Morning Report: Bond markets settle down

Vital Statistics:


  Last Change
S&P futures 3855 46.3
Oil (WTI) 61.53 0.14
10 year government bond yield   1.42%
30 year fixed rate mortgage   3.22%

Stocks are higher this morning after central banks assure markets that they will remain supportive of the markets for a long time.


The bond markets are beginning to price in a rate hike in 2022 and a couple more in 2023. That was part of the reason for the huge sell-off in bonds last week. The Fed’s December dot plot showed only one member projecting a rate hike in 2022 and only a few projecting increases in 2023.

Remember, the FOMC is a voting body, and according to that graph, we would see no hikes through 2023. The Fed will run a new dot plot at the March 16-17 meeting, which will also introduce a forecast for 2024. That will be a reality check for the bond market, and I would be surprised if the Fed started forecasting rate hikes in 2023. Simply put, the data doesn’t support it.


The upcoming week will be dominated by the jobs report on Friday. We will also have quite a bit of Fed-Speak.


Rocket was up 10% on Friday after earnings. This is surprising given how the market has had a “meh” reaction to everyone else’s numbers. I think a couple things were going on here. First, the company announced a $1.11 special dividend that will get paid in March. The company doesn’t pay a quarterly dividend or anything yet.

The second thing was that Rocket forecast Q1 origination volume of about $100B. This is only a small drop from the fourth quarter, and is almost double Q1 of 2020. This is despite the huge jump in rates. I think that is what got investor’s attention.

Rocket’s CFO claimed on the earnings call that the Fed is buying 95% of all new conforming production. I found that stat surprising.


Construction spending rose 1.7% MOM and 5.8% YOY in January. Residential construction was up 2.5% MOM and 21% YOY. This was better than expectations.


Manufacturing improved in February, according to the ISM. The big takeaway from the report is that the supply chain is depleted and commodity prices are up. Part of this is COVID-19 related, while some is due to the Texas ice storm. Either way, commodity price inflation seems to be driven by technical factors and inventory depletion is similar. During COVID, businesses basically lived off of their inventory in place, which wasn’t being replenished as quickly as normal.

The inventory depletion will take years to correct, at least according to logistics REIT Prologis. This will probably accelerate growth in the second half of 2021 as manufacturing activity will satisfy that pent-up demand. Will that be inflationary? I doubt it. There is an old saying in commodities markets: “The cure for high prices is high prices.” In other words, high prices encourage more production, which lowers prices again.

IMO we are not going to see inflation unless we get wage inflation. Friday’s jobs report may indeed show inflation, but that will be due to lower-wage workers in the restaurants and retail losing their jobs as these businesses close. The loss of the lower tier workers will push up the average. Once these businesses re-open we will see a reversal. The Fed has been trying to create inflation for year, and was unable to do it in 2019 when the economy was picture-perfect and unemployment was in the mid 3s. I don’t see it happening during a pandemic-driven economic slowdown.

46 Responses

  1. Off topic.

    Two days of intensive hearings on the Texas electric power failures exposed the technical shortcomings and some of the political games involved, and all can be addressed in Texas by the Lege and I think will be.

    The national news media take seemed to be that Texas having its own power grid was a factor, and if only Texas was tied into the Midwest or Western grid all would have been well.

    The actual technical fact is that Texas would have been such a large part of a regional grid that its collapse would have folded the entire mechanism. It seems that no one remembers that a failure one summer in Ohio blacked out NYC.

    Texas can keep its own grid, thank you, and I believe it will weatherproof it and will finally make the PUC elected rather than a playground for gubernatorial donors who did not give enough of a shit to even call in during the crisis.


    • Fingers-crossed. I suspect you are right and that most of the problems will be addressed, one of the prime one’s being that at least 5 members of the board of ERCOT didn’t live in Texas?

      A KXAN analysis of ERCOT’s board revealed a total of five members do not live in Texas. Along with Telberg and Cramton, board members Vanessa Anesetti-Parra, Terry Bulger and Raymond Hepper do not appear to live in the Lone Star State.

      As I understand part of the problem was natural gas supplies–that the NG plants could have made up the shortfall if they had had enough NG on hand to provide power? That it’s a bit of “just in time” fuel delivery, in order the manage costs (thus is part because of deregulation), that led to the grid failure?

      Hope you didn’t receive an unexpected $15k electric bill!


      • The NG producers had THEIR POWER cut off even though they are supposed to be designated as essential. So it was a cascading downfall from there. The Public Utilities Commission oversees ERCOT and every Governor has used it the way POTUSes use Ambassadors – handouts to donors from around the nation. No one at PUC answered any calls from bewildered local providers because they were all gone and ERCOT cannot be directly contacted. So ERCOT cut all power sufficiently to maintain most power but cutoff all the NG plants!

        Wind turbines in west Texas froze up from no weatherproofing but the ones in the Gulf worked.

        The major knockout blow was not failure of weatherization at the NG facilities but failure of power delivery to them. Get it?

        Well, we lelct the Railroad Commission that oversees gas and oil production but the Public Utilities Commission oversees the ERCOT.

        My main point is that this is fixable with not much more than electing the PUC as they would all run on weatherization and reform, or by disbanding it and giving its function to the Railroad Commission. In other words, it has nothing to do with other regional grids.


