Morning Report: The Fed maintains rates at zero

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Last Change
S&P futures 2908 -28.1
Oil (WTI) 16.81 3.29
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.43%


Stocks are lower this morning on no real news. Bonds and MBS are flat.


The Fed maintained interest rates at 0% and pledged to continue to do what it can to support functioning markets, including buying agency mortgage backed securities and treasuries. They didn’t specify amounts, just that they wanted to keep orderly markets. As Dave Stevens noted, it is clear the Fed wants to see lower mortgage rates as a way to stimulate the economy. The problem with that of course is that the CARES Act is doing the exact opposite – it is restricting credit more than what happened in 2008. The MBA’s Mortgage Credit Availability index took a nosedive in March, and I think it will be much, much worse in April.


Flagstar just announced a 5 point LLPA for cash-out refis. It is clear that these are the next program to go bye-bye, joining jumbos, non-QM, and sub 700 FHA. The law of unintended consequences rears its ugly head once again. I wonder if the government could tweak the CARES Act to make cash-outs ineligible for forbearance. That way the program could still exist and provide relief to people hit by COVID. Presumably if you do a cash-out, you have money to live on, so….


Initial Jobless Claims came in at 3.8 million, pushing the COVID job losses over 30 million.


Personal incomes fell 2% in March and personal spending fell 7%. The personal consumption expenditure index remained under control. I suspect that increasing food prices are being offset by lower energy prices.


Mortgage REITs AGNC and Annaly reported yesterday, and needless to say both were hit hard by COVID. Both have completed their deleveraging, and AGNC noted that its book value per share increased by 8% in April, after declining about 22% in Q1. For the agency REITs, it looks like the crisis is over.


Another round of stimulus may be a bridge too far. Nancy Pelosi wants to force states to vote by mail, and that is a non-starter with Republicans. Mitch McConnell wants lawsuit protection for businesses that remain open during the COVID crisis, and that is a non-starter to Democrats. As Travelers noted on its conference call, trial lawyers smell an opportunity here and are ginning up lawsuits as we speak.

14 Responses

  1. More CLIA. As you may know, the big AG schools have great labs. I am sure this story is repeated in Ames and Raleigh and Davis and SLO, CA, as well as in East Lansing, and probably College Park, MD.


  2. As to liability shields, the devil is in the details. First, state and/or federal regulatory safety standards wrt infectious diseases in place do not apply to most American employers. Second, that leaves employers open to suit on a “violated community standards” basis. That’s too easy for plaintiffs when “community standards” have been evolving and are in flux, and when the definition of “community” could go to the jury as “local”, “state”, “industry”, “national”, “best medical”, “accepted medical”, or something I haven’t thought of but trial lawyers will invent and fight over in each case.

    OTOH, a blanket shield that covered even the reckless or intentional disregard of common sense would be too easy an escape for actual bad actors. Thus a limited liability shield would be appropriate for this situation, IMHO, and it would have to be VERY carefully crafted.

    What are the chances of careful crafting, NoVA?

    Further, there are implications for the insurance industry. It would push for a wide liability shield that would cover anything but INTENTIONAL disregard of human health and life. That is because insurance carriers are not liable for intentional harms caused by their insureds, anyway, and would want to be exempted from liability on anything else, as well. Plaintiffs’ lawyers pretty much rely on the insurability of all but the largest and richest defendants, to the point that they would rather allege negligence primarily than intentional harm, in most cases, even though intentional harm carries the possibility of enhanced damages.


    • Travelers was discussing that some states are discussing the issue of compensability for COVID and workers comp, and saying if states did that it would completely throw a wrench into workmans comp premiums…


      • Which premiums are through the roof now…

        Back around 1980 I delivered a lecture by invitation at the University of Minnesota on the [then] coming workers comp crisis in hospitals. Extrapolating from school and day care employment experience, where OTJ caused illness was well known and where carriers were getting hit for illnesses to staff caused by infection from the children in their care I predicted that nurses, doctors, and attendants of all sorts in hospitals would be able to prove OTJ related illness spread from patients and thus collect on workers comp.

