Cut Me A Break…

Not sure you’ve ever been unhappy to get a tax break, but this tax cut may be causing some near term pain if you want/need low interest rates.

Good news, I don’t see this event as the end game.  Like data points, this is an event to trade around and in no way provides any permanent direction.  It’s mostly been priced in, so I’m not certain we see a ton of pressure resulting from it.  In fact, we are at slightly better levels v prior to the vote closure.  Either way, it will make for a choppy year end for sure.  If you’re floating right now, I don’t see the need to rush to lock.  You’ve already missed it.  Play it day by day and be careful.

Getting back to the review of the day’s events;  The real result of this won’t be felt until we figure out if this money is actually going to go back into the economy.  My bet, not so much.  I suppose this is why I write.

Long time followers have noticed I’ve been mostly absent recently.  No, I’m not getting lazy. I’ve mentioned several times as my post have become more infrequent that I’ve grown tired of the repletion and find it senseless to write just for the attention.  I’ve communicated my general bullishness on rates since I started these posts internally 4 years ago, that continued through the more public iteration of my rantings over the last year or so and it persists even today.  In fact, I’ve found myself most resolute about low-ish rates when they most look to be going up.  Why?  Many of you already know my answer, but I will reiterate; nothing is broken and therefore nothing needs to be fixed.  Specifically today, I’m still not sure how anything is going to change.


QE(s) – check

Home appreciation – Check

Crazy stock valuations – check

Crazy inflation, new highly paid jobs and 4% GDP – CHHHHH


So what I’m supposed to believe now is that roughly $1000 in the average consumers pocket is going to drive inflation and growth.  Moreover, are corporations who largely haven’t pushed the profits resulting from QE through to the workforce all of the sudden going to treat tax savings differently? I’ll believe it when I see it.  Last I checked, if a bonus is paid on stock prices and stock prices are driven by profits, what exactly is the motivation to spend this tax savings in a me/today society?


Amazon isn’t going away.  Neither is the internet, information, productivity, globalization, automation, etc, etc.  As you know my thesis for perpetually low rates is that to have inflation you need pricing power.  To have growth, you need some combination of increased consumption, price or both.  Well if the population is shrinking and there is a race to the bottom in price, we could only drive growth through consumption.  One can’t consume incrementally more each year without disposable income.  Wage growth has been non-existent for over 20 years.  All this $90/month does is get us a little closer to effectively earning slightly more than we did in ’96.  So I’m not sure that does it.  Lastly, there’s the little wrinkle called debt.  Despite some degree of deleveraging over the last decade, we are still a payment society.  So history has told us over the last decade or so, every time rates go up, the economy doesn’t.


Long story short is  I’m saying the same thing I always say I guess.  Don’t bet on 3% just yet.  I’m still waiting for to see something to change my mind.  Maybe by q2 I will.  I doubt it though.


Bulls and bears…

Phil Mancuso,

Chief Investment Officer, Equity Prime Mortgage

Crazy Stuff…

Rate Hike Teaser

Inflation running under target?  Check

Low growth intact?  Check

Are we lowering mid and longer range rate expectations?  Check


So the Fed checked every box,

Including the boxes that talked about 3 hikes next year and tapering the balance sheet.  You can’t make this stuff up. But hey, all of this serves as the normal FOMC contradictions we’ve come to expect.  They keep looking for growth that never comes, protecting against inflation levels we aren’t half way to.  So how do we react to this?  


We are exactly in the spot I suggested in my last post… 

We tend to creep up around now, feeling more pressure in about a month and bounce sometime in Dec.  I wouldn’t panic.  We’ve sold into these pretty hard up to now, so I would think we’ll find some support around 2.28 if not 2.32.  I don’t see us breaking much higher immediately, but I would be playing a bit of protect here.


 Philip Mancuso 

#money  #fomcgoals #stillontherange #smh #noinflation  #ratehike #check #thefed #itoldyouso #themancusowatch


It’s National Thank You Day, Sooooo…

Thank You

I didn’t realize that today is National Thank You day.

I actually thought that was called Thanksgiving….

First, I’d like to say thank you to all my followers.  Thank you to my colleagues for their part in making EPM better every day in every way.  Thank you to my family for supporting me.  Thank you to my parents for having me.  Thank you to Van Halen for making the greatest Rock & Roll ever!

Thank you to all of those that made the ultimate sacrifice for our freedom.  Thank you to my friends, as few of you as there may be and for being crazier than I am.  Thank you to the Yankees for drafting Don Mattingly,  my favorite player of all time.  Perhaps most of all I’d like to thank the Fed for getting it wrong since at least the early 2000’s


Now the apologies…

Sorry, it’s been a while since my last post.  Where have I been?  Besides thinking of people to thank; I’ve been reaping the benefits of my call for lower rates.  As you know, I like to write when there is something to say and how many times can I say “this is the range, the data doesn’t add up and the Fed is offside”?

I did figure it was time to drop a note about the next 30 day’s.

 First let’s start with the data today.  No one seems to care, but retail sales missed pretty good and were revised down.  I find the revision is significant, in that last month’s number sort of came outta nowhere and today proves that it was overdone.  The August number reaffirms that the consumer isn’t gaining traction.  Where does this leave us?  Well, in the same cycle we’ve been in; I really don’t have anything more to say about that.  Lock/float the range.

 What you should pay attention to is the greater cycle.  I’ve found that rates generally start to slightly worsen around now, but mid October is the real hit.  So look for some pain from roughly 10/16-12/15 give or take a some days ( I see no reason why that wouldn’t be the case this year) at a minimum I would lock/float closings in the next 30 days around that assumption.  


Here are some Fannie 3 Q4 price drops (rates worsen) from the past few years:


2013  (4 point drop, roughly 1% rate increase)

98 28+

94 28+


2014  (1.5 point drop, roughly .375% rate increase)

101 9

99 25


2015  (2+ point drop, roughly .5% rate increase)

101 27

99 21


2016  (6+ point drop, roughly 1.5% rate increase)

103 27

97 19

 #thankyou #yourewelcome #stillintherange #brokenrecord #vanhelen


 Phillip Mancuso



Maybe we should be reading the tea leaves…

Q2 GDP just printed and while you can draw some near term conclusions, I’m compelled to push back a bit as I usually do.
Frankly I don’t care about 2.2 v 2.5 v 2.8 right now.  As we know this number could be off 1 anyway.  We saw 2015 rev up, 2016 and Q1 2017 rev down.  Make no mistake, net, this is a bad 2017 report.  The combined total of Q1 and Q2 miss, earnings missed, prices missed.  The other components were a bit of a mixed bag.
I don’t want to get caught up in the weeds though, I’m a bit more focused on the leaves…Tea leaves.  Why?  Starbucks is shuttering all their Teavana stores by Q1 2018.  Why?  Mall traffic or lack thereof.  Why does this matter?  Well, to TEA (sic) it up for you, here’s a refresher you can catch later:
So why do we care about mall traffic, people are just buying on the web right?  I’ve covered this topic before as well, so I’ll keep it short.  All commerce isn’t equal.  E-commerce clearly has a much smaller eco-system and lower margins.  Both equate to a much smaller segment of the population benefitting from an E-tailer’s propriety, versus a brick and mortar shop.  The result is an anchor on prices and thus inflation and wages, and oh yes, an extended period of low growth.

If you don’t believe that, check this out:

Therefore, in the near term, I still see the range intact.  Who knows if the Fed moves.  Maybe we do make a run at 3 before year end as ridiculous as I think that would be.  I have difficulty seeing a break above 2.41 in the near term though.  We have a ton of data next week, so it makes sense to play it close to the vest until then as you never know, perhaps with a slight bias to lower rates.  More importantly, until something big comes along to change things, all I keep seeing is #LowerForLonger.  It’s #InTheLeaves
#WhatRecovery #ThingsAren’tBroken #Hashtag
-Philip Mancuso

It’s 5 O’clock somewhere

Mancuso 5 Oclock.png

Hey folks, it’s been too long.  I just haven’t felt inspired.  My thought was I’d just do another piece on how the market got it wrong @ 2.40 and calling for 3 by year’s end.  I mean how much of that can you really hear?  Here’s a quick refresher and those new to the blog, please go back and read the previous posts to catch up.   It figures I’d pick a day with no data and where it seems all of Wall Street is likely already sipping on gin and tonics in the Hamptons to post.  At worst, they fired up the helicopters by now, I mean nothing is happening.   My screen hasn’t blinked in what seems like 5 minutes.

Anyway, a slightly positive open reinforces the trend down.  As liquidity evaporates into the Long Island sun, the afternoon could go either way.  I wouldn’t read to much into it.  

Range intact?  Check.  

2.12-2.41 with stops in between.  Check.  

Data not correlating with central banks desire to tighten.  Check.  

For the 9,833,123rd time central banks realize there will be a tantrum if they try to get serious and consequently are forced to reel it back in.  Check.

I see little inspiration to break 2.12, so I’d continue to lock the range (always look out for geopolitical stuff, etc).  Our first run at a new direction comes at the end of next week.  Durables on Thursday (meh), but a pretty important Q2 GDP on Friday.  Here’s my thought:  Central bankers are already hellbent on further tightening.  I can only see this report as surprising them to the downside and thus giving reason for pause.  I mean, what sort of blockbuster would require them to redouble their current tightening efforts.   I’ll post a strategy around mid week around that.  Locks/floats ahead of that event are really predicated on current levels, so it’s not something I’d want to advise on today.

In the meantime, it makes sense to lock whatever July stragglers are left and you you feel froggy, early August closings could float, but I’d begin locking those up if we break 2.20.

-Philip Mancuso

Who cares about rates, you need to change your cell phone plan!

