Morning Report: The Fed’s challenge

Vital Statistics:

Last Change
S&P futures 3495 8.6
Oil (WTI) 43.04 -0.17
10 year government bond yield 0.72%
30 year fixed rate mortgage 2.91%

 

Stocks are higher this morning as personal incomes and spending came in better than expected. Bonds and MBS are down.

 

Personal incomes rose 0.4% in July, which was well ahead of the expectations of a 0.2% drop. Personal spending was up 1.9% versus expectations of a 1.5% increase. June’s numbers were all revised upward as well. Inflation remains well below the Fed’s target, rising 1% on a YOY basis.

 

Pending Home sales rose 5.9% in July. “We are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market,” said Lawrence Yun, NAR’s chief economist. “Home sellers are seeing their homes go under contract in record time, with nine new contracts for every 10 new listings.”

 

Luxury home builder Toll Brothers reported record contract signings in June and July this year.

 

Jerome Powell discussed the Fed’s new policy yesterday, and there is some skepticism in the markets that the Fed can get inflation up above its 2% target. For what its worth, there is ample evidence that this can take longer than people think. Japan has been trying to create inflation for 30 years, and it has been unsuccessful. In fact, the younger generation which grew up post 2000 has the deflationary mindset, which is to save, and to wait for products to get cheaper. Inflation and deflation are monetary phenomenons of course, but they are also psychological. The Fed will discuss inflationary and deflationary expectations, and that word is deliberate. The Fed doesn’t want to see Americans get into the trap of saving too much (I know that seems counter-intuitive), so it is jawboning the markets saying essentially “we are going to create inflation, so spend now, before prices go up!” But if people feel like the economy is going to get worse, they will save what they can, pay off debt, and hunker down. This becomes a self-fulfilling prophecy. And anecdotally, that is exactly what is happening now. I was listening to an earnings call from PRA Group (a debt collector) and they said that collections have been better than normal. In a pandemic. People are saving more (paying down debt is considered saving). The Fed sees this and wants to get people spending, which is what gets the economy going.

 

48 Responses

  1. Employment law stuff I don’t read any more and I have not read this one. Just thought it was timely for anyone who is dealing with it.

    https://enquiron.com/blog/philanthropy-hr-best-practices-employee-activism/

    Like

  2. Good read. And of course on Twitter they are shooting the messenger.

    “The Trap The Democrats Walked Right Into
    If law and order are what this election is about, they will lose it.

    Andrew Sullivan”

    https://andrewsullivan.substack.com/p/the-trap-the-democrats-walked-right

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    • A few interesting data points on the election.

      One of the original Never-Trumpers goes full-on endorsement of Trump.

      https://thefederalist.com/2020/08/28/why-this-ex-never-trumper-wants-four-more-years/

      Six Democratic Mayors from Democratic strongholds in Minnesota have endorsed Trump.

      Click to access trump-endorsement-letter.iron-range-mayors.pdf

      New study suggests support for Trump is probably being undercounted in polls:

      https://www.bloomberg.com/news/articles/2020-08-28/new-study-suggests-polls-are-missing-shy-trump-voters

      CSPAN got so many calls from Democrats expressing support for Trump during the Republican convention that they decided to change the labels on their phone lines from “Democrat” and “Republican” to “Support Biden” and ‘Support Trump”.

      https://thefederalist.com/2020/08/28/c-span-had-so-many-democrats-calling-in-support-for-trump-that-they-had-to-change-their-protocol/

      And finally, yesterday I had a conversation with an old colleague of mine in New York. He is a first generation immigrant to America, became a naturalized citizen several years ago, and is in the parlance of the day a certified “person of color”. He (only half-jokingly) asked me not to out him with anyone else in the office, but let me know that he and his wife (also first generation immigrant “p-o-c”) will be voting for Trump.

      This is all very interesting, I think.

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      • Would be consistent—-all of it—with what I’d intuitively expect.

        And I make my history argument all the time. Pandemic and riots could be spoilers, being atypical, but generally an incumbent in the first term of their party taking the Whitehouse doesn’t lose without a serious primary challenge or a serious 3rd party challenger. Trump has neither.

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    • jnc:

      Good read.

