Morning Report: Stocks getting clobbered this morning

Vital Statistics:

S&P futures4,314-75.2
Oil (WTI)83.61-1.53
10 year government bond yield 1.72%
30 year fixed rate mortgage 3.74%

Stocks are lower this morning as we head into Fed Week. Bonds and MBS are up.

The movement in asset prices has been interesting. Stocks are getting clobbered, although the stock market was up big last year and earnings expectations are sky-high. Commodities in general are up, especially oil and lumber. Bitcoin has been cut in half, while gold is holding up. There are two things going on, IMO: the first is Ukraine and the threat of military action. The second is the Fed taking away the punchbowl.

Global bond yields have been falling over the past few days, with the German Bund now negative 10 basis points after briefly trading with a positive yield. If the markets were really worried about war, the dollar would be rising, and it is more or less in the same place it has been. It is possible the US gets involved in Ukraine, but I doubt it – American voters are pretty war-weary at this point.

Ultimately, this market behavior is being driven by the Fed. Rates are going to rise, stock market multiples are going to shrink, and short-term money market funds will be able to compete with other asset classes for capital. The big question is what happens to real estate prices. Nearly everyone thinks home price appreciation is going to slow. That said, the supply and demand situation is so unbalanced that I can’t see a decline in home prices unless long-term interest rates really rise, and we get a massive homebuilding boom.

The big question is whether the economic strength we have been seeing is sustainable. If it was driven entirely by stimulus, then we should see a weakening in the numbers in the next few months. This would take some pressure off the Fed, although the inflation numbers are going to be elevated over the next year, which is a function of last year’s growth in home prices. If this is the case, we have might be looking at that 70s show, where we go back and forth between inflation and recessions.

The Fed meets on Tuesday and Wednesday. No changes are expected in rates, however the markets will be looking closely for clues about how the Fed will go about reducing the size of its balance sheet. The last time they tried, it created problems in the repo market. We’ll see if they can prevent unintended consequences this time around.

The upcoming week has a lot of important data, with home prices, the initial estimate for 4th quarter GDP (the range is huge here: 3.7% to 7.1%), new home sales, personal incomes and outlays, and consumer sentiment.

Speaking of GDP estimates, the Chicago Fed National Activity Index declined in December, which indicates the economy grew below trend. This index is a meta-index of a bunch of different indicators, so it is not really market-moving, however it is useful for getting a general sense of how the economy is performing.

13 Responses

  1. Going to trial:

    “Ms. Palin’s lawyers have argued that Mr. Bennet had to know that there was no evidence that her political rhetoric incited the shooter and that he had a “preconceived storyline” and harbored ill-will toward the pro-gun rights former governor in part because his brother, Senator Michael Bennet of Colorado, is a Democrat who favors gun control.

    The Times has denied those allegations, rebutting the notions that it would ever knowingly print something false and that Mr. Bennet was acting out of spite. “We published an editorial about an important topic that contained an inaccuracy. We set the record straight with a correction,” a spokeswoman for The Times, Danielle Rhoades Ha, said. “We are deeply committed to fairness and accuracy in our journalism, and when we fall short, we correct our errors publicly, as we did in this case.””

    I think the NYT may actually lose here.


    • I guess it rests on whether people believe the Times made an error in good faith. Of course since its errors (at least narrative-wise) always go in one direction, it is hard to make that case.


        • Sure it is. And it’s not the worst outcome either given that the money in question is actually frozen Iranian assets, not US money.

          Better to send it to the UN than to have it used for other purposes.


        • jnc:

          Better to send it to the UN than to have it used for other purposes.

          If the assets are frozen, who could they be used by and for what other purposes?


        • If it were for something other than giving Iran it’s vote in the UN back, sure. I can’t judge us doing so a good investment no matter where the money comes from.


        • Also, I’m assuming the political dynamic is going to change as of Novemeber, 2022, but if there were a way for America to “refund the dues payment” to Iran, once the assets are unfrozen, I can totally see that happening.


      • It’s worse than that Brent. You have to also believe that they couldn’t be bothered with a Google search or reading their own news articles on the subject.

        “In 2011, the shooting of Ms. Giffords by a mentally ill assailant came during a convulsive political period, when a bitter debate over health care yielded a wave of threats against lawmakers. Sarah Palin, the former vice-presidential candidate, drew sharp criticism for having posted a graphic online that showed cross hairs over the districts of several members of Congress, including Ms. Giffords — though no connection to the crime was established.”

        This is also key:

        “The statements that Ms. Palin argues were defamatory were introduced during the editing process by James Bennet, who was then the editorial page editor for The Times.”

        The discovery should be worthwhile regardless of the outcome.

        I think they can make a case that the Times Editorial page acted with “reckless disregard” even if they didn’t 100% know the statement was false. When it came to Palin, I don’t think they cared. If the NYT truly regretted the error, they would have removed any reference to Palin entirely from the corrected editorial.


      • I can believe it was done in good faith, but also gross incompetence because the people making the good faith error (in theory) are so biased they cannot be expected to accurate perceive or process facts that don’t agree with their a priori assumptions. And will see anything that does agree with their biases as factually established thereby, so in no need of further confirmation.


        • “I can believe it was done in good faith”

          I don’t. Not in this case. Especially since they left Palin in the revised editorial even after they admitted that they were wrong.


    • He quotes the DHS guy saying that 2020 was “the most secure election ever” as if that was not a crazy thing to say and didn’t sound like a complete bald-face lie. Even if by some miracle it had been the most secure election ever, the DHS could not have known that definitively, or even close. So it was a stupid thing to say. But that’s about par for the course for all our experts these days.

      And he doesn’t ding the Democrats hard enough for standing in the way of reforming the electoral count act, which many of them are. But he’s right that the idea that the VP of the party in power could just decide he didn’t trust the electoral count and do something else–that was a very stupid idea. It would be a very bad thing if true. That it’s ambiguous should be fixed.


  2. Every time there’s a wild day in the market, I always think of this:


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

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: