Morning Report: The Fed Funds futures see big rate cuts in 2024

Vital Statistics:

 LastChange
S&P futures4,0500.50
Oil (WTI)78.48-1.20
10 year government bond yield 3.91%
30 year fixed rate mortgage 6.77%

Stocks are flat this morning on no real news. Bonds and MBS are up. It looks like the bond rally is due to fears of weakness in Europe and Treasuries are just correlating with overseas markets.

The week ahead should be relatively eventful with Jerome Powell heading to the Hill for his Humphrey-Hawkins testimony. We will also get the jobs report on Friday. It will be interesting to see whether Powell starts to get some static from lawmakers on overshooting. My guess is that Congress will probably leave him alone as long as the labor market is strong.

I compared the economy of today versus the late 1960s, and I think the similarities are pretty striking. The big question is whether you can have a recession when the labor market is super-strong. The answer may surprise you. It also gives us a template for this year and next.

This article is on my substack: The Weekly Tearsheet. It is meant as a companion to this blog where I do deeper dives into some of the weekly data or other things going on in the markets. I hope you like it and consider subscribing.

The March Fed Funds futures are now handicapping a 30% chance of a 50 basis point hike. The CME has introduced the 2024 futures as well, which see a December 2024 Fed Funds rate of 4.00% – 4.25% as the most likely outcome next year.

The homebuilders are under pressure this morning as J.P. Morgan downgraded KB Home and D.R. Horton based on valuation. It wasn’t all glum however as Meritage was upgraded to Overweight from neutral.

The homebuilders are the classic early-stage cyclical. The timing isn’t right yet – we have to wait for rate cuts – but we are getting close.

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61 Responses

  1. Hawley rips Garland a new one.

    Thank God this dipshit wasn’t put on SCOTUS.

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    • Brent:

      Thank God this dipshit wasn’t put on SCOTUS.

      It is somewhat surprising to me quite how much of a political hack he has turned out to be. Remember he was supposed to be the “moderate” pick for SCOTUS. Imagine how bad dyed-in-the-wool leftists like Kagan and The Wise Latina are, if Garland is a “moderate”. Even Andrew McArthy of NR, who knew Garland personally from his time working as a federal prosecutor and on that basis supported Garland when he was appointed as head of the DOJ, has come out and condemned him for his political hackery.

      At least as bad as his dissembling to Hawley on the Houck case were his responses to Cruz with regard to the Dobbs protests that took place at SCOTUS justices homes. When asked why he hasn’t prosecuted anyone for breaking the law by protesting in front of the various justices homes, he said that it was on the US marshals protecting the homes and had discretion to arrest or not arrest any protestors, the implication being that since the marshals did not arrest anyone on scene, he couldn’t prosecute them. The utter absurdity and folly of this reply is astonishing. Hardly any prosecutions result from arrests made during the commission of the crime. The vast majority result from subsequent investigations and arrests. How many of the Jan 6 rioters charged with crimes were arrested by police on the scene, and how many of them have been charged as a result of a subsequent DOJ investigation that occurred months after the fact? The notion that he was unable to prosecute any of the Dobbs protestors because marshals did not arrest them on the scene is laughable. The guy isn’t even trying to lie with plausibility.

      Anyone who has ever criticized Barr for being a Trump crony but has remained silent about what Garland is doing at the DOJ has forever lost any and all credibility they might once have had.

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      • Anyone who has ever criticized Barr for being a Trump crony but has remained silent about what Garland is doing at the DOJ has forever lost any and all credibility they might once have had.

        The left is incapable of that.

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      • Did they, or he ever have credibility is the question. In all sincerity, was there once a non-political DOJ (or any arm of the government, for that matter) that has now been politicized? Or is it your eyes opening to the reality of government? I ask this sincerely as my opinion is that I am opening my eyes to reality rather than the government being politicized recently, I have awakened from my false consciousness to see that government is inherently corrupt and self serving. It reinforces my belief in Federalism and my belief in limited government while also recognizing that we are well beyond that with no going back. I believe that I, and those like me, need to effectively use the levers of power for our own benefit and to do so as effectively as our political opponents do. I am all for an activist government that will do my bidding.

        It’s a sad reality but I believe the efforts of self-government, at least in our case, have failed and need to be destroyed to that they can start anew. Until then I will feed off this rotten corpse. It’s not the future I envisioned but it is the future that exists.

        Was there a perfect, or less dysfunctional time? I honestly no longer know and am even debating, internally anwyway, my First Principals.

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        • I am fully convinced that the security state considers conservative ideas to be the biggest threat to the US.

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        • Yes, I’d also include anything it perceives to challenge its authority.

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        • Trump seems to be channeling George at CPAC:

          “Donald Trump is many things, but whatever he is, he’s not a Reagan Republican. Speaking in one of his trademark discursive speeches to the Conservative Political Action Conference (CPAC) on Saturday night, Trump made clear how much his politics diverged from the mold that had defined the Republican Party for generations before he took that infamous ride down an escalator in 2015 and announced he was running for president.

          Even if Trump hadn’t tipped his hand when he declared early in his remarks to a mostly full ballroom of diehards in MAGA hats that “we are never going back to the party of Paul Ryan, Karl Rove, and Jeb Bush,” the rest of his speech represented a fundamental repudiation of that era of the Republican Party. But more than that, it represented a reversion toward a pre-World War II GOP, with doses of both populism and paleo-conservatism.

          In his CPAC speech, Trump compared foreign aid, such as the more-than-$75 billion that the Biden administration provided Ukraine, to a business investment that should be rewarded with an equity stake. “In business, you put up the money, seed money . . . you end up owning the country by the time it’s over.” At another point in the speech, he suggested that US foreign aid to countries should be tied to preferential tariff treatment.

          He paired this with a grim view of the United States, rooted in “the American carnage” which defined his 2017 inaugural speech that pitted his supporters against shadowy elites — including the “Marxists” he derided in his remarks. To his supporters, he declared “I am your warrior, I am your Justice, and for those who have been wronged and betrayed, I am your retribution,” as he pledged to “eradicate the Deep State,” a group that he blamed for so many of his personal ills as well as those of his supporters.”

          https://www.vox.com/2023/3/4/23625697/donald-trump-cpac-republican-party

          “I Am Your Retribution” could work as a campaign slogan.

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        • George, The Atlantic comes to the same conclusion as you, but their list of culprits varies slightly:

          https://www.theatlantic.com/magazine/archive/2023/04/us-extremism-portland-george-floyd-protests-january-6/673088/

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        • I love how the Atlantic author thinks that the rioting in Portland was due to provocation from the right.

          uh huh.

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        • Two different worlds with the base of the Right finally unwilling to concede anything, so there will be no reconciliation. You get to a point where there is no more compromise possible.

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        • The Fourth Turning

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        • McWing:

          In all sincerity, was there once a non-political DOJ (or any arm of the government, for that matter) that has now been politicized?

          It’s a reasonable question, I suppose, and I don’t know the answer. But in terms of leadership, I can’t think of anyone that has been as brazen about pursuing political ends via the DOJ as Garland has been. For example, I think you would be hard-pressed to make the case that, say, William Barr acted in anything like the manner that Garland has. But maybe I am not aware of everything he did/authorized.

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        • Do you think the next R AG should be as overtly political as Garland? If not, why not?

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        • McWing:

          Do you think the next R AG should be as overtly political as Garland?

          I do now.

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        • Probably depends on how far back you want to go.

          The Atlantic article did have some good historical perspective regarding the anarchists in the early 20th century and the Palmer raids in reaction.

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  2. Which Republicans excluding the Never Trumpers?

    Whereas Republicans once talked openly about it being disqualifying for the former president

    https://www.politico.com/news/2023/03/06/cpac-trump-gop-jan-6-00085567

    To assume Jan6 would be an albatross for Trump is to demonstrate that the authors have zero understanding of the Republican base. Hell, their insistence on using the absurd “insurrection” framing is telling enough.