        When that proved to be the case a few years later, I was vilified in writing for having predicted it on the false assumption that if I had not predicted it it never would have happened – as if the same trial lawyers who repped teachers in the late 70s would not figure out the connection.

        Liked by 1 person

        • Given some of the stuff going on right now, I’m primed to be especially irritated by stories of people getting angry that anybody had ideas (in this case, just foresight of the obvious) and shared it.

          The number of people who are so sure that ideas need to be silenced and speech should be restricted–or that you should get in trouble for expressing an idea–is f**king irritating.


      • Wouldn’t some kind of “pandemic” insurance for healthcare workers and first responders–and potentially anybody else–make more sense? With deductibles, payout limitations, more benefits if you pay more in when there’s not a pandemic, schedule rate hikes if pandemics increase . . . the whole nine yards?

        Not sure typical “workman’s comp” is up to being a pandemic safety net.


    • “What are the chances of careful crafting, NoVA?”

      slim to none. Sen. Graham is the chair of the judiciary, and he got his start suing doctors and hospitals.


  3. Steve Pearlstein is writing again regularly on the economic impact of COVID-19.

    This one was pretty good:


    • The gripe i have with the characterization of “2 trillion of stimulus” is that most of it is nothing more than temporary loans. It isn’t a gift to anyone. It is a line of credit that may never end up being drawn. The only part that would count as a gift would be the forgivable portion of the PPP,

      Even the 2008 “bailout” was a profitable endeavor for the government. Add in the penalties on trumped-up charges like FHA false claims act, and it was a windfall for the government.


  4. Taibbi comments on the Atlantic article saying we needed China-style Internet controls:

    When the Covid-19 crisis struck, the scolding utopia was no longer abstraction. The dream was reality! Pure communism had arrived! Failure to take scolding was no longer just a deplorable faux pas. Not heeding experts was now murder. It could not be tolerated. Media coverage quickly became a single, floridly-written tirade against “expertise-deniers.” For instance, the Atlantic headline on Kemp’s decision to end some shutdowns was, “Georgia’s Experiment in Human Sacrifice.”

    We have a lot of dumb people in this country. But the difference between the stupidities cherished by the Idiocracy set injecting fish cleaner, and the ones pushed in places like the Atlantic, is that the jackasses among the “expert” class compound their wrongness by being so sure of themselves that they force others to go along. In other words, to combat “ignorance,” the scolders create a new and more virulent species of it: exclusive ignorance, forced ignorance, ignorance with staying power.

    The people who want to add a censorship regime to a health crisis are more dangerous and more stupid by leaps and bounds than a president who tells people to inject disinfectant. It’s astonishing that they don’t see this.


    • Remember that Medium article you posted and was censored? In hindsight it ended up being pretty much correct, if i recall correctly.


      • We can’t be trusted to know how to interpret data not appropriate vetted by our intellectual betters.

        Why they think this is a good strategy and nobody will notice—or maybe the think everybody will agree and be thankful they are “looking out” for us—-is bewildering.

        Google and YouTube are behemoths and probably can do anything they want without consequence … and Medium too, to some extent. But there can be tipping points and some days I think Google and YouTube and others are getting far closer to those tipping points than they have to, or is wise.

        There are alternatives. Many, in fact, to just about everything. They operate at 5% of the big boys but if there’s enough motivation they may find folks start switching to other platforms.

        The problem with tipping points in platform popularity is you don’t know when you are about to hit one, and once you do you become MySpace.


    • Thanks for the link. Taibbi is right again.

      And Trump can ride the backlash to the expert class scolding to reelection if he plays his cards right.


      • Apparently I can provide links to any of the subscribed content, so that’s cool. I’ve subscribed for the year and so far I am not disappointed. Literally the only online publication I’ve subscribed to.


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