I write about Wall Street for The Wall Street Journal’s Heard on the Street, and I co-host WSJ’s Take on the Week podcast. telis.demos@wsj.com
Rockefeller Center
Joined June 2009
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I totally forgot until rn that a major part of the plot of Don’t Tell Mom the Babysitter’s Dead is the lack of a real time paycheck system
Yes, though there are fewer people like @rbrtrmstrng today than four years ago wsj.com/finance/why-mortgage…
Sounds like @rbrtrmstrng isn’t letting go of his 2.75% mortgage anytime soon, which is a problem for housing. ft.com/content/9f960533-9cd7…
Greg keeps the receipts
Deja Vu. I recall the same argument to @BIllAckman's here being made in 1999: as the Fed raised rates, Silicon Valley claimed it would have no effect because dot-coms didn't borrow. As that episode showed, raise rates enough & you can deflate any investment boom and bring inflation down.
Telis Demos retweeted
Deja Vu. I recall the same argument to @BIllAckman's here being made in 1999: as the Fed raised rates, Silicon Valley claimed it would have no effect because dot-coms didn't borrow. As that episode showed, raise rates enough & you can deflate any investment boom and bring inflation down.
The presumption that the Fed raising short-term rates reduces inflation is predicated on the belief that higher rates reduce demand and investment.
But what if higher rates don’t reduce demand and investment because the demand for intelligence and energy is unaffected by higher rates because winning the race for super intelligence has a near infinite ROI and the demand for compute will remain incalculable.
Why won’t higher rates at this unique moment in history therefore lead to more inflation as interest costs are embedded in everything?
And the problem is compounded as the more the Fed raises rates, the more inflation we will have and the more the Fed will need to raise rates further and so on.
But what if the old models don’t apply to the current paradigm and the Fed is wrong?
I think the Fed might have just made a mistake. Am I right or am I wrong?
Important explainer re mortgage rates
When you see headlines, tweets, etc. in the coming hours regarding mortgage rates moving up to 7.37% today, that will be because I'm about to update our rate index to 7.37%.
Yes, Freddie Mac released their number today as well, and it's 7.03%, but may as well be gif of Steven Tyler belting out "dream on!"
Freddie's weekly survey is a Wednesday through Wednesday 5-day average of rates that's reported on Thursday. It also doesn't account for the prevalence of upfront points/buydowns (which are increasingly prevalent in this market).
Our rate index accounts for points and is immune from some of the pitfalls that plague other rate metrics.
(If you're typing an angry reply about rates being lower than I say, read this paragraph twice): This DOES NOT mean you couldn't see a rate quote in the high 6% range today. Many lenders will find ways to quote something under 7% today, but in those cases, it will involve more upfront cost than the apples-to-apples vanilla rate quote for a top-tier 30yr fixed scenario over the years.
What is that scenario? It's basically ideal: 25% down, 780+ FICO, owner occupied, purchase, single-family residence. Anything else would be higher. You can read as much as we're willing to share about our methodology here: mortgagenewsdaily.com/mortga…
You can see a chart of how our daily index compares to Freddie and MBA over the years here:
mortgagenewsdaily.com/mortga… (note: depending on when you click this, today's entry may not be reflected yet as I'm writing this tweet before updating the index).
No one does the work we do to nail this math every single day and no one has done anything remotely comparable for remotely as long. Those who know me know I rarely toot my own horn, and that's not even the goal here as I would be sharing this info whether I was the guy in charge or just a mortgage pro who knows what's up (incidentally, if you're one of those mortgage pros, jump in the comments and hit me up if you managed to read this far).
I'm sharing this because we're about to see the mortgage rate conversation explode even more than it has in recent days, and before everyone starts arguing about what rates really are or quoting my work without attribution, I figured I'd give myself a quick shout out to get ahead of it and to make sure everyone knows to point an laugh if anyone tries to tell you "rates are almost up to 7%" because the last day that was true was September 9th.
Interesting. Does the Fed need to advertise more? People only know what Fed inflation targets are when inflation is high and they know the Fed is missing. Otherwise it’s all over the place. Chart via GS.
This was the point of leverage ratio relief, right? To exclude treasurys and make it cheaper for banks to balance sheet and facilitate repo. I know swaps did narrow/flatten at one point earlier this year, but has that extra capacity already been exhausted?
A driver of the basis trade is that many asset managers achieve leverage via futures rather than by repo'ing out their bonds, because the latter incurs fees that get reported to shareholders as an expense. Hedge funds arbitrage this preference by buying cash and selling futures. As @jonsindreu notes, this does not change the ultimate appetite for duration. But it does introduce a layer of intermediation that is fundamentally fragile since the basis trade is highly dependent on the cost and availability of repo.
Telis Demos retweeted
A driver of the basis trade is that many asset managers achieve leverage via futures rather than by repo'ing out their bonds, because the latter incurs fees that get reported to shareholders as an expense. Hedge funds arbitrage this preference by buying cash and selling futures. As @jonsindreu notes, this does not change the ultimate appetite for duration. But it does introduce a layer of intermediation that is fundamentally fragile since the basis trade is highly dependent on the cost and availability of repo.
Is there a demographic factor in rising real yields? Apparently it’s pretty hard to pry 3.5% yielding cash from older folks’ wallets wsj.com/personal-finance/wea…
Telis Demos retweeted
My take: Yield curve control can only work with the Fed onboard, which would be an amazing about-face by Warsh.
Telis Demos retweeted
A new estimate of the medium-run neutral rate by an economist at the SF Fed suggests it is around 1.5% (with a wide uncertainty band). If you assume underlying inflation of at least 2.5%, this suggests current monetary policy is accommodative.
frbsf.org/research-and-insig…
Telis Demos retweeted
I did a pod about tax-aware long/short with @miriamgottfried and @telisdemos at @wsj two weeks ago. We talked about how the strategy works, and how we got here.
Talking on a pod is a lot easier than writing, so in my latest blog, I wrote it all down.
I organized a timeline from the 1950s/1960s, through the introduction of the index fund in the 1970s, to the rise of systematic active managers in the 1980s/1990s, and the parallel work in tax-aware indexing, to the present moment when these two worlds integrate.
Dozens of managers offer tax-aware long/short strategies now. Their approaches vary widely and are a function of their history.
Link in profile for my latest blog: "Tax-aware long/short: How we got to this moment"
Telis Demos retweeted
Our Head of Research, @ChristineLShort, joined the @WSJPodcasts with @miriamgottfried and @telisdemos to discuss the sky-high earnings expectations this quarter as the banks kick off the Q2 reporting season tomorrow. #earnings #investing #stockmarket
Why are corporate earnings expectations reaching exuberant highs? @miriamgottfried and @telisdemos are joined by @ChristineLShort of Wall Street Horizon to discuss AI, cost-cutting and the state of the economy.
Listen🎧: on.wsj.com/3LBGo5Q
You’ve heard of Moore’s Law, which is how software gets faster and cheaper. Well so drug development goes backwards, getting slower and more expensive — so they call it Emoore’s Law wsj.com/tech/ai/can-ai-make-…
Telis Demos retweeted
Kevin Warsh rode an AI-productivity argument to Trump's Fed chair nomination. He says the boom will hold down prices and let the Fed cut rates. The pitch has run into a public wall of opposition from his future colleagues before he takes the job.