      The headline point is probably correct, but still Sully can’t hide his TDS. In the end his point devolves into the classic line of a wife-abuser: “Baby, why you make me hit you?”

      A long time ago, I was mocked for saying that I believed that the election of Donald Trump was an extinction-level event for liberal democracy. But this is where we are. There is no place for liberal debate or dissent, just competing mobs deploying propaganda, intimidation and mutual racial hatred. Norms are trashed, from the shameful cooptation of national monuments for partisan purposes, to violating the privacy and peace of ordinary citizens because they are not in the ranks of agitators.

      Right….all of the illiberalism from the left is the result of Trump’s election. Sully’s irrational commitment to the delusion that Trump is an authoritarian fascist prevents him from recognizing who the real authoritarian fascists are, even as he despairs at their authoritarian facist tactics.

      Sullivan has almost no self-awareness. This is him at the beginning of the article:

      If one party supports everything I believe in but doesn’t believe in maintaining law and order all the time and everywhere, I’ll back a party that does. In that sense, I’m a one-issue voter, because without order, there is no room for any other issue.

      And then, after hundreds of words pointing out how the Dems have abandoned maintaining law and order, how does he conclude?

      [Biden] remains the only choice in this election.

      Huh?

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  3. Defending looting on the merits is no longer a fringe position on the left. It’s now taken seriously enough to merit NPR interrogating it:

    “The rioters who smash windows and take items from stores, she says, are engaging in a powerful tactic that questions the justice of “law and order,” and the distribution of property and wealth in an unequal society.


    Can you talk about rioting as a tactic? What are the reasons people deploy it as a strategy?

    It does a number of important things. It gets people what they need for free immediately, which means that they are capable of living and reproducing their lives without having to rely on jobs or a wage—which, during COVID times, is widely unreliable or, particularly in these communities is often not available, or it comes at great risk. That’s looting’s most basic tactical power as a political mode of action.

    It also attacks the very way in which food and things are distributed. It attacks the idea of property, and it attacks the idea that in order for someone to have a roof over their head or have a meal ticket, they have to work for a boss, in order to buy things that people just like them somewhere else in the world had to make under the same conditions. It points to the way in which that’s unjust. And the reason that the world is organized that way, obviously, is for the profit of the people who own the stores and the factories. So you get to the heart of that property relation, and demonstrate that without police and without state oppression, we can have things for free.”

    https://www.npr.org/sections/codeswitch/2020/08/27/906642178/one-authors-argument-in-defense-of-looting

    Taibbi questions this and is also condemned as a reactionary in the Twitterverse:

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    • So you get to the heart of that property relation, and demonstrate that without police and without state oppression, we can have things for free

      I love how it never occurs to this simpleton that people will stop making things if they are forced to give it away..

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    • I feel like the size of the Twitterverse keeps getting smaller while they think it’s just growing and growing.

      Gets people what they “need”. Because of that desperate need out there for air fryers and X-boxes and Nikes. The argument is just so infantile and weak.

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  4. I found 20 NIOSH n95 masks for over $200. I am awaiting them now. I will let you know if I recommend them. Someone beside 3M is finally making them.

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    • That seems like a lot of money for masks to me. We just wear the normal masks or homemade, but then we rarely feel comfortable going anywhere. I’ve been to CVS 3 times (when they open 1st thing in the am), the grocery store 4 times and otherwise doctor’s offices, the hospital and PT. This is since March 16th.

      We haven’t seen any of our friends, have only seen our daughter in SF twice after she quarantined for 2 weeks ahead of her visits and the same with Kasi in CO and our grandson. They also quarantined for 2 weeks before heading to CA and the one night they spent on the road they camped.

      I’m literally terrified of getting covid at 70. And I’m healthy as a horse.

      In the meantime Trump is retweeting that there’s only 9,000 deaths in the US…..LOL

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      • It is expensive. But the hospitals are contracted with all 3M distributors and their masks are not available to the public. Someone was bound to do this and the first company that did will price at monopoly level until there is competition. Despite NIOSH approval of the filtering claims I am not going to assume the masks make us bulletproof.

        We are at odds with one of our daughters who wants us to visit unmasked while she has other people in her home virtually every day. I will be glad when this is over, if Rosanne and I are still standing. If we are not, we would have been glad for everyone else…

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        • Are your kids trying to kill you?

