Morning Report: Larry Summers sounds hawkish on inflation.

Vital Statistics:

 LastChange
S&P futures4,16922.25
Oil (WTI)87.64-1.36
10 year government bond yield 2.79%
30 year fixed rate mortgage 5.45%

Stocks are higher this morning on no real news. Bonds and MBS are up small.

Ordinarily the week after the jobs report is often a snoozer economically, but that has changed as inflation now takes center stage. We will get some big numbers this week with the Consumer Price Index on Tuesday, Productivity and Costs on Wednesday and the Producer Price Index on Thursday.

Friday’s strong jobs report caused a hawkish shift in the Fed Funds futures contracts. The September meeting now has a 2/3 probability of a 75 basis point hike and a 1/3 probability of a 50 basis point hike. The December futures are centering around a Fed Funds range of 3.5% to 3.75%, which is up 25 basis points from before the report.

Former Treasury Secretary Larry Summers made some hawkish comments about inflation over the weekend. On the jobs report, he said: “Everything in this number says to me overheating, not yet under control, not yet on a path to being under control,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV. “My concern was actually magnified,” he said.

He also pointed out that core inflation is running at about 5%, which is higher than it was when Nixon put on wage and price controls in the 1970s.

On the assessment that the Fed is close to a neutral policy, he said: “I don’t think the Fed has the thread right now,” Summers said. Without significantly boosting real interest rates — which are adjusted for some gauge of inflation — “then we’re just setting the stage for stagflation”

His point about real interest rates is important, since the real interest rate is a moving target. The Fed Funds rate is a nominal interest rate which doesn’t take into account inflation. By any measurement, with core inflation running around 5% and the Fed Funds rate at 2.25%, real interest rates are still negative.

Even Paul (Dr. Cowbell) Krugman had to admit that the Fed needs to do more to get inflation under control.

Meanwhile, the Atlanta Fed’s GDP Now index predicts Q3 GDP will come in 1.4%, though this was before the jobs report. While 1.4% is still positive, it is by no means strong. The Fed would characterize 1.4% GDP growth as “modest.” And this is before all of the tightening we have just experienced gets felt by the market. We won’t see the economic effects of this tightening begin until after Labor Day at the earliest.

Rithm Capital aka New Residential reported that origination volume was down 29% QOQ to $19.1 billion. This is down 19% from a year ago, but I suspect last year’s numbers don’t include Caliber. Gain on sale margins increased to 1.95%, however the company said on the earnings call that it was de-emphasizing origination going forward because the gain on sale margins weren’t there. 1.95% was the highest number over the past year, so I found that interesting.

Like every originator out there, MSR valuations saved the day, and the strategy is all about cost cutting. Rithm sees the mortgage company operating at roughly breakeven for the foreseeable future.

62 Responses

    • Just like Hitler.

      All that’s missing is the YouTube video from Downfall

      https://knowyourmeme.com/memes/hitlers-downfall-parodies

      Like

      • I’d love to see the Venn diagram of people who believe this and also believe that MMT is legit, Bush stole the 2000 election and that Dick Cheney is right.

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        • Bush stole the 2004 election. Trump stole the 2016 and was actually towing away mail trucks and stealing mailboxes in an attempt to steal the 2020 election.

          That said I don’t see how you could vote for any of the 2020 and on spending bills and not buy into MMT. Because clearly you don’t think there is any downside to just printing money.

          Like

      • They will literally just say anything.

        I put this in the highly unlikely to have even been plausibly misunderstood or misinterpreted category. This is lying for the pull quote. Because you know they’ll do it. And maybe your contract says you’ve actually got to sell some books.

        The incentives are not about truth telling. Why wouldn’t he have picked Nixon, referenced Liddy? Or Lincoln or FDR? Why wouldn’t he have just said “you guys suck, you’re worthless”.

        “Journalism”.

        Like

    • I get the feeling both sides have a problem they aren’t fully aware of—intentional trolling.

      Like

  1. “Why the ‘Inflation Reduction Act’ is no such thing

    Perspective by Steven Pearlstein
    Columnist
    August 7, 2022 at 12:10 p.m. EDT”

    https://www.washingtonpost.com/us-policy/2022/08/07/inflation-reduction-act-false/

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    • Wow. Pearlstein has been a loyal leftist foot-soldier. If even he is getting cold feet about the state of things, it must be bad.

      Like

      • I wouldn’t characterize him as a leftist

        Like

        • everything i have ever read from him complained about inequality, or advocated for more regulation.

