Morning Report: Summer recession trade gets smashed

Vital Statistics:


Last Change
S&P futures 3987 -2.25
Oil (WTI) 58.05 -0.04
10 year government bond yield 1.70%
30 year fixed rate mortgage 3.96%


Stocks are flattish as trade progress was offset by weakness in overseas economies. Bonds and MBS are up.


Global bond yields are falling this morning after a dismal ISM manufacturing reading for Germany. The Bund is down 5.5 basis points to negative 57 bps, which is pulling down US Treasury yields. We have a big week of data, with home prices tomorrow, new home sales on Wednesday, GDP on Thursday, and Personal Incomes / Spending on Friday. We will also have Fed-speak every day except Tuesday.


The NY Fed addd $50 billion in cash to the markets this morning to ease pressure in the overnight repo markets. A shortage of cash last week pushed overnight repo rates to 10% last week. Mortgage Backed security repo rates spiked last week along with Treasuries, but MBS are now back to normal levels. A rise in MBS repo rates can make leveraged bets in MBS more expensive (this really affects mortgage REITs) and will therefore make them require a higher return, which means higher mortgage rates, at least at the margin.


Note that Fannie Mae has also reportedly backed off its pricing last week, especially at the higher note rates in response to pressure from regulators. These changes went into effect on Thursday. Reportedly, the increase was in the 25 basis point range on average, but it was lower at the 3% note rates and up to 50 basis points higher up in the stack. From the chatter I am hearing Freddie adjusted as well, but not as dramatically. What does this mean? Pricing for investment properties will be hit hard, and borrowers are not getting paid much to buy up the rate.


The MBA made its recommendations to the CFPB over how to best deal with the GSE patch. The MBA recommends that the CFPB scrap the 43% debt to income ratio standard and pursue a more holistic method of determining a borrower’s ability to pay. The MBA lays out a number of recommendations for how to de-emphasize the importance of DTI. The GSE patch is set to expire in January 2021.


The Chicago Fed National Activity Index showed an uptick in activity during August. Production-related indices drove the increase, while employment-related indicators were flat. Many traders who were making recessionary bets (short stocks / long bonds) earlier in the summer (based on trade fears) found themselves on the wrong side of the boat this month. The S&P 500 is flirting with all-time highs, and the 10 year bond yield backed up nearly 30 basis points since the start of the month. The CBOE volatility index (VIX) has fallen from 25 in early August to around 15, which is historically a benign level.



33 Responses

  1. Is any of the market exuberance tied to the fed rate drop? You and I have discussed the strategy of all stimulus, all the time…I think we all have at some time or another. No need to rehash. But I wonder if it has had an effect, here.

    We are about to go buy a replacement second [mud room beer box] refrigerator and I have found a sale on a discontinued frigidaire 18′ no frills at Lowes that will not be beaten until the tariffs end.

    Finally, I don’t think Ds in Congress are finding their collective butts with their collective hands. When the DNI refused to testify, I think they should have held him in contempt and marched him to a lockup until he agreed to testify and to order the IG to testify, all behind closed doors, or maybe to the Select group. These are the sort of steps a serious committee would take under its statutory authority. Then, after that, if there were any “there” there, they could determine whether to open an Impeachment inquiry. Avoiding the discovery of why the IG was alarmed by the blown whistle, in order to take a short cut to a partisan desired result, is both wrong headed and politically gratuitously stupid, IMHO. NOVA, your thoughts? Do I understand procedure correctly in this matter?


    • Divided Congress favors the executive, always has and always will. As far as the D’s using “Inherent Contempt”, that would be quite the norm busting, I’m not sure they’d like all the repercussions.

      I encourage them to open that can of worms though! Now that would be entertaining!


      • Failure to answer questions related to the committee’s oversight is statutory contempt, absent a 5th Amendment claim.

        Contempt of Congress is defined in statute, 2 U.S.C.A. § 192, enacted in 1938, which states that any person who is summoned before Congress who “willfully makes default, or who, having appeared, refuses to answer any question pertinent to the question under inquiry” shall be guilty of a misdemeanor…

        This is not a question of “inherent” power of contempt.

        Refusal to offer the IG Report is in direct contempt, as I understand it, of Congressional Oversight.

        Holder won his contempt case in court. Maybe the DNI could, as well.


        • Well, if it’s clear cut the DoJ will prosecute, no?

          Also, wouldn’t you love the Congress to implement “Inherent Contempt”?

          As far as I can tell, this isn’t a whistleblower but a rumor monger. The narc did not hear the call or see a transcript of the call, it’s something he/she “heard”. I’m not sure that rises to the level that it must be shared.

          Also, aren’t you the least bit leery of these almost weekly bombshells by now? Doesn’t Adam Schiff, who claimed he had evidence of Russian/Trump collusion and was caught on tape himself colluding with a person he thought represented the Russian government, that he might be exaggerating and manipulating things? He’s had this information since early September. Seems odd to suddenly be a bombshell now, weeks later, no?


