Morning Report: Two Fed nominees head to the hill

Vital Statistics:

 

Last Change
S&P futures 3362 -17.25
Oil (WTI) 51.26 0.05
10 year government bond yield 1.61%
30 year fixed rate mortgage 3.68%

 

Stocks are lower this morning on coronavirus fears. Bonds and MBS are up small.

 

Consumer prices rose 0.1% MOM and 2.5% YOY in January, according to the CPI. Ex-food and energy, they rose 0.2% MOM and 2.3% YOY. The Fed doesn’t really pay too close of attention to the CPI, preferring the Personal Consumption Expenditures data. Regardless, inflation is not at a level to trigger any sort of rate hike.

 

Initial Jobless Claims came in at 205,000. The labor market continues to roll along.

 

The percentage of homes that sold above list price fell to a 3 year low in 2019, according to Zillow. On average, 19.5% of homes sold above list in 2019, while 21.5% did in 2018. This seems counter-intuitive given the supply / demand imbalance overall – NAR has existing home supply at roughly 3 months’ worth, well below 6.5 months, which is considered a balanced market. So what is going on? The real estate market is seasonal, and many people try and move during the summer months, which means home prices are negotiated in the late winter / spring. Early 2019 was marked by a continuing Fed tightening regime – we had multiple rate hikes in 2018 as the Fed wanted to get off the zero bound. This raised mortgage rates, which crimped affordability. The Fed only started easing in July, by which time the lion’s share of transactions are over. By the time mortgage rates fell meaningfully, 2019 was already in the books. 2020 should be a lot better, and judging by some of the comments from the builders, the spring selling season started early this year.

 

Jerome Powell’s Humprey-Hawkins testimony was largely uneventful, and today two of Trump’s Fed nominees head to the Senate for testimony. One of the nominees – Christopher Waller – is uncontroversial and should have no issues. The other one – Judy Shelton – has raised some eyebrows. Shelton has been critical of the Fed’s large balance sheet and its policy of paying interest on reserves. The policy of paying interest on excess reserves restricts credit needlessly, as she characterizes it as “paying banks to do nothing.” She is quite dovish and there are questions over whether she supports the gold standard, which is akin to pitching the idea of bloodletting to the AMA.

 

While we generally take for granted the idea that the Fed will maintain a larger balance sheet, this chart really puts into perspective how much things have changed. Pre-crisis the Fed had roughly $800 billion in assets. Now it is around $4.3 trillion. Has equity gone up 5x? um, no.

 

Fed assets

 

Credit rating agency Fitch is cautioning the CFPB from removing debt-to-income as a measure of a borrower’s ability to pay. The CFPB is considering using a measure like the difference between the borrower’s rate and the normal “market” rate, however Fitch thinks it is incomplete:

“Spread to APOR is a good measure of default risk. However, many factors can affect the price of a loan, some of which may have little to do with the borrower’s repayment capacity; these include liquidity, market movements, or attributes that present a low risk of loss to the lender, for example, a low loan-to-value. Aggressive lending programs could result in borrowers having a low APR but a high DTI and LTV where they cannot afford the loan but the risk of loss to the lender is low.”

 

19 Responses

  1. “The Roger Stone case highlights our pernicious system of tiered justice

    By Radley Balko
    Opinion writer
    Feb. 13, 2020 at 9:32 a.m. EST”

    https://www.washingtonpost.com/opinions/2020/02/13/roger-stone-case-highlights-our-pernicious-system-tiered-justice/

    Liked by 1 person

    • On the very day that Barr intervened to rescind the Justice Department’s sentencing recommendation for Stone, he also gave a speech to a conference of county sheriffs in which he attacked progressive, reform-minded district attorneys for their refusal to prosecute certain types of crimes.

      While I agree our system of tiered justice is pernicious–and should not be the case–it kind of always has been the case. How often in human history has there not been a separate standard for the wealthy and well-connected? The specifics of this situation may be new or unique, but it certainly didn’t just start with Trump.