          Like

        • “In Democrats’ progressive paradise, borrowing is free, spending pays for itself, and interest rates never rise

          A warning — and a farewell — from our longtime economic columnist

          Perspective by Steven Pearlstein
          Columnist
          March 3, 2021 at 7:00 a.m. EST”

          ttps://www.washingtonpost.com/business/2021/03/03/democrats-stimulus-spending-inflation/

          Like

    • It’s telling about how deteriorated Biden has become that he is spending the week secluded in South Carolina rather than out touting the glory of this bill.

      Like

    • Even when you are a good partisan, you don’t want to just be a shill for stuff you know is nonsense.

      Like

  2. It interesting that Summers is one of the 5 former secretaries supporting the IRA passed over the weekend.

    /b/The statement from former secretaries Robert Rubin, Larry Summers, Jacob Lew, Tim Geithner and Henry Paulson echo a letter sent by current Treasury Secretary Janet Yellen to congressional leaders on Tuesday that the bill would not raise taxes for Americans earning less than $400,000.

    “This legislation will help increase American competitiveness, address our climate crisis, lower costs for families, and fight inflation — and should be passed immediately by Congress,” the former secretaries said./

    https://www.reuters.com/markets/us/former-us-treasury-secretaries-back-drugs-climate-tax-bill-2022-08-03/

    Like

    • Sorry I didn’t code that quote right…………….a senior moment……………wait until you’re 72…………….Ugggghhh

      Like

    • Curious why Reuters calls it a “drugs, climate, tax bill” when the purpose was to lower inflation. I mean, that’s it’s name, isn’t it? Maybe they’re still on strike at Reuters.

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    • lms:

      The statement from former secretaries Robert Rubin, Larry Summers, Jacob Lew, Tim Geithner and Henry Paulson echo a letter sent by current Treasury Secretary Janet Yellen to congressional leaders on Tuesday that the bill would not raise taxes for Americans earning less than $400,000.

      And this is a good thing, why exactly?

      We inhabit a truly perverse moral universe when turning more than 98% of the population into free riders at the expense of less than 2% of the population is deemed to be a positive development.

      Like

      • Scott, do you seriously consider folks with annual incomes less than 400K as free riders? I’m pretty sure their taxes aren’t going away. I’ll have to let my children all know they’re now part of the nanny state I guess. That’s actually a little shocking even from you.

        I was merely pointing out that 5 previous Treasury Secretaries seemed to think this is a good bill and does what it says it does. They all recommended a favorable vote. You’re sounding very Ayn Randish today. 😉

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        • lms:

          Scott, do you seriously consider folks with annual incomes less than 400K as free riders?

          With regard to this spending bill, if they are not contributing to covering the cost but expect to accrue benefits, of course I do. That is the very definition of a free rider.

          I was merely pointing out that 5 previous Treasury Secretaries seemed to think this is a good bill and does what it says it does. They all recommended a favorable vote.

          And 50 former intelligence officials seemed to think that the Hunter Biden laptop story was Russian disinformation and recommended that the story be blacked out.

          Your faith in what former government officials say and recommend (not to mention their motivations) is…well, not something I share.

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        • I think this is a common divide between today’s left and today’s right. That 5 treasury secretaries think anything is a good idea recommends against it for me. I have little respect for or trust in the self-appointed expert class, or consensus rulings from intelligence agencies on acceptable truth.

          Also when the experts are promising that policies will do things they logically cannot do, they sound no different to me than boiler room scam calls selling investments with 1000% returns if you just give them all your money.

          I don’t trust the government or the press, generally. Which seems to have been a common orientation on the left back in the 60s and 70s while the right would be more trusting of the government if not the media. But things change I suppose.

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        • Is there a reason that I should care about Hunter Biden or even Hilary Clinton right now……………or maybe we should also care about Jared and his Saudi ties?. None of that impresses me TBH…………..if they all go to jail for something, if they’ve committed crimes, then go for it…………..but also, if Trump committed crimes then go for that too!

          I haven’t forgotten that Clinton made a deal leaving office about lying and compromised to not be prosecuted post presidency…………or that Nixon was very close to being prosecuted until he resigned and was pardoned. If you commit a crime………….you need to be held accountable. Doesn’t matter if you’re a D or an R………….President or Governor (we lost a few of those to prison)

          I know you think I’m either naive or stupid but the Justice Department is doing their thing right now and hopefully they come up with an indictment re Trump and others. You can’t just try to overturn a legitimate election without evidence to stay in power. We’re not a Banana Republic yet.

          I remember during the early days of Trump’s presidency you were a big fan of W Barr……………..he’s pretty much a never Trumper now. Maybe you don’t care about Trump, or his cult following, but thank goodness W Barr is taking the high road now. I’m not his biggest fan still but I do think we have a more circumspect and neutral DOJ now…………tell me I’m wrong!

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        • You’re wrong but I’m damned excited about what happens after the convention when the R nominee becomes a convicted felon.

          I’m sure that won’t look political at all.

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        • “or maybe we should also care about Jared and his Saudi ties”

          Sure. He was powerful and the Whitehouse. Why not expect him to be at least mostly legit.

          If Trump Jr had been a quarter of the prostitutes-purchasing, crack smoking, under-age relative covering, sex-video making, non-working but hugely paid consultant for firms in foreign countries … I’m pretty sure the mainstream press would have given that heavy, heavy coverage like they did with Trump’s tax returns. Ultimately, I’m not that worried about corruption amongst the politicians in and of itself as sure it’s epidemic.

          I’d rather our politicians be serving their self-interest selfishly than planning our lives through sophisticated policy designed “for our own good”.

          “You can’t just try to overturn a legitimate election without evidence to stay in power. We’re not a Banana Republic yet.”

          If they can actually prove something, that’s fine but the way they did the hearings seems kind of banana republic to me. But the Clinton impeachment and the Starr investigation also seemed very banana republic to me so … maybe we’re just not as far from that as we’d like to think we are.

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        • lms:

          Is there a reason that I should care about Hunter Biden

          Yes, but more relevant to my comment is that you probably shouldn’t take what 5 former political appointees have to say about something as authoritative. They are all political creatures with political motivations and political agendas.

          I remember during the early days of Trump’s presidency you were a big fan of W Barr……………..

          I was and I am.

          he’s pretty much a never Trumper now.

          No he’s not, at least not in the Liz Cheney/Jan 6 sense of the term. This is what Barr has had to say in an interview about Trump and Jan 6:

          “I do think there are legitimate areas of inquiry, but I also agree with the congresswoman that this isn’t set up as an optimal mechanism for getting at the truth, and there is obviously a big political overlay.”

          “I think it’s legitimate to explore whether or not there was a plan to use violence to stop the vote, and if there was a plan, was the president involved? I haven’t seen anything up to now that makes me think he was, and I personally doubt it.”

          “And the other question is more of a political nature, which is, did the president stand by for hours while the Capitol was under attack, and did nothing and made the comments that were attributed to him about the vice president? I think that’s a legitimate area of inquiry.”

          “Well, I haven’t seen anything that makes me think the president committed a crime. What’s come out so far has generally been known before.”

          You should probably read his book if you want to actually know what he thinks, rather than what the liberal media or the Jan 6 Committee wants you to think he thinks.

          but I do think we have a more circumspect and neutral DOJ now…………tell me I’m wrong!

          You are obviously wrong. In fact, laughably so, given what has just occurred with Trump’s residence getting raided by the FBI. What drugs are you on?

          Like

        • I have a sense that Trump, ironically, is perhaps our least corrupt president since Reagan. So of course he gets raided.

          I feel this has to in part be an effort to gin up Trump’s base so he wins the primary.

          Like

        • lms:

          and hopefully they come up with an indictment re Trump and others.

          What crime do you think Trump committed and that he ought to be indicted for?

          Or is this just a generic hope that he did commit a crime so that he can be indicted, because you despise him so much?

          I am genuinely curious.

          Like

        • I would assume January 6th would be his crime. The idea being he did something to engineer it, perhaps with other Republicans who also ought to be ejected. Or arrested. Or they find the missing link in the Russian collusion case.

          That being said: I note there is a tendency to be very willing to find the bad people who disagree with you guilty of crime. There were people who suggested Trump had committed a crime or treason everyone he Tweeted something.

          Like

        • “Is there a reason that I should care about Hunter Biden”

          As a conduit for illegal payments to his father from various foreign interests, and attempting to solicit more money by peddling influence (along with James Biden, Joe Biden’s brother).

          “You can’t just try to overturn a legitimate election without evidence to stay in power.”

          Someone needs to indict Maxine Waters & some other Democrats then.

          “Fact Check: Did Democrats Object to More States For 2016 Than Republicans For 2020?
          By Shayna Greene On 1/13/21 at 8:08 PM EST

          The Ruling

          True.

          Even though Republicans were able to get two objections formally considered in 2021, they objected to votes from only six states. It should be noted, however, that the Capitol riot earlier in the day kept the number of objections lower than expected.

