” to. Then immediately follow that up with how “the story” has been “corroborated”. Voila…you haven’t actually lied, but you have certainly paved the way for a reader to think that Stier’s allegations are “corroborated” facts.

          It is also worth noting the utter lack of specificity on the “two officials” who “corroborated” “the story”. What the hell kind of description is “two officials”? Two “officials” of what? FBI officials? Senate staff officials? Yale officials? NFL officials? My guess is the the “two officials” are in fact the Democratic Senate staffers to whom Stier originally told his story, but the reporters can’t be specific for two reasons. First, it would detract from the constructed impression that Stier’s story had been corroborated (how could two senate staffers corroborate a story about Yale in 1983?). And second, it would show that the allegations were known by D’s at the time of the Kavanaugh’s confirmation, suggesting that even they didn’t think they were credible enough to bring up at the time.

          (As an aside….can someone please explain to me the logistics of how someone can “push” someone else’s penis “into the hands” of a third party? I seriously cannot figure it out.)


        • (As an aside….can someone please explain to me the logistics of how someone can “push” someone else’s penis “into the hands” of a third party? I seriously cannot figure it out.)

          Of course I have been thinking of little else. The penis itself must be attached to an unconscious or semi-conscious or involuntarily restrained male. The penis handler is preferably a gentle female but might not be. The third party is probably restrained or semi-conscious or debilitated in some paralyzing way, although preferably would be a conscious gentle female volunteer – this last seems unlikely. As a party event, it smacks of creepy drunken fraternity dare.

          In which case everyone involved is or should be humiliated, and should never want to testify about it or remember it at all.

          Not the sort of thing you would later all have a good laugh about. As a bonding experience leaves something to be desired.


        • Mark:

          Of course I have been thinking of little else.



        • Vox writer Aaron Rupar steps up to defend the NYT “reporting” and in the process simply proves my point about the deceptive construction in the NYT piece.

          The editors’ note does not suggest that the incident didn’t happen. It just indicates that the person said to have been victimized may not remember it — something that isn’t necessarily all that surprising given that the context was a “drunken dorm party.” And it’s not as though the allegation is completely devoid of corroboration. The story notes that Times reporters corroborated Stier’s story “with two officials who have communicated with Mr. Stier,” though it doesn’t provide details beyond that.

          No, Aaron. The reporters “corroborated” not Mr. Stier’s story, but their own “story” about Mr. Stier telling his story. Confusing, I know, and perhaps no moreso than for someone who works for Vox. But assuming Vox writers are of at least average intelligence – no comment – what do chance do regular NYT readers have?


        • In short, Pogrebin and Kelly’s reporting provides new evidence not only that Kavanaugh may have engaged in a pattern of sexual misconduct that he wasn’t truthful about during his confirmation hearings, but also that the FBI did little investigative work

          This is the conclusion Vox draws. That hearsay that the supposed victim does not recall and won’t go on record with provides “evidence”. This is a very low standard for evidence that I’m pretty sure Vox would not accept for accusations against Kagan or Ginsburg.

          The Times’s rollout of Pogrebin and Kelly’s got off to a disastrous start. In a tweet sharing the story that was posted on Saturday, the New York Times Opinion section used language that seemed to downplay, if not excuse, sexual assault.

          I’m sure as I continue to read, Vox will touch on the fact the author of the controversial tweet was Pogrebin.

          While Ramirez’s account certainly serves to both highlight and explain a culture in which sexual misconduct goes unpunished

          With no evidence, should we really be punishing people?

          The Times’s presentation of the new Kavanaugh allegation was reminiscent of how it treated E. Jean Carroll’s sexual assault allegation against President Donald Trump when she came forward with it last June. Carroll’s allegation was initially covered in the Times’ online Books section, and later buried in the 23rd page of the front section of the print edition.

          That’s definitely the Times problem. They are always looking out for Republicans and trying to protect Trump.

          While Trump didn’t cite any specific “lies,” on Sunday the Times added an “Editors’ Note” that provided ammo to those seeking to dismiss the latest misconduct allegation against Kavanaugh.

          Trump is pretty clearly calling all the accusations about Kavanaugh lies. Given the lack of evidence, that they are lying about him is a credible accusation.

          Also, is it Vox’s position that the Times shouldn’t have disclosed that the supposed victim denies knowledge of the incident?

          Trump, however, is getting ahead of himself. The editors’ note does not suggest that the incident didn’t happen. It just indicates that the person said to have been victimized may not remember it — something that isn’t necessarily all that surprising given that the context was a “drunken dorm party.”

          That seems like weak sauce. Also, nothing about that suggests the accusations should have been included in the story at all. Or that an accusation made by a 3rd party about an incident the “victim” does not recall should be included in an article about someone. And then the Democrats lining up to impeach Kavanaugh . . . it almost seems like there was a, you know, plan here. Maybe the omission was intentional and would never have been corrected had people not pointed it out.

