Morning Report: Inflation remains elevated in February

Vital Statistics:

S&P futures3,933 44.75
Oil (WTI)73.50-1.24
10 year government bond yield 3.61%
30 year fixed rate mortgage 6.54%

Stocks are higher this morning as the regional banks rally. Bonds and MBS are down.

The regional banks are all rallying today despite news that Moody’s has placed a slew of them on review for a downgrade. Western Alliance is up big this morning after it increased its liquidity. First Republic is up 50%, as is PacWest.

The 10 year bond yield is up a touch this morning, but the 2 year yield is up 28 basis points to 4.26%.

Inflation at the consumer level rose 0.4% month-over-month and 6% year-over-year. Housing was the big driver of the increase, while lower energy prices helped pull the number down.

If you strip out food and energy, inflation rose 0.5% MOM and 5.5% YOY. The month-over-month number was a 0.1% uptick from January.

If it weren’t for SVB these numbers would justify a 50 basis point hike in the Fed Funds rate next week, but with cracks showing in the financial sector they probably can’t do that. The Fed Funds futures are predicting another 25 basis points with a small probability that the Fed stands pat.

Small business optimism improved in February, but remains well below its historical average. Inflation remains the biggest problem, although it looks like it has peaked, at least if you are looking at the number of firms planning price hikes. Labor is still a problem, as many small businesses have unfilled positions and cannot find the workers.

The report doesn’t mention the issue with the regional banks, although the vast majority of small businesses weren’t interested in borrowing anyway. Overall, small businesses expect a recession, but it is taking some time getting here. Spending remains robust, probably because people have job security.

Rate lock volumes rose 2% in February, according to Black Knight. “Mortgage rates ticked up again in February after a brief respite, showing once again just how rate sensitive the market continues to be,” said Kevin McMahon, president of Optimal Blue, a division of Black Knight. “Conforming rates dipped below 6% early in the month but finished it up 52 basis points from January. Even though the number of rate locks was down month over month, dollar volume increased due to a rate environment that favored jumbo and ARM loans over GSE products. Essentially, though, the story remains the same – one of a market facing significant interest rate-driven headwinds. As Black Knight reported last week in our latest Mortgage Monitor, there were clear signs of buyside demand when rates neared 6% – it just quickly pulled back when rates began to climb again.”

Guild has acquired Cherry Creek Mortgage, a Colorado-based lender.

8 Responses

  1. Another pro-abortion judge proves her fundamental lack of fitness to sit on the bench by deliberately misreading a SCOTUS opinion.

    In a FACE Act case where defendants have requested a dismissal on the grounds that, post Dobbs the federal government has no legitimate jurisdiction to enforce the act, Judge Colleen Kollar-Kotelly of the DC District has requested briefs from both sides addressing the question of whether the 13th Amendment implies a right to abortion, despite the fact that in Dobbs the Court said explicitly and without qualification that “the Constitution does not confer a right to abortion.”

    Kollar-Kotelly’s claim is that:

    …the “issue” before the Court in Dobbs was not whether any provision of the Constitution provided a right to abortion. Rather, the question before the Court in Dobbs was whether the Fourteenth Amendment to the Constitution provided such a right. Petition for Writ of Certiorari at 1 (“This case involves the United States Constitution amendment XIV, § 1, and Mississippi’s House Bill 1510[.]”). That is why neither the majority nor the dissent in Dobbs analyzed anything but the Fourteenth Amendment. In fact, on the Court’s initial review, not a single amicus brief mentioned anything but the Fourteenth Amendment and the unratified Equal Rights Amendment. Mindful that that this Court is bound by holdings, and in consideration of the Supreme Court’s longstanding admonition against overapplying its own precedent, it is entirely possible that the Court might have held in Dobbs that some other provision of the Constitution provided a right to access reproductive services had that issue been raised. However, it was not raised.

    This is patent nonsense. The “issue” before SCOTUS in Dobbs was whether or not a particular state-passed regulation of abortion was Constitutional, not whether or not that law was prohibited by the 14th amendment only. And the reason the Court ruled that the law was indeed constitutional was because “”the Constitution does not confer a right to abortion.” The only reason the 14th amendment in particular was the centerpiece of discussion was because that was the only place in the Constitution that previous rulings had claimed to have discovered such a right.

    Over the entire history of the Court’s 50+ years of abortion jurisprudence, no one ever claimed to have discovered a right to abortion in the 13th amendment. The fact that this absence of argument is now being used as a reason that it might be found there rather than precisely the opposite is testimony to the pretzel logic used by those who are steadfast in their desire to keep this issue from being decided by the people themselves.

    It is also ironic that Judge Kollar-Kotelly seeks to find a Constitutional right to own and thus destroy at one’s whim another human being in the one section of the Constitution that explicitly prohibits exactly that.


  2. Worth a read:

    “Are Douglass Mackey’s Memes Illegal?
    The case of notorious internet troll ‘Ricky Vaughn’
    by Eugene Volokh
    February 09, 2021”

    I hadn’t heard of this case previously.


    • It’s an appalling example of criminalizing speech.


    • jnc:

      I hadn’t heard of this case previously.

      To me more disturbing than the legal theory under which Mackey is being prosecuted is the politicized use of the theory. A left-wing comedian did almost the exact same thing in the exact same election but targeting Republican voters rather than Democratic voters, and she has not been prosecuted at all.


  3. How do those believers in MMT explain inflation?


    • I think the argument from MMT would be that taxes are too low.


      • That would be a proposed solution, certainly. Remove capital via taxation and it slows down spending. Do you happen to know what the reasoning is behind low taxes causing inflation?

        And if it’s because of excess capital due to low taxes, how do they explain the lack
        Of inflation after previous tax cuts. Or it’s apparent 3 year lag from the last tax cut?


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