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

THANK YOU

 Phillip Mancuso

q4