Morning Report: Parsing the FOMC minutes.

Vital Statistics:

S&P futures4,293-57.8
Oil (WTI)71.41-0.85
10 year government bond yield 1.29%
30 year fixed rate mortgage 3.11%

Stocks are lower as investors lose their confidence in the reflation trade. Bonds and MBS are up.

Mortgage backed securities are lagging the move in bond yields, as usual. This means that mortgage rates are not going to correlate perfectly with the decline in the 10-year. It may take a day or two for MBS to catch up.

Initial Jobless Claims were more or less unchanged last week at 373,000. The number came in above expectations.

The FOMC minutes from June didn’t really say much, although the Fed is at least greasing the skids for tapering:

“Participants discussed the Federal Reserve’s asset purchases and progress toward the Committee’s goals since last December when the Committee adopted its guidance for asset purchases. The Committee’s standard of
“substantial further progress” was generally seen as not having yet been met, though participants expected progress to continue. Various participants mentioned that they expected the conditions for beginning to reduce the
pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data. Some participants saw the incoming data as providing a less clear signal about the underlying economic momentum and judged that the Committee would have information in coming months to make a better assessment of the path of the labor market and inflation. As a result, several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases. Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than anticipated progress toward the Committee’s goals or the emergence of risks that could impede the attainment of the Committee’s goals.”

The FOMC also discussed reducing the purchases of mortgage backed securities earlier than expected “in light of valuation pressures in the housing market.” While lower mortgage rates probably are helping support asset prices the fundamental issue is a supply shortage, not mortgage rates.

The stance of the FOMC on reducing MBS purchases will make mortgage rates move down more slowly than otherwise. Ultimately, the reduction will depend on inflation and the labor market. The Fed will be comfortable with inflation above the 2% target, and the commodity-push inflation is probably going to ease. The labor market is the bigger question, and so far it is providing such mixed signals that I don’t see the Fed adjusting policy in response to it. That said, expect disappointment when you run a scenario after hearing on CNBC that Treasury yields are down another handful of basis points.

On the labor market, the Fed expects the current labor supply constraints to ease. It believes that the current issue of unfilled jobs is a due to a combination of “early retirements, concerns about the virus, childcare responsibilities, and expanded unemployment insurance benefits.”

32 Responses

  1. Well, I feel better, don’t you?

    Do we get to know everybody who had a flu shot? Pneumonia shot? HIV status? Whether a woman had an abortion? If not, why not?


  2. Another good one:

    This is a great aside too:

    “The Columbia Journalism Review reiterated the concept in “Why we capitalize ‘Black’ (and not ‘white’),” saying, “Black reflects a shared sense of identity and community. White carries a different set of meanings; capitalizing the word in this context risks following the lead of white supremacists.”

    Less than a month after these pieces, the Washington Post came out with, “Why ‘White’ should be capitalized, too,” arguing: “No longer should white people be allowed the comfort of this racial invisibility; they should have to see themselves as raced.”

    In a flash the bulk of the business dropped their righteous reservations about using Stormfront style guide, and began employing capital Ws all over. I’ve since gone back to lower-casing everyone. People just make these things up on the fly, reveling in the overthrow of prevailing attitudes, even if the overturned standards are ones they themselves set ten minutes ago. It’s fashion, not politics.”


    • The best way to attack this movement is not to ban it, but to ridicule it.


      • And pull your kids out of public schools.


      • Yup. And deconstruct it. Or introduce some method of democratic choice so–like sex ed in the 70s and 80s–so that parents can exclude their kids. Introduce choice and a lot of people will pass. Anonymous choice and even more people will pass.

        The problem is, ridicule properly comes from the culture. Comedians, of course, but movies and TV and all that as well. So much of that is co-opted, so many of them don’t want to get into it–and if they do, they aren’t likely to get a Netflix special. Or money to produce their movie. Etc. It’s like the Communists inserting communist themes into Hollywood pictures in the 50s and 60s, if anyone has a real counter-cultural criticism of stuff like critical race theory (or advocacy for, say, the importance of families) they have to bury it in whatever they are doing and specifically make it non-explicit.

        Just watched all of a Handsmaid Tale (to date) and noticed that, while there is a lot of wokism, there are also a lot of themes that I have a hard time imagining would sit well with modern progressives. The importance of motherhood. The authority of parents. The state taking children to raise them for the societal good being a Bad Thing. Basically, Gilead is a Communist country with a veneer of ultra-Christian radicalism on top. Which makes me wonder–are some of these messages quasi-intentional, and they really don’t like on the wokism but can’t be super-explicit with a pro-family message?

        One episode of the Kominsky Method featured Morgan Freeman participating in a genderfluid reboot of Quincy. It was a light touch by they were clearly making fun of gender fluidity and pronoun preferences. Which was good there just needs to be a whole hell of a lot more of it.