      Also, this kind of stuff (but it is WaPo):

      On the very day that Barr intervened to rescind the Justice Department’s sentencing recommendation for Stone, he also gave a speech to a conference of county sheriffs in which he attacked progressive, reform-minded district attorneys for their refusal to prosecute certain types of crimes.

      But certain types of crimes he means “enforce immigration laws”. Why say “certain types of crimes”? Another way of saying it would be “a speech in which he attacked progressive district attorneys who refuse to enforce federal law”. Which may or may not be a reasonable position, but it doesn’t feel like an apples-to-apples comparison. A reduction in recommended sentencing (or lake thereof) is not the same as the refusal to enforce immigration law.

      Although the more I hear about this whole thing, the more this sounds like something that may be unprecedented in the details but is hardly unique (and likely common) in the generalities. And that it seems like much more of a big deal is being made of this than it merits.

      And sounds to me like the focus should be on recommended sentencing guidelines, which are clearly (to me) too harsh.

      For the stuff Stone did, it sounds like he should be sentenced to mandatory anger-management therapy or hit with a big fine or something. IMO. So if it draws attention to unfair sentencing, that’s a positive.

      But as a layperson I can’t figure out why I should have a problem with what Barr did, or the reduction of the recommended sentence, or why this situation is supposed to be so outrageous.

      But maybe they will revisit the revise down the sentencing guidelines. That would be good!

      Like

      • “But as a layperson I can’t figure out why I should have a problem with what Barr did, or the reduction of the recommended sentence, or why this situation is supposed to be so outrageous.”

        Because it’s another major step towards the politicization of federal law enforcement in the US.

        That’s not to say that there wasn’t bias in these sorts of high profile cases before, but they typically weren’t so clearly partisan where you benefited if you were a political supporter of the administration and were targeted if you were an opponent. At least not since Nixon.

        Here’s a counter example where an AG intervened, but in this case it was to benefit a member of the opposite party.

        https://www.dcbar.org/bar-resources/publications/washington-lawyer/articles/october-2009-ted-stevens.cfm

        https://www.rollcall.com/2014/10/28/recalling-the-injustice-done-to-sen-ted-stevens-commentary/

        The usual bias, as demonstrated in that case, is in favor of cooperating witnesses and against high profile targets.

        Liked by 1 person

        • jnc:

          Because it’s another major step towards the politicization of federal law enforcement in the US.

          You are still assuming that the original recommendation, and indeed the prosecution itself, was not itself politicized, when it almost certainly was. In which case Barr was un-politicizing it.

          That’s not to say that there wasn’t bias in these sorts of high profile cases before, but they typically weren’t so clearly partisan where you benefited if you were a political supporter of the administration and were targeted if you were an opponent. At least not since Nixon.

          Dinesh D’Souza probably would take issue with that claim.

          Liked by 1 person

        • And oh yeah:

          That’s not to say that there wasn’t bias in these sorts of high profile cases before, but they typically weren’t so clearly partisan where you benefited if you were a political supporter of the administration and were targeted if you were an opponent. At least not since Nixon.

          Three words: Hillary Rodham Clinton.

          Liked by 1 person

        • “when it almost certainly was. In which case Barr was un-politicizing it.”

          I don’t accept that characterization at all.Even if the original prosecutors were biased, Barr simply tipped the scales in the opposite direction for political reasons.

          I stand by my original take. The prosecutors bias against Stone wasn’t political per se, but based on his lack of cooperation and antics at trial.

          Like

        • jnc:

          Barr simply tipped the scales in the opposite direction for political reasons.

          Again, you are simply assuming Barr’s bad faith. If you are able to determine that a particular sentence is excessive outside of any political considerations, why do you assume that Barr isn’t able to do so?

          Barr said that there had been lengthy discussions within the department about what the recommendation should be, but when it was filed, it was different than what had been agreed within the department. So he immediately said it had to be corrected. Now, assuming that Barr isn’t just lying through his teeth, what makes you assume that he did so “for political reasons”? And what exactly do you think those political reasons were?