    Nikki Haley, asked on a podcast recently if she would describe the riot at the Capitol as an “insurrection, a riot, or a coup,” went instead with a more banal — and safer — description: “a sad day in America.”

    I am not a fan of Haley but even calling it a sad day makes me like her less. The ultimate winner will be the one most defending Jan6 prisoners, in my opinion, essentially guaranteeing mass pardons will be the defining position.

    In the primary, said Dave Carney, a national Republican strategist based in New Hampshire, “I don’t think January 6th will come up, period.”

    Not me, if candidates don’t talk about prosecutorial abuse, two justice systems and pardons then I’m not interested.

    It’s hilarious that people actually believed this.

    The insurrection wasn’t always destined to be taboo in GOP primary politics. In the immediate aftermath, the riot appeared to provide an opening not only for Trump’s loudest critics in the party, but also for more mainstream, otherwise-Trumpian Republicans seeking to distinguish themselves from him ahead of 2024.

    No shit, Sherlock.

    January 6th is advantageous for Trump in a Republican primary now. Nobody’s going to hit him on January 6th.”

    I keep saying it but it’s fascinating to me that this is surprising to people.

    Boom.

    some attendees wore their connection to Jan. 6 as a badge of honor and found sympathetic ears.

    The more Trump campaigns on Us vs Them and on Revenge, the more he’ll cement his nomination. If Desantis started crusading for Jan6 prisoners that would clearly elevate his position. Supporting Jan6 prisoners will not hurt them in the general election, either.

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    • I cannot tell you how funny I find this comment.

      “I’m not trying to downplay January 6th and how terrible it was, but really, a lot of us just want to move past this guy, right?” said Mark Graul, a Republican strategist who worked on George W. Bush’s 2004 campaign. “We want to move past him, and move past the awfulness, which culminated on January 6th. That was the peak of Trump awfulness.”

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    • Gaetz seems correct here:

      ““I can tell you that just interacting with a lot of the activists here, there is concern that the violations of protocol and civil rights around the Jan. 6 issue haven’t gotten sufficient attention from the Congress, and that’s really a matter for us in the House majority more so than 2024 candidates,” Rep. Matt Gaetz (R-Fla.) said on the sidelines of CPAC.”

      Like

    • I think there is a real schism between the Tom Hagan wing of the Republican party and the Sonny Corleone wing.

      I think the center of gravity is with the Sonny Corleone wing.

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  3. I’m sure the Atlantic picked up on who SNL was intending to satire, but I suspect the audience may go away with a different impression:

    “In the pretaped commercial spoof “Straight Male Friend,” Bowen Yang played a gay man overwhelmed by the financial and emotional demands of his friendships with straight women. He touted the relief he’d discovered from being pals with a straight man, played with sincerity by Kelce. Yang praised this form of “low-effort, low-stakes relationship that requires no emotional commitment, no financial investment, and, other than the occasional video-game-related outburst, no drama.””

    https://www.theatlantic.com/culture/archive/2023/03/snl-straight-male-friend-masculinity-travis-kelce/673289/

    The quote is spot on about the “financial and emotional demands” of being in the friend zone with straight women though.

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  4. Sorry, not sorry that I’m not reading all the comments here………..super busy at work and with family…………..but did any of you see or hear the interview from John Stewart with a Republican from somewhere, somehow, trying to equate child endangerment with Drag Queen shows with the number one death of children in the USA of gun violence?…………..
    DUDE, between trying to limit free speech, voting rights and Trump’s revenge tour I think we’re in a shit load of craziness!

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  5. No the difference is what is worse for children, drag queen shows (with parental consent) or assault rifles. Most people don’t give a shit if you’re gay or straight and but guns do kill. Conservatives are making a war out of identity politics and losing the narrative IMO.

    And if you’re not watching DeSantis in FL then you’re missing the boat on limiting free speech.

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    • First, the idea that culture war didn’t exist until conservatives started objecting is dead wrong. The left has been prosecuting a culture war since the 1960s.

      I also don’t understand why the left is so hell-bent on selling homosexuality to 8 year old children. Well, actually that is easier to understand than the virtue-signaling parents who support this shit.

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      • It’s not even homosexuality at this point. That’s Andrew Sullivan’s point that it’s actually against homosexuality.

        It’s the new gender ideology that says that your gender is whatever you feel like identifying as in any given moment and as Dave Chappelle notes, compels everyone else to go along with that.

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        • well, there is the push to decriminalize homosexual sex with the underage. CA did it already, I believe. Or they took steps to advance it.

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        • Would it be legal for underage homosexual sex but illegal if it’s straight sex? Or just lowering the age of consent altogether? Jerry Lee Lewis would like a word.

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        • They either decriminalized it, or removed it from the list of sex crimes. But only gay, not straight.

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    • So, the choice is either 9 year olds attend a drag show or they are forced to play Russian Roulette?

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      • McWing:

        So, the choice is either 9 year olds attend a drag show or they are forced to play Russian Roulette?

        I guess that if it’s a binary thing, lms is going to have to choose between objecting to gun crime against children or objecting to pedophiles. Can’t make them both against the law!

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        • If the Oklahoma state senator had been quicker on his feet, he would have answered that abortion was the number one killer of children.

          Doesn’t matter if it’s true, as the conversation (if you can call it that) had degenerated at that point to just scoring points with the respective teams.

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    • “No the difference is what is worse for children, drag queen shows (with parental consent) or assault rifles.”

      The driver of the gun related deaths of children isn’t assault rifles.

      A more detailed breakdown of the argument Stewart was making:

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    • Where has Desantis limited speech?

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    • There’s an obvious solution here:

      Establish one minimum age to both attend drag shows and own fire arms.

      Can’t have one without the other.

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  6. I’ll try to find time tomorrow to read all the comments but in the meantime…………….

    This month, less than a year after the Supreme Court’s decision overturning Roe v. Wade, a ruling is expected in another abortion-related federal case that could have wide-reaching effects. The case is less interesting for its substance, though, than for how it demonstrates the troublingy outsized power of low-level federal courts to effectively write policy for the entire country via a practice called “nationwide injunctions.”

    Filed last year by Alliance Defending Freedom, a conservative legal group, and a number of individual doctors, the case (Alliance for Hippocratic Medicine v. FDA) seeks to overturn the Food and Drug Administration’s 2000 approval of the drug mifepristone (also known as “RU-486” and “Mifeprex”) for use in ending pregnancies through ten weeks gestation. As of 2020, about half of all abortions in the United States rely on pills (usually mifepristone in combination with misoprostol), which patients and providers happen to prefer anyway. In December 2021, because of the pandemic, the FDA for the first time since its initial 2000 approval of mifepristone allowed women to obtain the drug at a pharmacy or through the mail. Scores of studies show that since, travel time for abortion care—which is now banned in 13 states and restricted in several others—went from 30 to 100 minutes on average.

    So shocking to me that instead of State’s rights re abortion, there is now a nearly federal ban…………….who knew that was going to happen?

    https://www.thebulwark.com/the-judge-with-the-king-complex/?utm_source=substack&utm_medium=email

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    • lms:

      I’ll try to find time tomorrow to read all the comments but in the meantime…

      Let me know when you have time for more than just dropping drive-by bombs and can actually discuss the issues you seem to be interested in. Happy to discuss, but not so happy to waste my time and have you continue to ignore my responses.

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    • “than for how it demonstrates the troubling outsized power of low-level federal courts to effectively write policy for the entire country via a practice called “nationwide injunctions.””

      Yes, nationwide injunctions are a problem. But were also widely used to stop various policies of the Trump administration from being implemented. Good for the goose and all that.

      At the time the practice was praised as “upholding the rule of law” and all that against Trump.

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      • jnc:

        Good for the goose and all that.