          And, nope. Article never mentions that one of the story authors was responsible for the tweet or that Max Steir was on the Clinton legal team.

          Jeeze louise.


        • Marty: What happened to Stumpy Joe?
          Derek: Well, uh, it’s not a very pleasant story…but, uh, he died…uh…he choked on…the ac- the official explanation was he choked on vomit.
          David: He passed away.
          Nigel: It was actually, was actually someone else’s vomit. It’s not….
          David: It’s ugly.
          Nigel: You know. There’s no real….
          Derek: You know they can’t prove whose vomit it was…they don’t have the facilities at Scotland Yard….
          David: You can’t print, there’s no way to print a spectra-photograph…
          Nigel: You can’t really dust for vomit.


        • And now the finger pointing starts:

          “The New York Times reporters behind the controversial piece on Supreme Court Justice Brett Kavanaugh claimed Monday night that key details missing from the sexual misconduct allegation may have been removed from the original draft in the editing process.”


    • And the woman doesn’t recall the account. The person who made the accusation is Max Stier, CEO of Partnership for Public Service a “nonpartisan” organization that strives for a more effective government (re: larger and more powerful, but is totally non-partisan).

      He may not have a partisan axe to grind, but then it seems he explicitly named someone who did not come forward during the confirmation hearings and apparently didn’t want to be named or involved, so at the very least he’s a dick.

      That the NYT ran the story without mentioning that the person who this supposedly happen to did not recall the incident and was making no accusation of any kind herself . . . . that’s fabulous. The NYT is slowly imploding. It’s one thing to have a editorial page bias and a bit of a content bias, but you get read mostly across the spectrum because you’re generally pretty solid overall (say, Wall Street Journal) and just being clearly out of control and obvious lacking editorial oversight–and having the lunatics run the asylum, as the big pow-wow about how terrible it was NYT had a Trump headline that didn’t point out he’s a racist and Nazi was both unacceptable and promoted a hostile work environment.

      Eh, we’ll see, but I think the NYT is going to be forever diminished by the Trump presidency, and may continue to shrink in importance as generation Y and then millennials start taking over everything. I don’t think they really care that much collectively about having “a paper of record”, and NYT has become too sloppy with the facts to be useful there, and can’t every become as obviously pro-Communist and pro-Stalinist as the far left wants them to be. They’re doomed.


      • KW:

        He may not have a partisan axe to grind…

        He’s was apparently one of Clinton’s lawyers during the impeachment process, while Kavanaugh worked for Ken Starr. It seems that this is what Kavanaugh was referring to in his Senate show trial testimony when he mentioned “revenge on behalf of the Clintons”.


      • WaPo said that Stier works for a nonpartisan group that “tracks nominations.”

        They must be a liberal group if they got that description.


  2. A sign of our woke times:

    The Post announced the shuttering of its Express publication just a day earlier, ending the 16-year run of the publication handed out to riders on D.C.’s Metro rail system.

    About 20 journalists have been laid off as a result of the publication’s closure. The Washington Post Guild, which did not represent the Express’s writers, slammed the decision and in particular the short notice given to employees, some of whom found out from media reports.

    “This announcement came the day before operations ceased, with no advance warning,” the union said Wednesday.

    “These employees, many of them young women, performed the same jobs as other staff in our newsroom for substantially lesser pay,” it continued.

    Apparently if many of the newly unemployed were middle-aged men rather than young women, it would be less concerning to the union. Sigh.

    Liked by 1 person

  3. I wasn’t sure any D would offer an idea as stupid as “national rent control” before it was posed, but if you want attention you must out-stupid free college and free medical care and $12K per year to every American.

    Lessons in how to reelect DJT, the most unpopular POTUS in my lifetime, from Sanders, Warren, and Yang.


    • Are you sure Tump’s the most unpopular? Not aging you here but Truman left office w/29% approval and W was at, I think, 31 or 32% approval.


      • At 46%, Trump has the lowest highest approval rating of any president. Obama has the second lowest at 69%. However, at 35% Trump doesn’t even come close to the lowest lowest approval rating. W (25%), Bush Sr. (29%), Carter (28%), and Nixon (24%) all had lower approval ratings at some point in their presidency. The lowest ever, though, was Harry Truman at 22%…at two different points during his tenure.

        This is a cool site, with graphs comparing Trump’s approval rating to all other presidents at the same point in time during their term. Interesting, Trump tracks pretty closely with Ford and, outside of the first year, Reagan.


        • I always find “approve/disapprove” polls interesting. I don’t approve of Trump’s performance.

          But I’m not voting for Warren. Or Buttigeig. Or Sanders. or Yang.

          Gabbard maybe.


        • KW:

          I always find “approve/disapprove” polls interesting.

          Yeah, it’s not exactly a solid proxy for “popularity”, but it is probably the best we have. What does “popularity” in a president mean, anyway? That people like the president as a person? They like his policies? They think he’d be a good guy to have a drink with? They enjoy watching him speak?