          In 2017, House Democrats objected to votes from Alabama, Florida, Georgia, North Carolina, South Carolina and Wisconsin. Objections also were made after the announcement of votes from Mississippi, Michigan and Wyoming, adding up to nine states. None of the nine objections was considered because they lacked the signature of a senator.”

          https://www.newsweek.com/fact-check-did-democrats-object-more-states-2016-republicans-2020-1561407

          Like

        • C’mon, that’s different!

          Like

      • Because they believe that will convince the 98% that they won’t end up footing the bill. And that when they do end up footing the bill in one way or another, those advocating for this stuff think nobody will notice they are actually footing the bill for all the “tax the rich” stuff or will even reward them for it. IMO.

        Like

    • This is in the category of the kind of policy that is always guaranteed to be high cost and low benefit. Promises too much, and too much of it (like so much of what government tries to do) is in the category of things the government cannot do or will only do poorly, instead of things it could potentially do (the chips act is more in the category of worthwhile things the government could potentially do but these days I’m not sure they can even successfully subsidize manufacturing capacity without fucking it up).

      Still, anything so ambitious that promises so much is almost sure to leave us with all the costs with none of the promised benefits.

      I think this is true of most government legislation. It’s a non-partisan position.

      Like

  3. Has Steve Bannon supplanted Karl Rove (who supplanted Lee Atwater) in the progressive hierarchy of evil geniuses?

    Cause Kellyanne Conway would like a word.

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  4. These two are pretty good.

    Was this before or after he wrestled the steering wheel away from the secret service agent? https://twitter.com/jaketapper/status/1556630809540317184

    Did Trump also pour bleach on Kelly and then yell, “This is MAGA country!” before disappearing into the night?

    Kelly, who spent the end of his career perpetuating America’s defeat in Afghanistan, is somehow a worse fiction writer than he was a military strategist. https://twitter.com/CarlosLozadaWP/status/1556604226381516801

    Like

  5. After Trump’s conviction (prior to November ‘24) he’ll then earn some Strange New Respect.

    https://thehill.com/homenews/administration/3590320-desantis-is-scarier-opponent-than-trump-say-dems/

    Like

  6. George – for you:

    Like

  7. Must be where all the billionaires and millionaires live.

    https://projects.propublica.org/graphics/eitc-audit

    Especially Mississippi.

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    • They aren’t hiring 87k new auditors so they can audit all those millionaires better.

      This is going back to the days of auditing the middle class on the regular, bending them into settlements. Get some more cash that way. But also remind them who is in charge.

      Like

  8. Why you make me hit you baby?

    LMAO, journos now blaming Republicans for their uneven coverage. https://twitter.com/EkdahlPress/status/1556724353198424065/photo/1

    Like

    • I love that journos are supposed to be “informing” us but they are so ignorant of how they are perceived, so deeply unaware of how biased they objectively are, their profound lack of self-awareness.

      It’s like having a morbidly obese doctor who smokes 4 packs a day and also smokes crack giving you health advice and is then honestly mystified why you aren’t listening to his wise guidance.

      Like

      • MSM journos exist only to tell democrat voters that republicans are bad. So it doesn’t matter if they actually talk to republicans or not.

        Meanwhile, no republican tunes into NPR to get the news. They get it from Ben Shapiro.

        Like

  9. This one made me laugh as well.

    Jennifer Rubin just had her first ever orgasm

    Like

  10. So relieved to have our norms back!

    Attorney General Merrick Garland approved an FBI raid on the former president who personally revoked his nomination for the Supreme Court when he won the presidency.

    Read that sentence a couple of times.

    Like

  11. Breathtaking.

    Five hours ago, David was talking about how the IRS is used to unduly harass people, including himself.

    What changed? The target. https://twitter.com/bonchieredstate/status/1556820610076053509/photo/1

    Like

  12. To paraphrase Joe Pesci in JFK, “fun and games man, fun and games!”

    So. Apparently the judge who signed the warrant is the *spit* former US Attorney *spit* who went from the DOJ to working for Epstein. Oh that is going to calm down the spoiler alerts I mean conspiracy theories.
    https://www.flsd.uscourts.gov/content/judge-bruce-e-reinhart (cap 1)
    https://www.miamiherald.com/news/state/florida/article232595847.html (cap 2) https://twitter.com/alexthechick/status/1556991830889496576/photo/1

    Also, why didn’t they go to a Federal Judge, one appointed for life, supposedly insulated from politics versus a magistrate serving an appointed 8 year term?

    Like

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