        That is an adage that progressives seem to be completely unfamiliar with, and incapable of grasping in any event.

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    • hi LMS!

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      • NoVA, what’s your take on the mask efficacy studies?

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        • I had to get fitted for an N-95. took about 45 mins. they put you a type of hazmat suit and introduce a solution that has a weird smell.

          if the mask is on and fitted correctly, you can’t smell it. or you have covid (jk)

          the idea that these were going to be effective was never plausible.

          that said — when they said you didn’t need one at the beginning of the pandemic .. that was flat-out wrong. masks are effective. if they’re used correctly. which outside of a trained medical situation is impossible. now i; ‘m fine going on TV and saying “you don’t need a mask because you won’t use it properly.” but i’m an asshole.

          “But when it comes to the population-level benefits of masking, the verdict is in: Mask mandates were a bust.”
          i agree with this. you can’t impose a standard on an untrained population. or expect them to follow the proper donning/doffing procedure. it’s a huge pain.

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        • i’ll add.
          you need to give people tools they can use. put them in the best position to succeed. and with the masks, the entire system failed.

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        • I wore the basic 3M N95’s and I think I had good results. I couldn’t smell anything when they were on and when I took them off I had a hyper acute sense of smell for about 2 minutes.

          Stephens was spot on about this though:

          “If you’re required to wear a mask on an airplane but allowed to take it off to eat or drink, the requirement becomes useless. If you’re supposed to wear a mask while walking to a table at a restaurant but not when sitting down, it’s useless. If you’re supposed to wear a mask but nobody is very concerned about whether it’s an N95 or a cloth mask, it’s useless.”

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        • jnc:

          To be honest, I can’t believe we are even talking about this anymore. The uselessness, and indeed absurdity, of all the various covid mask policies was obvious even at the time. This can only be news to true bitter-enders. It doesn’t take a study to know it.

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        • exactly.
          you don’t take off PPE in the hot zone.

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  7. This tracks pretty close to my own position:

    “Why I’m Leaving The Daily Wire
    There is a critical distinction between speaking truth and being tactless, between sticking to the facts and sticking it to the libs.

    Christina Buttons

    I was told that The Daily Wire’s stance was that adults could live their lives however they pleased, so long as they kept kids out of it. There was no clash between safeguarding of children and tolerance for alternative adult lifestyles, even ones that some might regard as unhealthy.”

    https://www.realityslaststand.com/p/why-im-leaving-the-daily-wire

    The temptation to overreach is counter productive.

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    • jnc:

      The temptation to overreach is counter productive.

      I don’t think either Walsh or Knowles have overreached. This is Walsh’s defense of what he said about Dylan Mulvaney:

      Is he wrong? I don’t think so.

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    • A good interview on how the progressive side sees the issues:

      Scott, you may find it interesting that the person being interviewed identifies Bostock v. Clayton County as the catalyst that lead to everything that’s now currently being fought over.

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    • jnc:

      BTW, in her resignation column, Buttons includes Michael Knowles as a reason for her departure, saying:

      A generous interpretation of Knowles’ statement is that he wishes to eradicate gender ideology, a postmodern social theory, from public life. So why not say that? On this issue it is extremely important to clearly distinguish between people and ideas so as not to feed into Left-wing manufactured hysteria about impending genocides.

      It seems Buttons did not listen to what Knowles actually said, because it doesn’t take a “generous” interpretation. Knowles did, in fact, “say that”. He said explicitly:

      If it is false, then for the good of society and especially for the good of the poor people who have fallen prey to this confusion, “transgenderism” must be eradicated from public life entirely — the whole preposterous ideology, at every level.

      He literally referred to it as an “ideology” as distinguished from “the people who fall prey to it” who, it is clear, he is actually try to help, not eradicate.

      Contra Buttons, it isn’t even possible, much less important, not to “feed into left-wing manufactured hysteria” because it will get produced no matter how you phrase it. That is precisely why it is “manufactured”. For her to fault Knowles in this instance is absurd.

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