Morning Report: The economy grew below trend in September

Vital Statistics:

  Last Change
S&P futures 4,544 8.2
Oil (WTI) 85.11 0.89
10 year government bond yield   1.63%
30 year fixed rate mortgage   3.33%

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


The upcoming week has a lot of important economic data. We will get new home sales and the FHFA House Price index on Tuesday, the advance estimate of third quarter GDP on Thursday, and personal incomes / outlays on Friday.


The FHFA House Price Index will cover August, and the new FHFA limits will be based on the third quarter numbers. We are seeing a lot of lenders start to accept loans based on the expected new limits. Given the pace of home price increases, the new limit will be around $650k or so.


The Street is looking for GDP growth to come in around 2.7%. This is a deceleration from the first half of the year, and it definitely looks like shortages are beginning to show up in the numbers. The Chicago Fed National Activity went negative last month, which indicates the US economy is grew below trend in September. This index is a meta-index of about 85 indicators, so it is a pretty broad based look at the economy.


Jerome Powell pretty much confirmed that tapering will begin this year: “I do think it is time to taper,” Mr. Powell said Friday. “I don’t think it is time to raise rates.” He went on further to discuss the economy: “We think we can be patient and allow the labor market to heal,” he said. But at the same time, “no one should doubt that we will use our tools to guide inflation back down to 2%” if it looked like more persistent inflationary pressures were taking root, Mr. Powell added.


Despite the repeal of limits on non-owner occupied properties, the private label market is still going strong. IMO, this was the ultimate rationale for the limits in the first place. The private label market disappeared in the aftermath of the 2008 financial crisis, which meant that something like 90% of all mortgage production was backed by the taxpayer. Mick Mulvaney ended up forcing the issue by creating a need for it.

One thing to keep in mind: while there is probably a contingent of the far left that likes the fact that the taxpayer backs the vast majority of mortgages, most housing professionals are uncomfortable with it. What happens if the the government says “yes, the FHFA House Price Index is up 20% YOY, but we don’t want to be subsidizing every loan below $650k.” If the limits get raised by something below 14%, then a lot of these wholesalers who are betting on the FHFA price index might find themselves caught short.


15 Responses

  1. Worth a read on how the media coordinates on major stories:

    Liked by 1 person

  2. Take it. Seriously! It’s mostly a D constituency so give it to them good and hard.


    • It won’t stop there. They’ll go after everyone with this eventually if it’s allowed to be enacted.


      • That will be fun to watch, electorally. Plus, I’m all for taxing the living shit out of billionaires.


        • Presumably you don’t hold any stocks then.


        • Only what’s in my 401K, to be honest. Can you imagine the volatility as they negotiate this for billionaires? My God, the QE needed to calm the waters will make the last 13 years look like child’s play!

          I know McConnell has come out against the tax and I think that’s a mistake. the smart play is to not say anything or, ideally say that the Republicans are certainly open to increasing taxation on billionaires. It makes ZERO sense to oppose come out in opposition to increasing billionaire taxation. Particularly tone deaf here, let the D’s squirm on the hook and let their own left wing down when the will inevitably back away from it.


        • My God, the QE needed to calm the waters will make the last 13 years look like child’s play!

          Won’t work. The Fed is out of bullets at this point.

          Stocks are overvalued and the economy looks like it is slowing down. Oh, and inflation is back. Let’s throw in some political risk too.

          I don’t advocate selling, but the bull market is long in the tooth and the support for it is falling away


        • It won’t stop them from trying.


        • “let the D’s squirm on the hook”

          The interesting thing will be the fight between the House and the Senate on this. The House tax committee chair says they already looked at it and rejected it.

          “House Ways and Means Committee Chair Richie Neal (D-Mass.) is cool to this Senate construct. Neil said he doesn’t know whether targeting billionaires is a reliable source of income for the federal government. Neil noted his tax-writing committee studied a similar proposal when assembling its portion of the reconciliation package and rejected it. The Massashusetts Democrat also said legal experts questioned the tax’s susceptibility to court challenges because it’s not a traditional income tax.

          In a sign of just how much Neal dislikes the billionaire tax, he’s still pushing for his tax construct, which hikes marginal and corporate tax rates. Sen. Kyrsten Sinema (D-Ariz.) has rejected that, which has forced Wyden’s hand.

          Here’s Neal:

          “The point that I make on [the House Democratic] tax plan, which I’ve said repeatedly, it’s efficient, rates published and advertised and adhered to. Everybody knows what the plan is going forward … [O]ur plan looks better every day.””


    • well, if you want to get rid of capital gains, this would be a good way to ensure they disappear.


  3. Good read. Got this from a comment on Glenn Greenwald’s latest piece:

    “Advocacy Journalism in Full Flower
    By James Buckley | November 12, 2020”


    • Yup. And I understand the core idea–that dead-naming somone, or dead-gendering them (I guess) is equivalent to an epithet. But there’s a difference between deciding that comment dismissive or denigrating slang is offensive or hate speech, like the n-word or “pollack” or whatever, and to start saying that certain normal words that have been used in some form since the dawn of the spoken word can be offensive if used the wrong way or in the wrong context.

      It would seem to me that this is the sort of thing that ought to be open to debate but they want to close off all debate on everything, including word-usage and definition, and rule by fiat.

      Dude is a biological man. There is a substantive difference between a biological woman and a biological man who feels he/she is a woman. It should be all right to say this obvious thing. People should be allowed to think that “Woman of the Year” or “the first woman to be a 4 star general” or whatever shouldn’t have spent 75% of their life as a man, and have been born a biological man.

      Everything about it oozes a kind of “we want life to be a kind of Calvinball, where we’re Calvin and we always make the rules and you have to follow them”.


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