    • how much you wanna bet this whole goat rodeo is coming from elizabeth warren? Probably the straw that breaks the camel’s back with respect to impeachment and some of the shrapnel will undoubtedly hit biden, her biggest rival…


      • I tend to doubt that. Maureen Dowd had a good piece this weekend about how the media is primed for “the Big One” that will finally take Trump down, and if they can’t find it, they have a habit of shoehorning everything into that narrative.


        • the media wants warren. they are going to circle the wagons trying to help her. and this one is a two-fer.


        • Sure, but I don’t think she got the “whistle blower” to report to begin with or somehow leaked it to torpedo Biden at the same time.


        • Agreed. I was thinking only about having another wild goose chase while hearing the names “Biden-Ukraine” incessantly.

          Liked by 1 person

      • EW has been pushing the currently futile Impeachment talk incessantly. She would be capable of inciting this, but I doubt she could mastermind it. She really doesn’t have enough friends to do that, having stabbed so many of them in the back. Maybe incitement was enough, though.

        Liked by 1 person

  2. I can’t decide whether to feel sorry for her or not, given that she has clearly been ill served by the adults in her life (and not because they didn’t do enough on climate change).


    • why? the media is treating her like a rock star.


    • jnc:

      I can’t decide whether to feel sorry for her or not, given that she has clearly been ill served by the adults in her life

      That is true. She’s also been ill-served by every media organization in the world. What they are doing with this girl is, frankly, disgusting.

      Harsanyi has it right:

      Sixteen-year old Swedish climate change activist Greta Thunberg lives in the healthiest, wealthiest, safest, and most peaceful era humans have ever known. She is one of the luckiest people to have ever lived.

      In a just world, Thunberg would be at the United Nations thanking capitalist countries for bequeathing her this remarkable inheritance. Instead, she, like millions of other indoctrinated kids her age, believe they live in a uniquely broken world on the precipice of disaster. This is a tragedy.


    • She’ll be fine over time. There are much worse forms of abuse that what she is experiencing.

      Although it’s a good point. This is all the adult’s fault, because they caused climate changes, so we should listen to the children. Who are saying what adults are telling them (Greta’s speech was just to point to the UN’s own report explaining that the cause of Climate Change is the US not surrendering all their wealth to the other member nations).

      The positioning is “listen to the wisdom of the children” when she is, not surprisingly, merely regurgitating the “wisdom” of adult climate alarmists.

      Eh, better than being one of the kids on Dance Moms.


      • “Listen to the Flower People

        Listen to what the flower people say
        Listen, it’s getting louder every day
        Listen, it’s like a bolt out of the blue
        Listen, it could be calling now for you.
        Flower people walk on by
        Flower people don’t you cry
        It’s not too late
        It’s not too late.
        Listen, it’s like a Mozart symphony
        listen, it’s something just for you and me
        Listen, to what the flower people say
        Listen, it’s getting truer every day.

        Liked by 1 person

    • she seems like a little angry elizabeth warren.


  3. Interesting observations, even if you don’t agree with the piece as a whole:

    “Nancy Isn’t Coming to the Rescue

    By Chris Ladd
    September 22, 2019

    Nothing we learned in high school civics prepared us for this strange ballet, as Democratic leaders invest more energy curbing their voters’ expectations than on challenging Republican plans.”

    And from the comments:

    “Here’s what Nancy and most senior Democrats understand, and Democratic voters don’t. Say Democrats get their hands on Trump’s tax returns. Not gonna happen, but let’s just imagine.

    As soon as the first Democrat to see Trump’s tax returns finishes asking their first question about the crimes in those documents, here’s what’s gonna happen. Before that speaker has finished taking a breath, the very next question from a GOP rep will be, “Can we see your tax returns?” The second question will be, “where are Nancy’s tax returns?”

    AOC and the squad and another dozen or so fresh-faced, idealistic new-comers may not be bothered by that. But, not the senior folks. They don’t want to live in the world that’s born when those questions start flying.

    “Be very careful about impeachment?” Yea, because that sh&t can turn on you in a flash.

    All of these impeachable offenses are, at their core, grift crimes. As demonstrated by the Mueller Report fiasco, none of these activities make any sense without examining Trump’s financial transactions. Without the tax returns and financial records, his activities look merely erratic or dumb. And any half-competent impeachment investigation will have to get to the money very quickly. Same happened with Nixon. In fact, Nixon’s release of his tax returns, which set the practice of Presidential disclosures, was a consequence of the Watergate investigation – and started with a leak from the IRS.

    Pelosi knows there’s no way to explore this matter without digging into a category of financial records that neither she, nor most senior members of Congress, want to become a broad public standard.”

    Liked by 1 person

    • Trump’s tax returns will be such a complicated maze of limited partnerships, etc that i doubt any outsider would be able to decipher them without help from Trump’s lawyers and accountants. I suppose Congress could subpeona them, but if they do nothing more than answer questions they won’t be able to figure it all out.

      Liked by 1 person

      • Unless they are released publicly (which I believe is illegal, not that that matters), in which case I suspect that the hobbyists on the Internet will be able to crowd source an analysis of them.