TheMancusoWatch Teaser 37.png

  1.  Who knew I had a bad cell phone plan.  I was looking to the Fed to set rates, but this was a huge help.  
  2.  The Fed picks now to get hawkish????  What are they seeing that they haven’t in the last 8 years?
  3.  Generally the market doesn’t care, but we’re certainly not as happy as we were at 1:59

So my near term takeaway,  most everything I said in my prior post sticks. Obviously they didn’t hold, thus we’re not seeing 2 by 5:00.  The market is having one of the expected reactions though, which is they are largely ignoring the hawkish tone due to the weakness of the underlying data.  I’d have the same approach to locking, except add a bit more caution.  I don’t think our path has changed, it’s perhaps just gotten a bit steeper and a touch longer.


In a broader view:  What the heck just happened??? Did Yellen just blame cell phone plans for being a drag on prices????

What’s next?  A leak that Wendy’s is considering taking one slice of bacon out of the Baconator as a reason to short pork???  C’mon.  Also, she clearly hasn’t been to the drug store if she thinks prescription drugs are cheaper!!  Hello, EPI pens!!?!?!?!?

I must say that I believe what possibly just happened was a worst case scenario for the economy.  The fed more bearish, announcing a hike and balance sheet activity.  This is 2005/2006 IMHO.  Ignoring the facts, being pig headed.  Staying the course because that’s what you do, that’s what we’ve always done.  This isn’t the old economy though!  This could crush the economy as it did in 2008 if they stay this course IMHO.   Just as I predicted on CNBC 2005, and I loosely quote “the fed is tightening for no reason and they are going to wake up and say oh my God what did we do?”  Now we are potentially looking at a stock and balance sheet bubble that could burst.  We already are talking about a potential yield inversion.  You know when that last happened????  You know that is usually an indicator of a recession right??

This is not good.

In terms of today, we are surging back into the closed it’s looking like 2.12.  That level in itself doesn’t tell me where we are going tomorrow, so it’s a bit of a coin toss.  I go back to earlier, I would stay the course, just with a bit more caution.  #lowerforlonger for sure though.

I have to go now.  I’m headed to the mall to change my phone plan and refill my son’s allergy prescriptions.  Who knew…

-Philip Mancuso

No bull just an outright bull rush


Nothing funny, no anecdotes, just straight stuff here.

What we are seeing is a strong move down in coupon on the data tanks. It’s unlikely we will see this in all rate sheets today as the fed is looming at 2, but all things equal we would see it in reprices later or tomorrow.  Pulling out to a higher level for a moment, when something like this happens we see lower rates improve exponentially and the belly and upper end move negligibly.  I can’t even rule out higher rates worsening slightly as par rates get adjusted.

Further, make no mistake this is a full on repricing of 2017 as far as I see it.  The Fed doesn’t have a leg to stand on right now.  Consumer crushed, inflation in check, jobs sagging.  If the Fed holds today, we may breach 2 by 5 even if temporarily.  Keep in mind we have been repricing 2017 all the way down here, so at some point there may be some profit taking.  As for the Fed, the key is looking at the projections, which by the way they haven’t gotten right since 1582. OK here’s my Mancuso soap box:

  1.  If we are getting shook here, what happens when the Summer data is typically bad?  Can we bet on that data being good?  That a typically rate friendly period all of the sudden reverses the trend, both on an intra and multi year basis?
  2.  If we’ve been in recovery as many would sell you on, then this data weakening is a sign of a potential move to recession.  This is almost year 10 of the “recovery” right?
  3.  Get ready for the hashtags

#lowerforlonger #whatrecovery #theywerewhowethoughttheywere #ifitwalkslikeaduck #sink-oohmy-o #there’sbeenanawakening #somethingfunnyhappenedonthewayto3% #thingsaren’tbroken #figureslieandliarsfigure

OK, so now a touch of reality.  Rates never go straight down.  More importantly, while my reaction today is a bit over the top, its more about “I told them so” then it is that I think something groundbreaking has happened here. I just get the sense that a bit more of the market is coming around to our way of evaluating the facts.  I would simply stay within the narrative of #lowerforlonger and therefore to hit when it makes sense. Pigs get slaughtered.  I don’t think locks here are a terrible idea, even if the full move hasn’t been realized.

We don’t know what the Fed is going to do today.  At the same time even if they fully unload on us will the bond vigilantes go over the top?  I can’t rule that out.  There are a ton of moving parts here to figure out where we go from here and it could still go either way, but I do feel pretty strong here though.  I think floats have a bit more room. Again, don’t get greedy.  If we hold these levels into the close, I’d take the winner off the table either on the first pull back or 2 neg days in a row if it’s a June/early July closing.

My bottom line for Quarter 2/3:

95% we see 2.00

65% we see 1.80

My bottom line for Quarter 3/4:

30% we see 2.42

50% we see 2.35

0% we see >2.65

-Philip Mancuso