Morning Report: Fed day

Vital Statistics:

S&P futures3,96037.25
Oil (WTI)94.53-0.55
10 year government bond yield 2.78%
30 year fixed rate mortgage 5.59%

Stocks are higher this morning as we await the Fed de Bonds and MBS are up.

The Fed decision is slated to come out at 2:00 pm today. The Fed Funds futures implied probability graph shows about a 3/4 chance of a 75 basis point hike and a 25% chance of a 100 basis point increase.

Retail inventories rose 2%, (higher than expected) in June, which probably bodes well for the advance estimate of second quarter GDP which comes out tomorrow. Wholesale inventories rose 1.9% as well. These numbers suggest that the supply chain issues of the past two years are working themselves out. Note that WalMart is cutting prices to deal with excess inventory.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.” said Doug McMillon, Walmart Inc. president and chief executive officer.

Food and fuel price inflation seems to be turning the corner however. The GSCI commodity index is heading back downward, although we are still well above levels seen last year:

As the old saying goes, the cure for high prices is high prices. Eventually demand falls and supply increases. Case in point: corn, which is down 26% from its April highs.

Mortgage Applications fell 1.8% last week as purchases fell 0.4% and refis fell 2%. “Mortgage applications declined for the fourth consecutive week to the lowest level of activity since February 2000,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Increased economic uncertainty and prevalent affordability challenges are dissuading households from entering the market, leading to declining purchase activity that is close to lows last seen at the onset of the pandemic.”

Homebuilder Pulte reported second quarter earnings yesterday. Demand remains strong for housing, however increasing mortgage rates are having an impact. One thing that stood out to me was the increase in gross margins, which rose to 30.9%, an increase of 430 basis points compared to last year and 190 basis points from the first quarter. Whatever cost increases that Pulte is dealing with (labor and material costs) are more than covered by rising prices.

The other thing I notices was a decent uptick in the cancellation rate, from 7% to 15%, as well as the 8% drop in orders. Backlog decreased slightly on a unit basis, but rose 18% on a dollar basis. It is strange to think that housing starts remain low when building homes seems to be pretty profitable and the demand is there. Perhaps it is nothing more than a skilled labor shortage, although the company didn’t mention it.

The fallout from Sprout continues. California lender New Wave is suing the company for defaulting on a purchase agreement for $32.8 million worth of loans. New Wave ended up selling the loans to a different buyer and Sprout is refusing to return the holdback amount.

Pending Home Sales fell 8% last month, according to NAR. Year-over-year, transactions are down 20%. This (along with the end of rate / term refis) explains why mortgage originators are struggling compared to the past two years.

“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said NAR Chief Economist Lawrence Yun. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”

Mortgage rates may indeed be stabilizing, as the yield curve continues to invert. The spread between the two-year and the 10-year is now negative 29 basis points. Mortgage rates are affected by bond market volatility, and if we get some stability in the 10 year, we should see mortgage rates work lower compared to Treasuries.

28 Responses

  1. California should just secede at this point:


    • It is astonishing to me that the left is willing to bend over backwards to satisfy a group that is firmly in their tent, while at the same time alienating most normies.


      • I don’t think it’s about the trans population itself so much as those white progressives who purport to speak for them.


        • It’s the liberal white women who want a tranny kid. They used to want a gay kid.


        • Now they can have a gay tranny kid, which would be the best. Think of all the likes on Twitter. If gay tranny kid says something about how Trump wants to kill people like him, or Desantis wants to sew his/her/them’s mouth closed … and then Tweets about it … the likes would be enormous!


        • Well it’s a lot of the trans population because a lot of the new trans folks are not sincere. Their compulsion is not driven by gender dysphoria but anti-social tendencies, a desire to bully, a desire for power or attention-seeking narcissism. A lot of trans people of the moment are trans of convenience.


      • Also that group is easily ticked off and fickle—and always want more. Bend over backwards they may be pissed you didn’t bend further. Or they may say: “great but can you stick your head up your ass, too?”

        People operating on feelz have no rational finish line for having completed a project or reached a goal. So can turn on a dime and decide you aren’t authentic enough or woke enough or you’re just too cis-Herero-normative to understand the intersectionality of the situation.

        The political left depends heavily, IMO, on people who don’t care that much and don’t pay that close attention. People who think abortion sounds like it should be a right and like free stuff and though Jon Stewart was funny and yeah rich people should pay their fair share. Casual lefties. In the long run the diehards are not the political left’s friend and more than the normies who pay attention enough to get offended.


    • Why not expel them?


      • It would be interesting to see how much of CA would stay with the state if it did secede. I would bet the farmland would either declare itself a sovereign state or get annexed by Nevada / AZ


        • I think so too. I don’t know but I get the sense that California is run like Tammany hall and that millions of Democratic votes are just harvested —admittedly by thousands of true believers acting largely independently, not all in some grand conspiracy.

          But outside of the cities I’m think California is not as deep blue as it usually appears.


      • “Why not expel them?”

        Brings back a classic Bond line:


  2. I love this piece.


    • Poor Chiat. He thinks credibility is something that can be argued like a debate club or a lawsuit.

      It can’t. You don’t need to be able to pinpoint the used car salesman’s fraud, you just need to know that you don’t trust him and get the car elsewhere.


      • The other thing that Chait won’t acknowledge, and I often forget, is that the MSM no longer influences the electorate to any significant effect, if they did, Trump would not have gained 10 million votes, about a 15% increase. That type of vote increase for an incumbent hadn’t happened since the 19th century.


        • That is what bothers him so: the “we don’t care what you think” aspect to it all.


        • And they hate that but I don’t think they’ve felt the bottom of their influence.

          Biden won the popular vote and he’s president now. The media played a big role in that. Not just in constantly attacking Trump but in covering up for Biden, lobbing his people softball, and collectively pretending there was nothing weird about a modern presidential campaign where one candidate barely showed his face in public.

          But as they continue to shout (decade after decade) about their VAST IMPORTANCE as the 4TH ESTATE, they keep losing influence. Their influence just 2 years into the Biden admin has to have diminished even more, post Russia gate and COVID and the “adults are back in charge” narrative.

          Doesn’t help that the media will cover mash shootings by a white Dude wall-to-wall for weeks but every other kind of violence—even very “bleeds it leads” violence—gets buried because the perps are the wrong color, among dozens of other gigantic double standards that shape coverage in ways that have nothing to do with reporting the news …

          Then there’s to competition from YouTube and podcasts and a thousand other sources. Every new year will begin with the MSM having less influence and relevance than it did the year before.


      • But in this case you can both pinpoint the multiple frauds again and again, AND you can be super-creeped out by their arrogance and narcissism and how skeevy and gross they are (thinking of Brian Stelter there but a lot of them just come off as super-slimy or Hollywood Heartthrob levels of arrogance).

        But for years I’d listen to NPR and watch CNN because it felt like you could kind of feel around the biases, maybe guess what they were omitting. Now it feels like there is almost no reportage—it’s either a left-wing infomercial or a left-wing infomercial that brazenly lies to your face.

        I have to feel that watching the North Korean news lady shout the news would be a lot like watching the MSM today. If I understood Korean.


        • Wanna stump a leftist? Ask zir who broke the Monica Lewinsky story.

          They will never guess it was Matt Drudge. That says it all about the mainstream media.


      • This is a good piece:

        ““I just don’t even see what the point is anymore,” said an adviser to one likely GOP presidential aspirant, who requested anonymity to discuss press strategy. “We know reporters always disagreed with the Republican Party, but it used to be you thought you could get a fair shake. Now every reporter, and every outlet, is just chasing resistance rage-clicks.”

        Dave Carney, a longtime GOP strategist, said that, according to his team’s research, getting endorsed by a newspaper editorial board, even a local one, hurts Republicans in primaries rather than helps them.

        “No one gives a fuck what the New York Times writes,” he said. “In fact, it would be good if you criticize us so that we can say that even the liberal New York Times hates us.”

        One adviser to Marco Rubio told me a reporter had recently said to him that Rubio’s accessibility to the press in Washington would stand him in good stead should he eventually seek the presidency again. “Are you kidding me?” the adviser responded. “The minute he announces, you guys put your blue jerseys on again, and that’s the end of that.””


        • Always Assume Bad Faith. Always.

          Why would any R talk to the press? Zero upside.

          I think this is probably true:

          “It used to be that you didn’t want to give the media a chance to attack you, but now you see people doing things that are deliberately transgressive just in order to create negative attention — which then allows you to go back to your people and say, ‘Look how the liberal media is attacking me,’” said Liam Donovan, who used to work for the Senate GOP. “


    • It’s an entire industry of people who all suffer from an identical form of pathological narcissism and utter incapacity for self-reflection.

      Even the assumption is wrong; it is not just the GOP that doesn’t recognize the legitimacy of the mainstream press; it’s a lot of hardcore lefties (sometimes for different reasons but sometimes the same reasons as the right), normies, independents, and zoomers who think the press is nothing but a bunch of windbag dinosaurs and all real news comes from TikTok or YouTube or Instagram.

      Of course this is from folks who don’t accept the legitimacy of Fox News or The New York Post or any center-to-right news outlet.

      That being said, I find Fox fully as awful as MSNBC and question the legitimacy of all of these bulwarks of propaganda.


      • I don’t watch either. I skim the front page of the WSJ and go with source data wherever I can.