          If you were, you know, 35–I think they’d pretty much be right. I’m pretty fast-and-loose with COVID precautions myself, but I may just not-so-secretly yearn for the sweet embrace of death. I dunno.

          But the numbers (for those who ever look at them) pretty much indicate that COVID is a pandemic for specific people–those with certain pre-existing conditions and old folks. Which is why, rather than lockdown the entire country, we should have transitioned to an “old folks” lock down early on. IMO. That being said–that would mean everybody should respect the need to observe special precautions around older people and honor their wishes to remain out of harm’s way.

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        • KW:

          But the numbers (for those who ever look at them) pretty much indicate that COVID is a pandemic for specific people–those with certain pre-existing conditions and old folks.

          The latest numbers I saw suggest it is pretty specific not for old folks and those with certain pre-existing conditions, but rather old folks with certain pre-existing conditions. According to the latest from the CDC, of all recorded covid deaths, only 6% of them were the result of covid alone. 94% listed an average of 2.6 additional comorbidity conditions that contributed to death.

          https://www.christianpost.com/news/94-of-covid-19-deaths-had-underlying-health-problems-6-died-of-virus-alone-cdc.html

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        • Old folks generally tend to have one or more pre-existing conditions, so the remedy seems like it should be the same: if you’re old, you might want to cool your jets. If you’re at nursing home level, then definitely don’t catch COVID.

          I’m sure we will learn more but ultimately the only unusually at risk population would seem to be the 65+ crowd–such that closing down the country generally seems like the wrong approach, to me.

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        • Mark:

          We are at odds with one of our daughters who wants us to visit unmasked while she has other people in her home virtually every day.

          I have the exact opposite problem. One of my daughters wouldn’t visit her sisters and my wife unless they all agreed to quarantine themselves from the rest of the world for 2 weeks before she arrived. She’s 25 and more likely to die in a car crash on the drive from Boston than to die of covid, but she’s been irrationally terrorized by the media coverage of this thing.

          I will be glad when this is over…

          I doubt this will ever be over. Covid is a part of the landscape now. And even if a vaccine were created, how can we justify the tens of thousands of flu deaths we always experience if social distancing measures can prevent them, too? Masks now and forever!

          Like

        • When Biden wins, it will be over. We’ll be stunned by How fast it will end.

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        • McWing:

          When Biden wins, it will be over. We’ll be stunned by How fast it will end.

          I’m less and less convinced Biden is a shoo-in every day that cities continue to burn.

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        • I’ve honestly never been convinced Biden is a shoo-in. I think he *can* win but I’ve never thought it was guaranteed.

          But like you, I feel it’s less likely with each passing day. Still possible. Always possible.

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        • Sorry Scott, that sucks. Send her the NYT article I linked.

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        • Thanks, will do. I’ve been sending her all kinds of info. Not sure it is having any effect.

          Like

        • WSJ against Federalism now.

          https://apple.news/AFMgR0yKQS0-8aAO_3PM8CA

          Just don’t call it left wing.

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        • Behind a paywall so can’t read it but I’m guessing the argument is that it’s the federal government’s job to ensure states of have lots of N95 masks?

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        • I saw that JPM report first thing this morning.

          I am very interested in what the black vote ends up being this time around. I have a sense that Trump will garner a lot more black votes than R’s typically do. I’m not sure the standard “racist” narrative will work so well anymore for the D’s. Perhaps it is something the Dems need to do anyway to fire up the lefty base, but I’m not sure how well it works with ordinary people any more.

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        • I think there is a possibility that (a) new replacement crisis and (b) and ongoing and good faith effort to post-mortem COVID will end with facts contradicting the hysteria (without an admission of wrongdoing or fear-mongering on anybody’s part) and over time the “gotta wear a mask to come in our store” signs will just sort of disappear without fanfare.

          There will be a tipping point (again, without fanfare) and suddenly you’ll be going into the office and nobody will be taking your temperature. Permanent changes will probably be more work from home and far fewer theaters and more outdoor seating.

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        • “I have a sense that Trump will garner a lot more black votes than R’s typically do.”

          My guess is that Trump 2020 will outperform Trump 2016 but it will be a split between black men and black women voters that drives that.

          On the other hand, if black turnout overall is up from 2016 then that goes against Trump.

          “Perhaps it is something the Dems need to do anyway to fire up the lefty base, but I’m not sure how well it works with ordinary people any more.”

          Trump sending additional federal law enforcement into Portland backfired politically, even if it forced the state to better protect the courthouse.

          His best move is not to big foot the state and local governments but wait until they actually ask for federal assistance. It also means those state and local Democratic politicians own the problems and can’t point the finger as easily at Trump for inflaming the situation.

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        • “People giving inaccurate answers could artificially skew polls in favor of Biden by 5%-6%, he added.”

          This.

          In 2016 I thought if Trump was polling at 3 – 4 % behind Clinton, then he would pull it out due to the “Bradley Effect”. I was wrong, in that the gap was much closer to 5%+.

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    • Obviously, they’re trying to run out the clock and force Trump to pardon him before he leaves office. Everybody knows the game. I guess it’s time for Republicans to appoint judges that will exact vengeance as well. You cannot unilaterally disarm.

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    • I am pretty sure Flynn wins on the merits. This was the correct result on a Mandamus, as I wrote before. Mandamus is an extraordinary remedy used against a judge who refuses to do a ministerial act. While there was an argument that this dismissal was to be rubber stamped as a ministerial act, and it was not a dumb argument for a defendant to make, if it had been successful it would have turned the procedure pretty much on its ear in that Circuit. As long as the FRCrimProc don’t make this a ministerial act it is not for an appellate court to do so. Sullivan either cuts him loose, or the Circuit will, but after the hearing, not before. At least, that is how I think it should go. I don’t think the Amicus view of presidential abuse of authority is relevant and I don’t think his view of AG overreach is. What I think the trial court must determine is whether Flynn or his lawyers improperly dissuaded the AG, as by a bribe or threat. And that just is not what happened. Outside of that it is just an executive function and if there was no coercion from the defense it might be a wrong decision, but not a justiciable one.

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      • Mark:

        Sullivan either cuts him loose, or the Circuit will, but after the hearing, not before. At least, that is how I think it should go. I don’t think the Amicus view of presidential abuse of authority is relevant and I don’t think his view of AG overreach is. What I think the trial court must determine is whether Flynn or his lawyers improperly dissuaded the AG, as by a bribe or threat.

        But the questions that Sullivan has ordered be addressed at the hearing are precisely the ones that you say are not relevant, and the question you say is relevant has never even been raised by Sullivan or anyone else, and you agree that we already know the answer. That being the case, isn’t Sullivan abusing his power by compelling the hearing?

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        • Yes. And I think he will get slapped for it on appeal if he does not cut Flynn loose. And if he insists on sentencing Flynn it will be reversed.

          I could see an opinion that set out the parameters of the trial judge’s authority. It doesn’t go to second guessing an executive decision unless that decision was corrupted by an outsider. The AG is not an outsider. I think Sullivan believes in his gut that Barr and DJT are outsiders to the AUSAs he deals with in his courtroom, because every trial judge in federal courts favors his own locals to main justice.

          You may recall when a trial judge sent Obama’s main justice lawyers home with a blistering opinion on their ethics and directed that none of them could appear in any federal courthouse and got most of the conferences’ judges to agree. In that case it was a matter of the justice lawyers having misrepresented material facts. As you say here it is an allegation that boils down to the AG should not have done this. Well, OK, offer proof he did it because he was promised a payoff by Flynn and there would be something. But just suspicion it was “wrong” and it goes away.

          I realize command influence from the POTUS is the big “issue”. But I am at a loss to see how a POTUS with the power to pardon can be judicially restrained from influencing the AG. Politically he ought not to, and I get that, but it seems to me to be a political matter. Barr will testify that the buck stopped with him and that Flynn was victimized and that will be the evidence.

          The best case against Flynn would be if someone would testify that Flynn told DJT Flynn would turn on Trump with devastating effect and as a result Trump told Barr to make this go away without a final conviction. Quid pro quo. Ain’t happening.

          My guess: Sullivan gets to make a speech from the bench about dark forces in DC and reluctantly Dismisses the case.

          Like

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