          Like

        • You may not buy this distinction, but I think this is a better way to address a situation where there may be issues with how a case was handled rather than having the AG, as a political appointee, intervene directly:

          “According to people familiar with the matter, Barr has tasked outside prosecutors — in the deputy attorney general’s office and from the U.S. Attorney’s Office in St. Louis — to review the handling of the criminal case against former Trump national security adviser Michael T. Flynn and other sensitive national security and public corruption prosecutions in the U.S. attorney’s office in Washington.”

          https://www.washingtonpost.com/politics/trump-appears-to-escalate-standoff-with-attorney-general-and-justice-dept-declaring-on-twitter-a-legal-right-to-influence-criminal-cases/2020/02/14/8c152c36-4f2f-11ea-bf44-f5043eb3918a_story.html

          Like

        • “Again, you are simply assuming Barr’s bad faith. If you are able to determine that a particular sentence is excessive outside of any political considerations, why do you assume that Barr isn’t able to do so?”

          The distinction between his treatment of Stone and other lesser known cases where sentencing was just as egregious or worse.

          For everyone else who isn’t connected to Trump, he’s in favor of harsher sentencing.

          Like

        • jnc:

          For everyone else who isn’t connected to Trump, he’s in favor of harsher sentencing.

          I haven’t been privy to his thinking on everyone else, so I have no way of knowing that. Are there cases similar to Stone’s that Barr was involved in where he advocated for a harsher sentence?

          Like

  2. Barr explains the Stone situation (and criticizes Trump):

    https://abcnews.go.com/Politics/barr-blasts-trumps-tweets-stone-case-impossible-job/story?id=68963276

    I genuinely don’t understand the bashing of Barr. He is, from what I can tell, far and away the most straight forward, stand-up and respectable guy in the entire Trump administration.

    Liked by 1 person

    • The goal is to make anybody who works for the Trump administration pay an enormous, career-ending price.

      Liked by 1 person

      • McWing:

        The goal is to make anybody who works for the Trump administration pay an enormous, career-ending price.

        Yeah, I mean I understand the attacks on Barr coming from politicos like Schumer and Pelosi, or from partisans in the media. And as one of the most reputable members of Trump’s administration, it makes a kind of perverted sense for them to target him. But for apparent non-partisans to immediately jump to the conclusion that Barr was unethically carrying water for Trump just doesn’t make sense to me. Based on my observations of Barr in the past, I was immediately skeptical of the notion that he was acting at Trumnp’s behest. Of all of the people around Trump, he strikes me as the very least likely to be a Trump crony. But he’s also not a Trump hater, which I suppose automatically discredits him in the Never-Trump world.

        It’s kind of ironic. Barr getting painted as a partisan willing to politicize the DOJ in favor of Trump looks to me like the direct result of his unwillingness to allow (and his investigations into) the DOJ being politicized against Trump by the careerist bureaucracy.

        Liked by 1 person

    • Barr is definitely one of the most effective cabinet members Trump has and isn’t in the administration out of love for Trump but rather because he’s a true believer in the Unitary Executive theory of government.

      He’s also right that Trump is making his job a lot more difficult with his tweets.

      Liked by 1 person

      • I don’t there’s anybody in his administration whose job is made easier by his tweets.

        Liked by 1 person

        • I have trouble believing that after 3+ years he can’t be a bit more circumspect in his tweets. I disagree with a lot of his policies but I don’t blame him for those. I do however blame him for trivializing the office of the presidency with his impulsive outbursts…………my opinion only.

          Liked by 1 person

        • I think that’s 100% fair. He is trivializing the presidency, but he trivializes it almost any time he speaks. When he’s extemporaneous, he’s . . . something else. Lots of word salad. Some of his answers to like, policy questions, end up with him talking about how great his book he wrote was and how it was the bestselling of some metric. His weird obsession with the turn out at his inauguration.

          I don’t actually think he’s a bad president, or that many of his decisions are especially worse compared to other presidents but sometimes he’s very hard to listen to.

          This is an example of him being kind of intelligible:

          If I spent more time, I can find more examples of levels of incoherence that I’m pretty sure are unmatched by previous US president.

          And I think at least half the people who are going to vote for Trump would also like him to stop Tweeting so much.

          Covfefe!

          Like

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