Morning Report: The Congressional Budget Office reverses its economic projections.

Vital Statistics:


  Last Change
S&P futures 3797 33.3
Oil (WTI) 55.02 1.44
10 year government bond yield   1.11%
30 year fixed rate mortgage   2.83%

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are down.


The number of loans in forbearance was unchanged at 5.38%, according to the MBA. “While new forbearance requests dropped slightly, the rate of exits from forbearance was at the slowest pace since MBA began tracking exit data last summer,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Overall, the forbearance numbers have been little changed over the past few months. Homeowners still in forbearance are likely facing ongoing challenges with lost jobs, lost income and other impacts from the pandemic.”


The CFPB is going after servicers who they claim gave borrowers “inaccurate and incomplete information” about forbearance. The agency alleges that some servicers continued to collect late fees and sent notices about the loan being past due.


Home prices increased 9.2% in December, according to CoreLogic. “Two record lows are fueling home price gains: for-sale inventory and mortgage rates. Prospective sellers with flexible timetables have opted to delay listing their home until the pandemic fades or they are vaccinated. We can expect more inventory to come available in the second half of the year, leading to slowing in price growth toward year-end.” Inventory is 24% lower on average compared to 2019.


The Congressional Budget Office sees a rapid economic recovery in 2021, with GDP growth around 3.7%. Unemployment is expected to fall to 5.3% this year and return to 4% between sometime in the 2024-2025 timeframe. This is a change from their expectation over the summer that the pandemic would lop about $7.9 trillion off of GDP over the next decade. The CBO attributes this change of heart to the vaccine, but I don’t think that is what is going on. There is a persistent partisan bias to Fed projections as well as CBO projections. The Fed consistently overshot GDP projections during the Obama admin and then consistently undershot GDP projections during Trump. The CBO’s change of heart is just more of the same. It is just partisan wishful thinking. The elephant in the room is still the government-engineered sovereign debt bubble, and nobody has a clue how that ends.


The manufacturing economy continued to recover in January, according to the ISM Survey. The persistent message in the survey is shortages. Every commodity is in short supply, while skilled labor is hard to find. We saw similar sentiments expressed by logistics REIT Prologis in its fourth quarter earnings call. It says that inventory to sales ratios are at record lows, and the COVID-19 pandemic highlighted the risks of operating with too little inventory. The big question regarding these shortages concerns inflation. I think most people are seeing inflation at the supermarket, and we will see what is happening with wage growth this Friday. Is this increase in inflationary pressures nothing more than a temporary COVID-19 related phenomenon or something more permanent?



23 Responses

  1. The elephant in the room is still the government-engineered sovereign debt bubble, and nobody has a clue how that ends.

    That seems completely on target to me.

    There is another plausible explanation for the CBO, however. The economy grows faster under D Presidents.

    If we calculate the average annual real GDP growth in the United States under Democratic and Republican presidents going back to 1947, the economy grew one percentage point faster on average under Democratic than Republican presidents.

    Now, a legitimate counterpoint might be that the last two major economic crises — the global financial crisis (GFC) of 2008 and the COVID-19 crisis of 2020 — occurred under Republican presidents. So what happens if we filter our sample, eliminating the two crises and halt our analysis in 2006? The difference in real GDP growth . . . grows even larger.

    There are other professional sources for this as well. Of course, the NYT gloats on this stuff and maximizes it by reaching back to FDR, but post WW2 seems where the actual professional analytics tend to begin.

    Do you ever read Sorkin in the NYT? He suggested this morning that a “fix” for the GameStop type bubble would incude this: End private meetings between investors and companies, which risk giving the biggest financial players information that the general investing public lacks.

    I think that suggestion, a blatant First Amendment violation if imposed by a government directly or indirectly, is not merely illegal, but irresponsible. The only pension fund manager I ever knew personally told me that he investigated every company he put pension funds into with onsite visits and inteviews as well as reading and metrics, because he was a trustee and due diligence for a trustee is very demanding. An example – he learned from an onsite interview that Texaco sent barges of oil up the Mississippi and returned the barges empty. Those wasted costs were nominal in an oil boom but were going to be deadly in a glut. Financials did not show that wasted opportunity to fill the barges with freight for the return trip. You had to be there.

    I find Sorkin’s newsletter not nearly as useful as your Morning Report, because I don’t trust his analysis of much. I do assume that his raw reportage is accurate.


    • It reminds me of when Paul Krugman was penning his “The US is going to enter another Great Depression” on Election Night 2016. Meanwhile, Carl Icahn was buying every S&P futures contract he could get his hands on.

      BTW, Alan Blinder did a paper on Presidential economic performance which found no pattern. Divided government messes with the results too. FWIW, I think he concluded that the biggest driver seems to be the Fed,

      Re Sorkin, companies who do private information sessions already put the webcasts and the presentation materials in the investor relations part of their website, and they usually file a 8K in EDGAR. I am not sure if this is a requirement, but most companies do that already. For the most part, these are high-level / non-actionable events where they disclose nothing market-moving. I don’t know how that relates to Gamestop’s situation anyway. Doesn’t seem relevant. Gamestop was nothing more than the age-old “pools” with a new twist. Reminiscences of a Stock Operator talks all about them.

      Ending private conferences sounds like a solution in search of a problem. Companies don’t give analysts material non-public information in the first place. Whenever I would call a company they would clarify stuff that is already out there (i.e. “housekeeping items” like share count, etc) but nothing else. It isn’t their DNA, and they gain nothing from doing it.

      I am glad you like the MR better than Sorkin. I stopped reading the NYT business section ages ago when the focus became 100% on identity politics.


  2. Good observation:


    • The comments are something. Especially the “wood academia? No such thing! How ridiculous!” The bubble people must live in. Even a rock-ribbed conservative would notice if a university stopped teaching math classes in favor of Bible classes.


  3. AOC claims, without evidence, to be a “survivor” of sexual assault. (Did I do that correctly?)


    • No, that’s wrong. The AP Style Guide should explain that before using the modifiers “baseless” or “without evidence” you must check the party affiliation of the speaker.

      If the party affiliation is “Democrat” then the use of those terms is both grammatically and morally incorrect. Can be applied liberally to anything a Republican says on any topic, however.


      • KW:

        The AP Style Guide should explain…

        In all seriousness, I have been requesting a formal explanation of the standards behind the use of “without evidence” from Bloomberg News Service for quite some time, with no luck at all.

        Since I use the Bloomberg service all the time for work, I read a lot of news from its headline ticker during the day, and if you are reading Bloomberg news within the Bloomberg system itself, they make it very easy for you to get in touch with reporters and editors. At the end of every story there is a link to the author’s Bloomberg email, along with that of whoever was the editor on the story. If you click on the link, you can send a quick email directly to the author/editor from your own Bloomberg email address.

        So over the last several months, I have made it a habit to query reporters and their editors every time I see (or I don’t see it and think I should) the “without evidence” formulation in a story, requesting the style book rule on when and when it is not appropriate to use. So far only 1 writer has responded, but not with any substance. He just tried to justify the seeming disparity in his use of it in a single article, but did not tell me what the formal policy is.


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