        • Thank you for an actual informed take on this.


        • Your also forgetting that both NG power plants as well as nuke plants have tolerances for cooling water temps which are often drawn from ponds or lakes. That water temp gets too low and it knocks the turbine off line. I agree some plants low NG pressure knocked some turbines off line but more, including one nuke plant, were knocked off line due to water temp being to low. Their currently is no incentive to winterize when competing with subsidized solar and wind, they cannot maintain a decent enough profit to compete, so they don’t.


        • George, I think the subsidies for wind are ballpark the same as the subsidies for NG but now more than the subsidies for Nukes. IDK about solar – which is not a big deal in TX.


    • No Agenda characterized the Texas power system and ERCOT as Enron meets r/wallstreetbets:


    • If solar plant production remains subsidized and the market fully unregulated, then we’ll keep having outages. If power is supplied by the cheapest provider there is no incentive to winterize plants. To do so raises their bid price making them further uncompetitive vs solar and wind.


      • I saw a chart for Texas and solar is barely 2% of power? If that? While wind is like 21%, so clearly a lot more critical. Most of the rest seemed to be natural gas.

        But, yeah, the big pricing gives them no incentive to have the reserves to be able to go over-typical-demand for extreme weather events that occur once ever decade or three.


  2. They’re coming after Substack now:

    Because of course they are.


    • these dipshits have no clue that journalism is already fucked.

      and traditional news isn’t even the half of it. Outkick will have more sports viewership than ESPN soon.

      people have checked out.

      Liked by 1 person

      • The problem is–so far–it looks like lots of people haven’t checked out.

        What I think has happened those is (hat tip to Malcolm Gladwell) we’ve passed a tipping point. A point at which the collapse (and the change) is inevitable. Even if the mainstream media weren’t horrible, I think there’s a strong argument for Rumble, Substack, YouTube, and even Twitter and Gab basically obsoleting them.

        They are battling to maintain their lofty perch on a sinking ship.


        • The fundamental problem is that the audience for the MSM is old, and they aren’t picking up young adults to replace them.


        • Or it’s the opposite. What they are doing to try to cater to woke young adults is destroying traditional journalism and remaking the MSM into MSMBC across the board.


          “In the last four years especially, a rift has formed in the news business, an argument primarily about method and approach. Some of us were raised to think the reporter’s job is confined to gathering information and giving it to readers, who should then be free to do with it what they will. A lot of journalists raised in this school were trained to be terrified in the days (and, especially, the nights) after publication, in case a mistake surfaces, but to stop worrying after that.

          A new approach, symbolized by a Times column four years ago called “Trump Is Testing the Norms of Objectivity in Journalism,” stresses choosing and presenting information in such a way as to ensure that audiences make the “correct” political decision with the news they’re given. The fear there is more about impact: are people taking the news the right way?

          This argument over method put many journalists in a bind. Some either had to get on board with what they considered a perversion of the job, or they had to find some other place to go.”

          The woke young are the ones leading the calls for censorship and for making antiracism the organizing principle of newsrooms, along with everything else.


        • This argument over method put many journalists in a bind. Some either had to get on board with what they considered a perversion of the job, or they had to find some other place to go.”

          “Some” is doing a lot of work here.


        • I agree they should but I’m guess some of them can’t without alienating their donors.


        • The woke young are the ones leading the calls for censorship and for making antiracism the organizing principle of newsrooms, along with everything else.

          They have a lot of collaborators amongst the elders who–if they weren’t inherently cynical and corrupt–should know better.


    • The piece is definitely worth reading. Taibbi is much more generous in his treatment of her “argument” than I believe it actually merits.

      Liked by 1 person

      • jnc:

        Taibbi is much more generous in his treatment of her “argument” than I believe it actually merits

        Agreed. He was far too kind.

        Liked by 1 person

      • Which I’m fine with. I kind of like that about Taibbi. While he was gentle, he made his points, and (say, unlike his Rush obit) he wasn’t really trying to tell the reader how they should be thinking if they know what’s good for them.

        One reason he may have been as soft as he was is because it’s easy to progress from being hard to narrative-shaping. He even used a phrase I’ve grown to despise (even when used accurately, as it was here): without evidence.

        I like the sense I get when reading his stuff that he’s reporting and/or telling me what he thinks, not telling me what I should be thinking (which, of course, was exactly what Dr. Roberts was doing).


        • You are probably right, but my instinctive reaction to something like this:

          “Please, do not write for or pay for Substack. I have to say it. I believe it’s dangerous. Take heed. You read it here first.”

          is “Go fuck yourself”.

          However, based on her follow up tweets today that’s apparently exactly the reaction she wanted. It was a literal attempt at trolling Greenwald and Taibbi.


        • However, based on her follow up tweets today that’s apparently exactly the reaction she wanted. It was a literal attempt at trolling Greenwald and Taibbi.

          And trying to get Greenwald and Taibbi to cover her (and thus upgrade her profile) and, you know, maybe The Dispatch, if she’s lucky.


  3. Also worth reading regarding the state of journalism at the NYT today:

    “NYTimes Peru N-Word, Part One: Introduction

    Donald G. McNeil Jr.”


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

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