      • There’s a general sense that Trump is just amazingly unpopular. If you’re in any of the bubbles, chances are it’s just so obvious Trump is the most unpopular president ever you wouldn’t think to check on it, any more than you check on the sunrise or gravity.


      • OK, ya got me.

        I forgot free meds for undocs and reparations.


        • Free college, free health care, free meds for illegals, reparations, $12k/year for everyone….this isn’t your father’s Democratic party.


    • I guess they have a sense that they have to go radically left to win the nomination, and then they will moderate once they are there to compete with Trump? Maybe? At least some of them?

      I’m of the opinion that the best nominee the Democrats could have chosen would be an Obama or a Clinton (Bill) type–I think they folks getting steamrolled (and sometimes exclude) in the debates would probably be the best choices for an actual contest with Trump. But they aren’t capturing the media’s attention.

      I tend to feel in a lot of ways that the media gave us Trump–despite how much they despise him. And that they are going to give us Trump again–by giving us a Democratic nominee that can’t possibly win.

      Trump my be a troll-genius or crazy like a fox, but he isn’t engineering the debacle amongst the Democrats. Not even close. IMO.


  4. Fascinating piece, Russian breaches into the FBI during the Obama administration are Trump’s fault.

    Liked by 1 person

  5. I, for one, am shocked that a government can lose money selling marijuana!

    Next you’ll tell me that the DMV is slow!


  6. I can’t get the Joe Biden/Corn-Pop story out of my head. It makes me giggle like a child.


  7. Interesting action on the abortion front. Apparently three localities in Texas have outlawed the provision of abortions.

    The newly passed city ordinances define “surgical or chemical abortion” as the “purposeful and intentional ending of a human life,” classifying it as “murder ‘with malice aforethought.’”

    “Rulings or opinions from the Supreme Court that purport to establish or enforce a ‘constitutional right’ to abort a unborn child, are declared to be unconstitutional usurpations of judicial power,” according to the ordinance, and are “declared to be null and void.”

    The near-identical Naples and Omaha ordinances later state, however, that the public enforcement part of the ordinances cannot go into effect “unless and until the Supreme Court overrules Roe v. Wade, 410 U.S. 113 (1973), and Planned Parenthood v. Casey, 505 U.S. 833 (1992), and permits states and municipalities to once again enforce abortion prohibitions.”

    Although it would appear this clause renders the whole ordinance moot, Dickson says there’s no statute of limitations on this public act of enforcement: “This allows for those who break this law to be subject to these penalties at a later date — which is no laughing matter.”

    “Do not be mistaken,” Dickson continued via electronic correspondence, “abortion really is outlawed in every city that passes these ordinances. If someone performs an abortion in a city that has outlawed abortion they have broken the law and there are both future (public enforcement) and immediate (private enforcement) consequences.”

    I have never heard of such a thing before, ie making the enforcement of some law contingent on an entirely uncertain future event. In perpetuity. Seems, though, like a clever strategy. Unless I misunderstand, in the absence of any current enforcement, there is no one to challenge the constitutionality of the law, so the law itself can’t be overturned, but the mere possibility of future prosecution will likely dissuade any abortion providers from setting up shop in the locality. Performing abortions becomes a high-stakes bet on the future of abortion jurisprudence in SCOTUS.

    It’ll be interesting to see how this plays out.


    • These ordinances, interpreted to have retroactive effect, would be essentially ex post facto criminal laws. I think that threat is empty. I also think the attempted nullification stated in some of these ordinances would be given short shrift. I also think a current case or controversy and thus current standing could be claimed in a federal suit to invalidate the ordinances exactly because future prosecution is threatened for current lawful activity.


      • Mark:

        I suspect you are correct that any post-Roe prosecution of a Roe-era violation would be thrown out. But on this:

        I also think a current case or controversy and thus current standing could be claimed in a federal suit to invalidate the ordinances exactly because future prosecution is threatened for current lawful activity.

        I don’t put it past the current judiciary do just about anything, but it seems odd that someone could legitimately claim standing. I know, for example, the predecessor case to Griswold in Connecticut, Poe v Ullman, was dismissed because the contraception law being challenged hadn’t actually been enforced against anyone. And when the ACLU wanted to challenge the Butler act (in what became the Scopes trial), the town of Dayton had to actually arrange to have someone arrested, since the law was never actually enforced. If actual laws that could be enforced can’t be challenged before they are actually enforced, how can a law that legally can’t be enforced be challenged?

        (BTW…it is wrong to characterize the activity as “currently lawful”. The existence of the law means that it isn’t. That is the whole point.)


        • I am not certain on standing at all, for exactly the reasons you state. But were I representing the State Medical Association I would claim the chilling effect and go from there.

          Addendum: I missed your assertion that an unconstitutional prohibition is a determinant of whether the prohibited activity is lawful. We will have to agree to disagree about that.


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