      • The point of releasing his taxes is that wise interpreters will tell the average person how they mean he is literally Hitler, because reasons. The problem is there is so much partisanship and anti-Trump sentiment (and the Trumpistas) is the maze of biased interpretation would become quickly more impenetrable than his actual tax returns.


  4. This:

    “Trump has been relentlessly attacked every day since his inauguration. He has been accused of treason, breaking the law with impunity, running concentration camps along our southern border and a million other things. The past three years have consisted of little else besides leading political, social and media figures yelling that he is unfit for the office he holds.

    This cacophony has predictably led to much of the public tuning the noise out. Trump-leaning voters have become used to the steady bombardment and decided that they’ve had enough. They now see their man under attack and believe that they and their values are under assault. And when you’re at war, the last thing you do is listen to the enemy’s propaganda.

    As a result, what should be a shocking and damning revelation instead appears to be just the latest in the never-ending campaign to bring Trump down.”


    • They now see their man under attack and believe that they and their values are under assault.

      And they aren’t wrong.


      • I see an environment where the entire Democratic and progressive apparatuses have deified Trump to the point he is their Great Satan and it’s about all they can think and talk about. There is a non-trivial group of WaPo commenters that this appeals to. As for most Republicans, right-leaning types, swing-voters and those only casually interested in politics . . . I don’t think it’s likely to appeal much.

        I think they are way overestimating the unifying power of their hate.


    • Also, how much of a revelation is this? Is there a tape? Even a quasi-verifiable transcript? Or is this kind of more spin, looking to quickly ignore the not-so-great for Biden element of the story?


  5. I don’t believe that the Democrats will be successful in portraying this as a bad outcome:

    “Apple Will Build the Mac Pro In Texas, Not China, After Getting Tariff Relief

    By Eric J. Savitz
    Sept. 23, 2019 3:16 pm ET”


    • I think it will be portrayed as meaningless, probably? Maybe some particularly hyperbolic souls will imagine Apple with import Chinese management practices that end in suicide and a quasi-enslaved labor force.

      But I think the general impression is going to be positive.


  6. Andrew Sullivan’s pretty good take on the NYT’s slavery project:


    • I agree, it was pretty good. But when he says:

      Vital too is recognizing that African-Americans are the most American of anyone in this country (apart, of course, from Native Americans).

      WTF is he talking about?


    • It is not incidental that 10 of this nation’s first 12 presidents were enslavers

      Holy crap, New York Times. You’re going full Orwell on us with that one.

      The word has been “slave owners”, like, forever. They were owners of slaves–which, yes, is very bad. But they weren’t “enslavers”. And what a frickin’ awful word choice, anyway. I don’t think it’s a good word for people actually enslaving people.Or there’s not a good way to turn “someone who enslaves others” into a single noun.

      and whether his patriotism, like his daughter’s, was only about African-Americans’ struggle against oppression (subsequently copied, according to Hannah-Jones, by every other minority)

      He glides over that, but it does seem that identity politics is leading to more and more rifts amongst minorities. In the reparations argument, for example, there’s not a lot of talk about Native American or Chinese slaves, or Irish indentured servants who got the shit-end of the stick, or even Europeans who ended up in America after having been shanghaied or press-ganged into service for some interminable length of time.

      It’s as if liberal editors reined in radical writers but couldn’t do so coherently, and lost the plot at times. Which is a good way of understanding the NYT as a whole right now,


      The New York Times, by its executive editor’s own admission, is increasingly engaged in a project of reporting everything through the prism of white supremacy and critical race theory, in order to “teach” its readers to think in these crudely reductionist and racial terms.

      The New York Times, but their own logic, was founded by racists and white supremacist, and thus is institutionally racist and white supremacist, and is not infected with the rot but is the rot itself–it doesn’t have a cancer, it is a cancer–by the same logic they are applying to America–and thus the only racially correct thing to do is depopulate the paper of all non-African Americans. Just viewing everything through the prism of all bad things being caused by the White Devil isn’t sufficient–permanently blighted as evidenced by the pale pallor of their skin, they should be evicted from the NYT or it will just prove that it is a white supremacist organization from stem-to-stern.

      I give Andrew a pass on the “African-Americans are the most American of anyone in this country”–because it is a meaningless thing to say about any group. It’s a good little bit of virtue-signaling. Not that it will do him any good, as his white supremacism is obvious from his evil pale skin.

      The thing I object to is this: It’s as much activism as journalism.

      It’s not journalism at all. It has nothing to do with journalism. It is pure activism, propaganda, and fantasy.

      This is therefore, in its over-reach, ideology masquerading as neutral scholarship.

      Is it really a masquerade when it looks nothing like neutral scholarship, and the language drips with Orwellian word-choices that sound the furthest possible thing from neutral?

      America’s only virtue, in this telling, belongs to those who have attempted and still attempt to end this malign manifestation of white supremacy.

      Which it is heavily implied white people are incapable of doing, so only those races who are naturally superior can actually have virtue.


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: