Powell Has a Plan

By Kevin Muir

It’s never easy being a central banker. Too many of us, with the benefit of hindsight, look back and proclaim judgment on policies they took (or didn’t take) often forgetting that the future is never easy to predict. I am by no means innocent of this charge. I take potshots at central bankers all the time without consideration of the difficulty of their jobs.

Even the most revered central banker in history, Paul Volcker, was only admired years later.

Amid his administering the harsh medicine to stop spiraling inflation, there were howls of protest from the public who were being squeezed by the high cost of money. And by no means was Wall Street all-aboard either. Here are some of Volcker’s own recollections of the period from a 2013 NBER interview:

Continue reading Powell Has a Plan

Slipping Into Darkness: Non-bank Lender Share Almost 65% of Mortgage Originations

By Anthony B. Sanders

The mortgage lending industry is once again … slipping into darkness.

Like the run-up to the financial crisis, we are seeing an increasing trend towards non-bank lenders dominating the mortgage market. To the tune of almost 65%.


Yes, lenders certainly spilled the wine during the 2000s with its move to non-bank lenders like New Century Financial. By 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, the share of loans by these three big banks dropped to 21 percent.

The withdrawal of banks from the mortgage business is the result of the fundamental shift in regulations that took place in response to the housing crisis.  The regulatory atmosphere changed from a risk-management regime to a zero-tolerance and 100-percent-compliance regime.

Not only were new regulations implemented, but new regulators like the Consumer Financial Protection Bureau were created. At the same time, the CFPB and other agencies became more assertive in their enforcement practices.

The bottom line is that the rise of regulatory burden has chased lenders into the shadows where they reside as regulatory low-riders.

And there is no way to get the traditional depository institutions to be friends with regulators until a number of the overly burdensome regulations are eradicated.

Yes, this is all eerily similar to the precursor to the financial crisis of the 2000s.

To paraphrase The Johnson Brothers, get that regulation out of their faces.

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Globally Synchronized Disappointment

By Jeffrey Snider

Like so many financial prices, copper’s is tied to both money and economic fundamentals. They call it Dr. Copper for a reason, good as it has been in suggesting ahead of time the direction for the global economy. China is as central for the setting there as well as in “dollars.”

During the early days of the “rising dollar” I wrote that copper was one clear indication being pulled downward by both. China’s economy was slowing, especially the export side, not accelerating as had been anticipated. The narrative during Reflation #2 was the same as it has been throughout Reflation #3 more recently; global growth would rescue any laggards. They only added “synchronized” to the latest one to really emphasize just how much they mean it this time.

From April 2014:

The ongoing disaster in trade demonstrates the miscarriage of that strategy (on both ends), namely not anticipating orthodox failure across every jurisdiction to deliver promised resurrection. There has been no American surge to reignite the export “miracle”, while Europe tries to convince itself and the world that not shrinking counts as a recovery. Now the Chinese are in a nearly impossible and precarious position.

I have argued before that behavior in the yuan, the recent “devaluation”, was not initiated at the behest of the PBOC to punish “speculators.” Rather, it seems far more likely that it was a dollar problem, one tracing through both global trade and finance.

That all continued, economy and eurodollars, all the way into early 2016. The downturn was serious enough here in the US, but it was decisive in China.

Continue reading Globally Synchronized Disappointment

Chart Of The Week: REITs, GICS Changes, and Tech

By Callum Thomas

This week it’s a chart of US REIT ETF Assets Under Management, but basically as a prompt to talk about some previous and upcoming changes to the ubiquitous GICS system.  The previous change was implemented in September 2016 and saw the new Real Estate sector split out from financials.  Sure enough this ended up being the top for REITs (although of course as we know that had much more to do with the broader macro trends i.e. the bottom in bond yields).

The chart comes from a report on the tactical allocation outlook for US REITs.  REITs have been beaten severely by the surge in bond yields, with US REITs falling some -17% top to bottom, vs the more recent fall in the S&P500 which was just over -10% top to bottom.  The move has left REITs looking oversold, particularly if you look at REIT relative price movement compared to US commercial real estate.  The thing is though, the specter of another surge in bond yields remains a risk for the sector.

But back on to the GICS topic – GICS stands for Global Industry Classification Standard, and is a standardized method of classifying public companies by sector/industry group/industry/sub-industry (respectively), and was developed jointly by MSCI and S&P.  Aside from the previous change to split Real Estate out as its own sector, the upcoming changes (to be implemented at the end of September this year) will involve a rejigging and renaming of the shrinking telecoms sector – a once relatively boring and defensive sector will change fundamentally.

Telecoms will be renamed “Communication Services” (it will comprise the existing telecoms, and a new industry group called Media & Entertainment comprised of selected tech stocks and consumer discretionary stocks).  The changes will involve a shuffling around of the so-called FAANG stocks, and will see some “tech stocks” taken out from the bloated tech sector – which comprises about 25% of the S&P500.  The biggest implication will be for investors who allocate at a sector level.  And on a final, slightly facetious note, one can’t help but wonder if these changes will mark a top for FAANGs (or tech? or “communication services”?).

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A Look at Fed Days from 1982 to Present

By Rob Hanna

On Wednesday the Fed will conclude its policy meeting and announce any changes. This happens 8 times per year. I have long referred to these days as “Fed Days”. Fed Days have a long history of having a bullish tendency. This can be seen in the chart below, which shows Fed Day performance back to 1982.


Of course not all Fed Days are created equal. To learn more about Fed Days, and where the strongest edges lie, I’d encourage you to check out the collection of Fed Day studies here on the blog, or read The Quantifiable Edges Guide to Fed Days.