    • I liked the NYT’s original position: “They added that “white doesn’t represent a shared culture and history in the way Black does, and also has long been capitalized by hate groups.”

      So . . . hate groups like the capitalize their perceived racial identity when talking about it? Fascinating.

      I find the lack of any capacity for irony or self-reflection so disappointing.


    • jnc:

      This is a great aside too:

      Taibbi’s article/interview with Yang was really good. I especially liked Yang’s observation that “There’s a transition there from a pursuit of justice to a redistribution of injustice.” This seems exactly correct to me.

      One thing I do take issue with, though, was this:

      One of them by a white guy named Richard Dyer, who wrote a book called White. He was an academic at this time, and he said, “Look, white people create the world in their own image, and in the process, they design a world that advantages themselves and disadvantages others.” On the face of it, it makes a kind of sense, right?

      No, I really don’t think that makes any kind of sense at all. What does it even mean to say that “white people create the world” in any kind of image?



        In which RobRod explains, without rancor.


        • I heard a historian explain why presidential ratings by historians change over time. To paraphrase, he said that no rankings were of any real use until at least 25 years after the president served. That is because access to presidential papers is restricted for that length of time or even longer.

          So Ike, who was not highly regarded in academia, started low and is now the fifth rated president in history, thanks to his complete papers being available. Buchanan continues in last place with no prospect of advancing.


        • How does it explain JFK?


        • This historian explained it, but also thought it was an overrating. Paraphrasing: JFK only had three years so his screw-ups did not come home to roost on him, while his successes, Cuba and Moon program, looked good over time. This historian was a Rice guy, btw.


        • I expect 25 years is enough to grant perspective, as well. Historians are humans and have their own biases–and also the utility or absurdity of various policies doesn’t always show up in the first decade or so.

          I would guess rankings are more objective the further back you go–without of course profound errors or bad ideas still keeping a Buchanan at the bottom of the heap.


      • Scott, you ever watch Man in the High Castle on Amazon?

        This quote reminds me of an episode of that:

        “There was a moment when we made the switch from a text-based culture to an internet-based culture, and some people understood that you could reformat everything from zero.”

        The episode is fittingly called Jahr Null (Year Zero).


        • jnc:

          Scott, you ever watch Man in the High Castle on Amazon?

          I made through season 2, then stopped. I really should pick it back up.


      • “There’s a transition there from a pursuit of justice to a redistribution of injustice.”

        That is one way of looking at it, but from my perspective it looks more to me like a transition from a (self-flattering) pursuit of justice to a Machiavellian pursuit of power.

        No, I really don’t think that makes any kind of sense at all. What does it even mean to say that “white people create the world” in any kind of image?

        It’s the hard-wired ignorance that apparently inflicts much of the present generations and, should they have their way, will infect all future generations.

        But no–it makes no sense whatsoever. While “white people” (often of a wide variety of very strong identity groups, so would not considered themselves part of some kind of racial whole) were “creating the world” they were not likely seeing themselves as White and therefor obligate to design a White world for White people. They were seeing themselves as Romans or Grecians or Angles or Gauls or Vikings or whatever. They were building a world for their nationality (using the tools of war and acquisition and claim-staking that were universal at the time).

        It’s not just nonsensical, it’s insane. And unfortunately that kind of unmoored thinking is one of the primary tools of the folks trying to redistribute injustice (but, IMO, only as a tool for elevating their own class and growing their power).


    • Yes, but he’ll fail. The real reason is to fund raise off it.

      He should have taken antitrust action against them when he had the chance.


    • But I could be wrong. Taibbi makes an observation closer to Trump’s position:

      “If Private Platforms Use Government Guidelines to Police Content, is that State Censorship?

      YouTube’s decision to demonetize podcaster Bret Weinstein raises serious questions, both about the First Amendment and regulatory capture

      Matt Taibbi”


      • Discovery would be interesting if a judge actually permits it. I suspect the left will just close ranks and protect their propaganda arm.


      • jnc:

        But I could be wrong. Taibbi makes an observation closer to Trump’s position:

        Yeah, I think that will be a stronger case than the anti-trust angle. If they can show that these private platforms are censoring based on government agency dictates – and they are – they can win. Especially since HRC was prevented from loading up SCOTUS with even more politically motivated progressives. Let’s hope Thomas can hang on through this geriatric puppet of a presidency that we have now.


        • The argument that there is kind of a “capture loop” going on, where the businesses “regulatory” capture the government and then suggest government guidelines, which they then issue, and then the companies adhere to the “government” guidelines that they themselves advocated for and claim no accountability, just adherence to the government guidelines . . . that doesn’t seem like it ends well to me.


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