        I think Ben Shapiro has a bigger audience than any of the MSM, which is funny too.

        The left is trying to Alinsky Tucker Carlson as well.


    • “Whether the news media treats the Republican Party more or less harshly than the Democratic Party is a question that can’t be measured”

      Holy crap.

      “But the people working in these institutions understand they are working for the conservative movement, not on behalf of the public’s right to know.”

      No one can seriously believe the MSM gives a shit about “the public’s right to know”. They’ve buried stories that didn’t fit the narrative for pretty much my entire life, and probably well before then.

      The MSM wants the right to tell you what to know. And for you to accept it uncritically. He’s making this pointed case for how different the MSM is from conservative media but it’s not. It just the same stuff from the other direction, with more feeling.

      “Their approach to malfeasance by their side is to ignore, distort, or change the subject to some agreed-upon sin by the enemy (a practice called “whataboutism”).”


      You must trust the New York Times because we just objectively report facts. Also, this: “ He burst onto the scene by manipulating the New York Times into publishing a profile misleadingly presenting his father’s wealth as his own”

      They really cannot hear themselves. “Well but that was Trump’s fault.”

      The problem is that Trump was not president Trump then, that relationship served the media and they were happy to be manipulated. And that wasn’t unique to Donald Trump. At all.

      “DeSantis has thrilled conservatives by broadcasting his belief that mainstream news reporters are left-wing activists whom he treats as the enemy.”

      So despite having misreported on Florida all through COVID, and making a brief celebrity out of a “whistleblower” who turned out to be a sociopathic narcissist with all the actual evidence 100% against her (at which point the media just evaporated her like she never existed), having used the term “Deathsantis” in headlines, having accused Desantis of being antivax (which he’s not), naming him the new (but worse!) Trump, and lying about his anti-grooming bill claiming it was a “don’t say gay law”, also suggesting they ban books or even “burn” books on Florida … amongst so many other things, why ever would Desantis suspect the media might not be acting in good faith? What could make him hallucinate that the media were left-wing activists? What nonsense! Balderdash!

      “He has turned his brain into a sorter that places every piece of news about Obama into either a box labeled “Obama is bad” or a box labeled “media is biased.”

      Everything pretty much any media produces can be put in that box. The main difference there is most right-wing media acknowledges its biases.

      BTW, you know who had a sorting-brain that put every Trump story in the “Trump is bad” box? And before that there was a “Bush is bad box”? Pretty much everyone in the MSM. Physician, heal thyself.

      “DeSantis hardly ever faces questions he would rather not answer.” Or he does and handles the questions deftly in a way that disrupts the MSM narrative so you say he doesn’t face hard question but really you just don’t like his answers.

      And frankly why should he or any politician waste their time with you? You’re basically the arm of the DNC. He might as well spend time working on his opponents campaign commercials.

      “He is instead enjoying a gusher of coverage in the conservative media that is indistinguishable in tone and content from the messages produced by his own staff.”

      Like I said. Literally incapable of self-reflection. They couldn’t recognize themselves if you held a mirror in front of their faces.

      “ “I am not deterred by any smear piece from these legacy media outlets. The only reason they’re attacking her is because she does a great job, and she’s very effective at calling out their lies and their phony narratives. And so, whenever they’re smearing somebody, you know that person is over the target, and so they’re scared of that. I would be much more concerned with my press secretary if the Washington Post was writing puff pieces about her.””

      Chiat thinks that’s terrible, because he’s not dealing with the factual claims made—and he’s right. But there is nothing incorrect about any of what Desantis said. And this is something any competent politician does—they just don’t have to do it on the left so much because they would never ask Biden that question if his press secretary turned out to be embezzling money from the government to buy crack and pay for hookers.

      “and which transmitted a glowing account of DeSantis’s attacks on the Post without noting that the story was completely true”

      Because Brian Stelter and Rachel Maddow and Jake Tapper are so good about noting when’s Fox story is completely true. I don’t recall them noting the NY Post’s Hunter Biden laptop story was “completely true” while colluding with Twitter and other social media to bury it.

      “The only “journalists” they deem legitimate are ones who are functionally working for them.”

      Unlike MSNBC and WaPo and the NYT and CNN and ABC and CBS and NBC and NPR functionally work for the DNC.

      Again, incapable of self-reflection. Or self-awareness.

      Then the story ends and I scroll down and see the other headlines. “Biden has made a deal with Manchin! Oh Joy we are saved!” And “Recession totally unlikely don’t worry about it!” And other hagiographic embraces of the perfection of Democratic governance. TOTALLY different from how Fox covers Republicans.


  3. Stop making Trump cool!

    I’m pretty sure the Trump campaign has to declare this as an in-kind contribution.


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