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Give ‘Em Three Now

By Jeffrey Snider

Credit where credit is due. In March 2018 for the third time in the last 71 months the PCE Deflator registered 2% or better. The year-over-year change just barely squeaked above that line, working out to about to 2.01%. I’m sure the FOMC will take it regardless. Baby steps.

Core rates were slightly less, however. The Dallas Fed’s trimmed mean calculation rose only to 1.77%, while the PCE Deflator stripped of energy and food prices finally dropped the Verizon effect. It accelerated as expected, but only to 1.88%.

Continue reading Give ‘Em Three Now

Sometimes It’s A Lie. Sometimes It’s Incompetence. Sometimes It’s The White House Starting A War With Iran!

By Five Dollar Feminist

National Security Advisor John Bolton
Would this guy lie to you?

Now this is some GROSS FUCKING INCOMPETENCE! See if you can spot the difference between the two statements the White House put out last night.

One says, “Iran has a robust, clandestine nuclear weapons program,” and the other says “Iran had a robust, clandestine nuclear weapons program.”

Continue reading Sometimes It’s A Lie. Sometimes It’s Incompetence. Sometimes It’s The White House Starting A War With Iran!

The Stock Market is Not the Economy

By Charlie Bilello

U.S. economic growth in the 1st quarter came in at 2.3%, right in line with the average level of the expansion that began in June 2009. As you can see in the chart below, this has been the slowest growth expansion in history.

Data Sources for all charts/tables herein: NBER, FRED, Bloomberg, NYU.EDU

Has that impeded stock market performance? Not at all. At 15.2% annualized since June 2009, stocks have fared quite well. Which begs the question, what exactly is the historical relationship between the stock market and the economy? Let’s take a look.

Continue reading The Stock Market is Not the Economy

Why Seasonality “May” Be Bullish Today

By Rob Hanna

The 1st trading day of the month is often a bullish day for the market. In the past I have broken down the tendency by month. And since 1987 May has produced the most profits. Below are results for May dating back to 1987. (Note performance is measured on a close to close basis.)


Stats here are strongly lopsided in favor of the bulls. Winning %, win:loss ratio, profit factor, and average trade are all outstanding. Perhaps the saying should be “Sell in May, but not the 1st day!”.

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The Doubleplusgood Boom

By Jeffrey Snider

In 1967, the US Personal Savings Rate averaged just a little more than 12%. That was pretty consistent with consumer behavior observed throughout the decades before, and the one that followed. What that meant, in terms of economic theory, was that if you as a central bank intended to accelerate the economy via the manipulation of expectations you at least had some sufficient margin to do so without income growth.

Which comes first, income or spending? It’s actually an unsettled question in the orthodox canon devoted to the concept of aggregate demand. For a long time, it has been believed that the latter can under the right circumstances. Consumers spend a little more of what they make today compared to yesterday, and that burst of spending creates the virtuous circle of recovery. Businesses hire more workers to meet the increase in “aggregate demand” therefore incomes eventually rise to support an overall economic boom.

The catalyst, at least so far as the theory goes, is inflation expectations. Why would you want to spend more of your income, meaning less savings, today versus yesterday? If you think prices are about to rise, that would be one big reason. Monetary policymakers, in particular, have spent a lot of time and QE’s on inflation expectations to get this piece of recovery started.

During the worst of the Great “Recession”, however, the Personal Savings Rate never got higher than 8.1% in May 2009 – and that was a one-month outlier. For all of 2009, the rate averaged 6.1%, including May. After the eurodollar crisis in 2011, the savings rate would actually rise slightly.

We have to ask the question, even if the theory was sound, setting aside any objections to its 1970’s Great Inflation basis, would it have worked with a savings rate starting from such a low level? Or, asking the question another way, even if Americans believed QE1 and QE2 were going to be effective at creating even rapidly rising consumer prices, could they have increased their spending by more than a trivial amount?

It seems they were constrained by the low savings level in addition to incomes that refused to grow in the manner consistent with past recovery. Through four QE’s and years of monetary policy accommodation, all intended to stoke inflation expectations, it seemed destined to its dead end. There was no virtue in this intended virtuous circle.

Among other factors, this is what doomed the economy in 2014. Then, as now, optimism was at its highest. The domestic and global economy was on an upswing, to be sure, but people were making far too much of it given the constraint on income therefore savings. I wrote in December 2014, just as commentary was taking on some of its silliest proportions:

Continue reading The Doubleplusgood Boom

Donald Trump Going To NRA Convention To Tell NRA What NRA Told Him He Thinks About Guns

By Doktor Zoom

[biiwii comment: I own a gun, but stupid is stupid no matter what side of the aisle it’s sitting on]

photoshopped image of Donald Trump holding a revolver
I know what you’re thinking. Did he hire six dipshits, or only five?

Donald Trump is getting set to travel to Dallas this week to address the National Rifle Association’s annual meeting, which is something of a ritual for him — this will be the fourth consecutive NRA convention at which Trump has spoken. It’s also the first one he’s addressed since the massacre at Marjory Stoneman Douglas High School, after which Trump caused great wailing and gnashing of teeth among gun-humpers when he briefly floated the idea of raising the age for all firearms purchases to 21 and encouraged lawmakers not to fear the NRA in crafting gun legislation. He even speculated that people accused of doing bad things should have their guns taken away first, and then authorities could “go through due process second.” We’re sure he only said that because in Trump’s head, “due process” is a thing only liberal pussies care about, not tough on crime guys like Trump, but then someone explained the only acceptable position on guns is that they have to be taken from your cold dead perfectly-normal-sized hands.

Continue reading Donald Trump Going To NRA Convention To Tell NRA What NRA Told Him He Thinks About Guns