Wednesday, November 9, 2016

JOLTS, Sept. 2016

It's been a while since I posted JOLTS data.  Generally, the data continues to follow the pattern of an aging recovery.  I continue to believe that we are at a place where monetary policy can be important.  If the Fed pulls back too much, we will contract.  If they accommodate rising wages, then recovery can continue for a long time.

I think the association of rising wages with inflation is a virus.  Wages are rising because a healthy economy reduces the frictions that allow firms and workers to adjust and shift.  If corporate profits are leveling off while wages rise, then monetary policy needs to accommodate enough nominal activity to prevent corporate profits from falling enough to disrupt these healthy economic trends.  If that becomes inflationary, then we can moderate, but to pre-emptively pull back is going to trigger contraction by cutting into corporate profits.

The election has presented a bit of a surprise, though.  I have been focusing on monetary policy because I assumed no relief was going to come to the mortgage market from GSE expansion or regulatory easing on the banks.  After everyone took a deep breath last night, Trump didn't act like a monster when he gave his speech, and markets rebounded this morning.  Banks are up in the 5% range as I type this.

Could it be that Trump will govern as a sane person, and that also some of the Dodd-Frank regulations that have cut low income households out of homeownership will be retracted?  I don't have the feeling that Trump explicitly understands the connection between the banks and the condition of his rural voter base.  But, he does seem to have a bias toward lighter banking regulations.  Does this mean that we will meander our way into finally healing the housing market?

The yield curve has also steepened significantly today.  Up by 25 basis points or so at the long end of the Eurodollar curve.  This is exactly what I would expect to happen if mortgages were going to expand and the housing market was going to heal.

Wouldn't that be funny if Trump ended up being our rescuer?


  1. Trump staked out so many positions on every topic that....oh well.

    On the plus side, Trump has a GOP Congress that might be "pro business."

    The last time we had a GOP President and Congress was 2000....a great time (to short Wall Street).

  2. Trump staked out so many positions on every topic that....oh well.

    On the plus side, Trump has a GOP Congress that might be "pro business."

    The last time we had a GOP President and Congress was 2000....a great time (to short Wall Street).

  3. For now, I will be hopeful. As Ben said, he had so many positions, only time will tell which ones survive. But the one you point out - reduction in Dodd-Frank seems very likely to happen. At least cutting it back if not outright repeal.

  4. Yeah. There is a lot of uncertainty here. I have become pretty focused on the impending rate hike. I think there is a pretty good chance it would have led to enough pullback to create an economic contraction. It's the 25 bp jump in long term interest rates that surprises me. If the Fed also decides to hold short term rates down, and if they do their reasoning from a price change thing where they interpret the higher long term rates as contractionary, this could lead to a significant monetary loosening. If that combines with mortgage expansion, a lot of good could come of it. Obviously Trump has promised to do a lot of terrible things too. But, oddly, the surprise election result has turned what I thought was a highly likely contraction into a context with potential upside.

  5. Lately I have been pondering property zoning, artificial scarcity, bank lending, "bubbles" and recessions.

    Nothing profound, as I tend not to be profound.

    But…70% to 80% of bank lending is now on property, and existing property at that...

    …there is artificial scarcity (ossified property zoning), making property lending "collateral" that banks are comfortable with…. lending is the so-called exogenous creation of money….

    Okay, we get very land high prices in London, Sydney, L.A-O.C., SF, suburban Connecticut etc wherever there is general rule of law, and some prosperity, and tight zoning. Banks then become very exposed to artificially high property prices.

    Okay, something happens to make banks pull back. This, of course, deflates property values, especially those in artificial markets. This leads to less lending, and then lower property prices, and less exogenous creation of money.

    Then you get global recession, particularly as central banks are not aggressive enough in counter-acting the recession. Helicopter drops are verboten, and QE is used gingerly.
    Zero bound means interest-rate cuts weakling tools….

    Okay, that is my surmising for the day….

    1. Banks pulled back on real estate lending growth quite predictably in 2006 when the Fed inverted the yield curve. Then private securitization investors filled in the gap for a while. Currency growth fell far below trend in 2006 and 2007. The drop in total lending growth lagged the drop in currency growth.

      I think it's the central banks that pull back, not the commercial banks. And, I think the reason is that the Closed Access cities create this weird unstable equilibrium. Functional housing expansion in those cities will lead to massive dislocation and capital losses. I think this may be a reason central banks have been so tight. If they accommodate investment growth that is healthy enough to relieve pressure on Closed Access housing, it will be nominally disruptive. I doubt they think of it this way. They just think of it as avoiding overinvestment, and they tighten before the economy can grow at a healthy rate.

      This is why it is so frustrating that even the market monetarists have been drawn into this hypnosis that 6% NGDP growth was part of some massive over-accommodation. Everyone is upside down.