Morning Report: Fed Week

Vital Statistics:

S&P futures3,898-22.25
Oil (WTI)86.43-1.44
10 year government bond yield 4.04%
30 year fixed rate mortgage 6.95%

Stocks are lower this morning as we start Fed week. Bonds and MBS are down.

The upcoming week will have a lot of market-moving events. The biggest event will be the FOMC meeting on Tuesday and Wednesday, with the Fed Funds futures handicapping a 86% chance of a 75 basis point hike and a 14% chance of 50. We will get the jobs report on Friday, along with the ISM data and productivity.

The government is beginning to worry about liquidity in the Treasury market. One of the problems with borrowing a lot of money is that you need to continue to attract a lot of money in order to roll over the maturing debt. The fear is that we could get some failed auctions. Part of this is being driven by the events in the UK, where yields on UK Gilts (The UK’s version of a Treasury) spiked some 120 basis points in the course of a few days.

The root of the buyers strike is due to a lot of things, but the ultimate reason is nothing more than price and value. With inflation running at anywhere between 5% to 6%, a 10-year Treasury paying 4% isn’t an attractive investment. Global central banks have engineered a bubble in sovereign debt, which is something I don’t think we have seen before. Central banks in general have only been around for about a century so this is all new territory.

Note that the Fed is now paying more in interest than it receives in income from its Treasury and MBS portfolio. The Fed pays all of its profit to Treasury, and now that it is running losses, it is accumulating an IOU. When the Fed starts earning profits again, those profits will pay off the IOU. The Fed also does not mark its portfolio to market, which is good news because it is probably a few hundred billion dollars underwater on its MBS portfolio.

Public interest lawyers are warning that the 5th Circuit’s ruling on the CFPB’s funding structure could upend the mortgage market. “The Fifth Circuit’s decision threatens to paralyze mortgage lending in Mississippi, Louisiana, and Texas because lenders will lose certainty about what law applies to future mortgages that they make,” McCoy said, referring to the states within the Fifth Circuit. She was part of the original leadership team at the CFPB during the Obama administration.

“We do like to settle rules that give us some safe harbors for the way that we make mortgages and we don’t want that to all go away,” Mortgage Bankers Association president and CEO Robert Broeksmit said Monday at the trade association’s annual convention. Still, he vowed to keep fighting what he called the bureau’s regulatory overreach. “Now is no time to make you hire more lawyers to try to understand what the bureau is doing.”

FWIW, the MBA believes this ruling would only affect payday lenders, however the CFPB’s days of being exempt from the appropriations process are probably over.

42 Responses

  1. The focus groups that the NY Times does are always revealing:


    • NYT, on the idea of voting for Herschel Walker if the R’s need it to win the Senate:

      “That ends-justifies-means-mentality…”

      Would they ever use that characterization for all the Biden and Fetterman voters who had/will have precisely the same rationale for voting for a quite literally mentally incapacitated candidate?


      • Nobody projects like the left.


      • That was pointed out in an Op-Ed in the NYT today:

        “Bret Stephens: Years ago, when I was in high school, my father suffered a cerebral hemorrhage, and his recovery took time. So I felt a lot of compassion for John Fetterman when he took the stage in that painful-to-watch debate with Mehmet Oz last week. On the other hand, I wouldn’t have recommended my dad for a Senate seat during his ordeal, and I’m getting the sense that Pennsylvania voters are reaching the same reluctant conclusion about the Democratic candidate.

        Gail, you wrote a powerful column on the subject. How do you see the race playing out now?

        Gail Collins: Still say vote for Fetterman. I know he lost the debate, but when it comes to the Senate, there’s no point in picking the better debater — the way you might have wanted to back in the day when our senators listened to one another’s arguments and once in a while changed their minds. Now you just need someone who will vote to give the majority to the right party. Nothing he does in office is going to make a fraction of the impact of the basic question: Will we have Republicans or Democrats in charge?

        Bret: Isn’t that the same excuse a lot of Georgia Republicans are making for themselves as they hold their noses and vote for Herschel Walker?

        Gail: Well, if you’ve got a candidate of strong character versus a totally duplicitous jerk who exemplifies all the worst ways a man can treat a woman then, OK, yes, I guess political loyalties might take a back seat.”


  2. Worth noting:

    “Arizona Gov. Doug Ducey Defies Biden With Border Wall Made of Shipping Containers

    Ryan Devereaux
    October 29 2022, 10:00 a.m.

    At the mouth of a valley in the Huachuca Mountains, on the northern side of the U.S.-Mexico border, the governor of Arizona is picking a fight with the ghost of Theodore Roosevelt.

    On Monday, Gov. Doug Ducey began dropping the first of thousands of shipping containers along a 10-mile stretch of national forest in open defiance of federal authorities. In the days since, the Republican governor has transformed a remote section of rugged desert into what looks like a junkyard. Along the way, he has set the stage for an unprecedented legal showdown with the feds — all just in time for a critical midterm election in Arizona.

    The battle is over a 60-foot-wide swath known as the “Roosevelt Reservation” — named for the president and conservative icon that created it 115 years ago — that cuts through the Coronado National Memorial, running parallel to the border. During a visit Wednesday, The Intercept observed a fleet of trucks and construction vehicles stacking 8,000-pound shipping containers one by one on the dirt road, which has historically fallen under federal jurisdiction. In a lawsuit he filed three days before the installation began, Ducey admitted he had not received authorization for the project but was proceeding anyway.

    The governor’s actions create precisely the sort of state’s rights and border security confrontation the Biden administration would be inclined to avoid less than two weeks from the midterms.”


  3. Also worth noting:

    “Truth Cops
    Leaked Documents Outline DHS’s Plans to Police Disinformation

    Ken Klippenstein, Lee Fang
    October 31 2022, 9:00 a.m.

    In an appearance on Joe Rogan’s podcast in August, Meta CEO Mark Zuckerberg revealed that Facebook had limited sharing of the New York Post’s reporting after a conversation with the FBI. “The background here is that the FBI came to us — some folks on our team — and was like, ‘Hey, just so you know, you should be on high alert that there was a lot of Russian propaganda in the 2016 election,’” Zuckerberg told Rogan. The FBI told them, Zuckerberg said, that “‘We have it on notice that basically there’s about to be some kind of dump.’” When the Post’s story came out in October 2020, Facebook thought it “fit that pattern” the FBI had told them to look out for.

    Zuckerberg said he regretted the decision, as did Jack Dorsey, the CEO of Twitter at the time. Despite claims that the laptop’s contents were forged, the Washington Post confirmed that at least some of the emails on the laptop were authentic. The New York Times authenticated emails from the laptop — many of which were cited in the original New York Post reporting from October 2020 — that prosecutors have examined as part of the Justice Department’s probe into whether the president’s son violated the law on a range of issues, including money laundering, tax-related offenses, and foreign lobbying registration.

    Documents filed in federal court as part of a lawsuit by the attorneys general of Missouri and Louisiana add a layer of new detail to Zuckerberg’s anecdote, revealing that officials leading the push to expand the government’s reach into disinformation also played a quiet role in shaping the decisions of social media giants around the New York Post story.

    According to records filed in federal court, two previously unnamed FBI agents — Elvis Chan, an FBI special agent in the San Francisco field office, and Dehmlow, the section chief of the FBI’s Foreign Influence Task Force — were involved in high-level communications that allegedly “led to Facebook’s suppression” of the Post’s reporting.”


  4. Is there any doubt that these motherfuckers, Republican and Democrat, will give it to them?

    Biden now faces resistance from some Republicans and Democrats that wasn’t present when Congress approved previous Ukraine funds. The White House has discussed asking Congress for billions of dollars during the lame-duck legislative session after the midterm elections.

    Blow it all up.


  5. The “experts” want to memory-hole their record on COVID

    Once the left realizes they have pissed everyone off with their arrogance, they want the other side to have humility now that the shoe is going to be on the other foot.


  6. We now have “Journalism Denier” to add into the crimes I’m guilty of.

    The camp will at least be a blast. And honestly, where’d you rather be? With the puritan lefties or the fun, “Deniers” in the camps?

    You know where you want to be and where all the sex, booze and cocaine will be!


    • Make sure you know what kind of disinformation you are spreading with this handy government list:

      “The work, much of which remains unknown to the American public, came into clearer view earlier this year when DHS announced a new “Disinformation Governance Board”: a panel designed to police misinformation (false information spread unintentionally), disinformation (false information spread intentionally), and malinformation (factual information shared, typically out of context, with harmful intent) that allegedly threatens U.S. interests.”


      • But lies that conform to the official narrative will be endorsed and become the new truth until later revised to a new approved truth and the old truth is not only declared false but now was always false. And the new truth always was.


    • I guess journalist denier is newspeak for wrongthinker.


    • “Journalism denier”. Like “Holocaust denier”. Interesting that a journalist would consider their profession akin to the Holocaust.

      Beyond that odd juxtaposition, the self-importance and humorlessness—and lack of introspection—is poisonous to their profession.


  7. C’mon AOC, nobody whitey, like yourself, wants neo-nazi’s taxed at all?

    I mean, what’s the point of being a neo-nazi if I have to pay taxes for the price lags?


    • Oh sweet Jesus.


      • I think it is hilarious watching the left try and sell the story that a Berkeley nudist from BC is somehow a MAGA Republican.


        • This one probably has more merit than most as a targeted attack. The guy seems to be attracted to whichever conspiracy theories were the most extreme.

          The Republicans should have had a less mocking response though. The posts about Pelosi attacker Halloween costumes and Youngkin’s comments were in poor taste and counter productive.


        • Social media is a cancer. I think if given more time they might think better of some of the things they share.


      • Sanctuary cities. Look if he hadn’t been there already Ron DeSantis would have flown him in from Canada so this was bound to happen.


  8. Could we at least get a reach-around or no?


  9. Well done


  10. Hogan dodged a bullet by reciting the Liturgy.

    “Just wanted to let Marylanders know that after testing positive for COVID-19, I am working from home,” Hogan said Monday. “Fortunately, I’m up to date on my boosters and my symptoms are minimal.”

    Also, has anybody not rebounded after taking Paxlovid? Seriously, why would a rational person take it?


  11. I would have told him to shoot the nuke if there’s a problem.

    This is obviously going to be a movie. Chris Farley would have been perfect.


  12. This oughta do it!

    Thanks Perv Joe!


  13. Everyone knows he was on the other side of this. It’s what he ran on in 2020:

    “Biden suspends oil, gas leases on public lands for 60 days
    Jan 21, 2021 4:16 PM EDT

    BILLINGS, Mont. (AP) — The Biden administration has suspended new oil and gas leasing and drilling permits on public lands and waters for 60 days as part a review of programs at the U.S. Department of Interior.

    The move follows President Joe Biden’s campaign pledge to halt new drilling and end the leasing of publicly owned energy reserves as part of his plan to address climate change.”


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