Political activity related to reforming Fannie Mae and Freddie Mac has picked up over the last few months and additional legislative activity is expected this fall. As Goldman notes, while there is still substantial political disagreement, a loose consensus has begun to emerge on some issues. However, despite somewhat greater agreement on certain aspects of GSE reform, lawmakers still face a basic dilemma. Housing finance reform has languished in large part because of the disagreement over the appropriate federal role, as well as a concern that reform would ultimately lead to an increase in borrowing costs. Recent GSE reform proposals such as Corker-Warner appear to have attracted support by calling for high levels of private capital. However, such high levels of capital would require a return to investors, increasing borrowing costs. Overall, Goldman's expectation continues to be that GSE reform is unlikely to be enacted this year or next.
Barack Obama has been running around the country taking credit for an "economic recovery", but the truth is that things have not gotten better under Obama. Compared to when he first took office, a smaller percentage of the working age population is employed, the quality of our jobs has declined substantially and the middle class has been absolutely shredded. If we are really in the middle of an "economic recovery", why is the homeownership rate the lowest that it has been in 18 years? Why has the number of Americans on food stamps increased by nearly 50 percent while Obama has been in the White House? Why has the national debt gotten more than 6 trillion dollars larger during the Obama era? Obama should not be "taking credit" for anything when it comes to the economy. In fact, he should be deeply apologizing to the American people.
With Spanish unemployment surging, tax collection so low, and delinquent loans soaring (though understated due to shifts in the Sareb 'definition's which means an ~11% levels is more like ~14%), it is 'odd', as El Confidencial notes, that GDP has only modestly declined. The fact of the matter is - things do not add up and the following three charts highlight the dramatic divergences between official (government-supplied) data and synthetic (market-based) measures of activity in the construction, industrial, and services industries. Given these 'real' levels, El Confidencial suggests real Spanish GDP would be 21% lower than reported.
Even after seven years of writing macroeconomic analysis and bearing witness to astonishing displays of financial and political stupidity by more “skeptics” than we can count, it never ceases to amaze us the amount of blind faith average Americans place in the strength of the U.S. dollar. One could explain in vast categorical detail the history of fiat currencies, the inevitable destruction caused by inflationary printing and the conundrum caused when any country decides to monetize its own debt just to stay afloat - often, to no avail. The dollar is no more invincible than any other fiat currency in history. In some ways, it is actually far weaker than any that came before. The dollar is entirely reliant on its own world reserve status in order to hold its value on the global market.
The unintended consequences of Obamacare are coming thick and fast (and not just from tin-foil-hat-wearing blogs, mainstream media, or political party ignorance). This time it is UPS, who announced that due to the higher costs under Obamacare will drop 15,000 spouses from its health insurance plan. As CNN reports, an internal document obtained by Kaiser Health News said the policy will apply to non-union US workers (saving what is expected to be a $60 million rise in costs). More 'anecdotal evidence'... UPS justified its move by saying that 35% of companies intend to do the same thing...
The truth behind the saying "never let a crisis go to waste" transcends both time and space, and it most certainly has no problem crossing the border into India, which over the past weeks has found itself in full monetary crisis, and whose currency is plunging to fresh record lows on a daily basis forcing its central bank to scramble with both tightening and QE at the same time. And if the influential Hindu Business Line, is correct, India's crisis is about to become someone's opportunity. Potentially for that someone which over the past two months has found themselves in a huge physical gold shortage as the now constantly negative GOFO rates confirm. Because according to Royal Bank of India sources cited by the HBL, India is now considering leasing out the 200 tonnes of gold it bought from the International Monetary Fund in 2009.
While we found it modestly comedic (and certainly ironic) that CNBC's crack team celebrated the recovery from the initial knee-jerk drop in stocks after the FOMC by top-ticking that suspension of reality; we suspect the following post-mortem from Goldman on the minutes is what confirmed concerns across the street... "Minutes from the July 30-31 FOMC meeting were generally consistent with our view that tapering of asset purchases is likely to occur at the September meeting, coincident with an enhancement of the forward guidance."
UPDATE: S&P futures are sliding modestly lower after-hours approaching the 100DMA at 1627
As Cramer, Liesman, and Terranova circle-jerked over stocks' algo-driven reaction to the knee-jerk dump after the Fed minutes were released, it was clear that bonds had not drank the same JPY-weakness-from-USD-safety-flow-based carry exuberance that stocks had. After ramping on the back of a VIX/JPY squeeze - all the way to yesterday's late-day cliff-dove levels, stocks collapsed back towards the day's lows (and are below them in the after-market). The Dow is down 6 days in a row - the worst run in almost 14 months (and the biggest 6-day drop in 9 months). Bonds were slammed and really never looked back after the minutes (with the belly +10bps or so!) offering a reality check for anyone gazing dream-like at stocks. Post-minutes, the S&P is -8points, 10Y yields +7bps, USD +0.2%, WTI -0.1%, and gold down a mere $2.
BREAKING: NSA collected thousands of US internet communications over 3 years with no terror connection
— The Associated Press (@AP) August 21, 2013
Behold a binary market in all its stop-hunting glory.
UPDATE: It appears all that mattered to the algos was to get the S&P green... (run those stops) S&P now +6pts, 10Y +5bps, USD unch, WTI unch Gold +$5... now watch USDJPY to see where stocks go next...
The initial reaction to the Fed minutes was to sell first and ask questions later - in everything. Of course, after plunging 10 points, the S&P bounced algorithmically up to its balance point at VWAP (and unch from FOMC) only to glance across at the carnage in the bond market (which didn't bounce) and sell back down. Bonds are trading at their post-FOMC minutes high yields (dominated by weakness in the 5Y/7Y belly), the USD is pushing higher, gold and silver oscillating slightly lower (and copper up). The USD strength is flopping over into JPY weakness and confusing algos that are once again pumping stocks up to VWAP... as we post, from pre-minutes: S&P 500 is unch, Gold is unch, USD is up small, but the 10Y Yield is up 5bps!
- FED STAFF A TAD MORE PESSIMISTIC ABOUT THE NEAR TERM ECONOMY, BUT STICKS TO ITS GUNS
- FED OFFICIALS ALSO SHOWED SOME ANGST ON THE ECONOMY
- FED OFFICIALS UNCONVINCED ABOUT LABOR MARKET IMPROVEMENTS
- MIXED VIEWS ON LOW INFLATION
- FED OFFICIALS THOUGHT THE MARKET HAD IT ABOUT RIGHT IN LATE JULY
- MIXED VIEWS ON THE DAMAGE OF RATE BACKUP
- NO CHANGE IN THE STANCE ON BOND BUYING
- OFFICIALS DECIDED THEY HAD ALREADY SAID ENOUGH
- CHANGES IN INTEREST RATE GUIDANCE ARE ON THE TABLE
- OFFICIALS CONSIDERED PATIENCE IN UNWINDING BOND PROGRAM