The Institutional Risk Analyst

With the FOMC cutting the target for fed funds one quarter point last week, we expect to see funding costs for banks continue to fall, part of the larger narrative that has seen bank loan demand and share repurchases leaving a great deal of dry powder.  Deposits are growing 2x loans, meaning that the balance must go into securities. One of the reasons that lenders of all sorts have been pushing down loan yields is to capture assets in a market that is short quality duration.

Q: Do you suppose the folks inside the Trump White House, who spend much of the day watching Newsmax, understand that loan forbearance is about to end for tens of thousands of American households on October 1st?

Why is FHFA Director Bill Pulte being excluded from the process of preparing the GSEs for release from conservatorship? Short answer is that Bessent and the professional staff at Treasury don’t think that the very high profile Pulte (aka "Little Trump") should be involved. But this may be a serious error in judgment by Scott Bessent.

If the Powell FOMC crashes the short-term markets, again, because the Board staff mismanages the required level of liquidity, Powell will need to resign same day but the real loser will be the Trump Administration.  Neither the public nor members of Congress will understand who caused the latest market upset, but they will be happy to blame Donald Trump and members of his team.

Owners of crypto tokens hold nothing except an option to sell their flutter to a greater fool. The real worry for the future is that another financial debacle — à la FTX — where crypto was revealed to be pure fraud will surprise the markets as burned punters flee their speculations. The fact that crypto prices are increasingly being supported by stock issuance and schemes like perpetual futures contracts (Perps) suggests the end of the game is nigh.

The $30 billion target for cash raised in a GSE IPO is pathetic and only confirms our view that the Treasury should repurchase the GSE voting common and issue new preferred to raise hundreds of billions in proceeds. If we keep the US Treasury as the majority common shareholder and finance the capital structure with new senior preferred, the Trump Administration could raise $500 billion easily.

Suffice to say that while the economy may be showing signs of growing stress, the bid for risk assets and particularly income-producing assets remains quite brisk. There are literally dozens of nonbank issuers accessing the debt markets well-below double digit yields.

Why is Secretary Bessent talking publicly about Powell or the Fed at all? How does this squawking enhance the credibility of the Trump Administration or the U.S. Treasury?

We have little conviction behind our long positions in AXP and the SPX, thus the defensive recommendation in terms of sell orders.

When Ray Dalio says to be afraid of the bond market, he is asking a question that belongs in the mid-1970s, when the dollar still competed with other currencies and US interest rates were actually affected by interest rates in other nations. But today, with many of the other industrial nations led by Japan, China and the EU literally drowning in public debt, the US is still the leader of the parade.

We expect to see continued consolidation in the world of residential mortgage finance in coming months. The sad fact is that many less competitive businesses in mortgage finance have been waiting for the FOMC to ride to the rescue with lower interest rates. If rate cuts do not materialize in 2025, however, then many of these businesses may not survive.

The Trump budget package is priority number one on Capitol Hill, but odds of the big tax bill passing are falling every day. The White House still needs 25 votes in the House and May is upon us.

Some of the smaller holders of MSRs may ask themselves if selling right now is not the best strategy over a 36-48 month horizon. 

Who are the two most powerful people in the Trump White House?

A more efficient mortgage backed securities market benefits everyone by lowering mortgage rates and making home ownership more affordable.

There is an old rule on Wall Street that industry sectors like airlines and auto manufacturers are trades rather than investments...

President Trump is using the threat of tariffs to change the behavior of some of our trading partners, particularly Canada and Mexico. 

The real threat of tariffs announced by Trump is not inflation, but rather a LT decline in the dollar as the global reserve currency

Without profits from commissions and capital markets, BAC would have reported a down quarter due to higher funding and operating expenses.

With Gov Michael Barr stepping down from bank supervision, perhaps Fed Chairman Jerome Powell is more willing to test liquidity lower bound