Morning Report: The unthinkable just happened.

Vital Statistics:

	Last	Change
S&P Futures	2134.5	-4.0
Eurostoxx Index	333.0	-2.0
Oil (WTI)	44.8	-0.2
US dollar index	88.3	0.3
10 Year Govt Bond Yield	1.96%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	3.61

Stocks and bonds are down after Republicans ran the table last night. Volatility will be the rule of the day.

Republicans ran the table. House, Senate, and Presidency. Obviously the conventional wisdom was dead wrong. 

Bonds are down surprisingly, given how they were behaving in the early Asian sessions. As a Trump victory was looking more and more likely, bond yields were falling (having hit a low of 1.72% at one point). Just after midnight, the rally reversed, and bonds sold off to where yields hit 1.96%. Interestingly, the 2 year has rallied to 71 basis points or so and has now sold off to 83 bps. So people got whipsawed big time overnight, which means we should expect some volatility in rates going forward. Volatility tends to beget volatility. Be careful with your locks. 

Stocks were initially slammed on the result as well, with the S&P 500 futures down over 120 points. That has since turned around and we are looking at modest losses. Just another day at the office for the markets. 

Obviously, no one saw this coming, and a lot of people are wondering what a Trump presidency means to markets. First of all, I think fears that Ted Nugent would be running Homeland Security and Jesse the Body Ventura would be running Treasury are overblown. A lot of the serious candidates who would be good choices were not in the mix for consideration because they didn't take Trump's candidacy seriously. That will now change, however I think we will probably see a few outsiders: guys like ex-GE CEO Jack Welch, KKR head Henry Kravis, or Carl Icahn. VP Mike Pence will have a much bigger role than a traditional VP. 

Trump's model would be Ronald Reagan, which was probably the best comparison. Reagan was scoffed at by the elites: he was an actor, went to *snicker* Eureka College, was from the land of fruits and nuts, however he beat the brainiac Jimmy Carter who the establishment liked a lot. Reagan however surrounded himself with the best of the best and brightest of the conservative movement and became a successful president. Reagan was not a detail guy either. For Trump, it all comes down to his personnel who will handle the heavy lifting while Trump points in the general direction where he wants things to go. He doesn't have the knowledge base to get all that involved in the nitty-gritty of policy-making. All of that said, the people who worry that he is Benito Mussolini II (actually I think the better comparison is Silvio Berlusconi) forget that people change, but the US system of government doesn't. It was designed specifically to make it impossible for a dictator to make it work. He is going to be way more restricted in what he can actually do than the left fears. 

I would suspect this morning a lot of market pros are googling Donald Trump's economic policy. He has generally been all over the place. I think he will be more financial sector friendly than Obama was. He has trashed Dodd-Frank a number of times, and I suspect that D-F will get tweaked legislatively, with the goal of providing market participants more certainty into what the rules of the road are. Provided he does this right, it could help bring back the private label securitization market, which has been largely dormant with the exception of highly overcollateralized jumbo securities. Given the thin ice that the CFPB is on Constitutionally (and now a conservative replacement for Scalia on the Supreme Court), the agency might be pulled back onto the reservation. 

Trump has been all over the board with respect to tax policy. He once advocated for a wealth tax, which hearkens back to FDR's days. Now, he wants to eliminate the estate tax, cut corporate taxes and flatten the income tax code. Corporate tax reform is ripe as both parties agree we need to do something. Carried Interest could probably go by the wayside as a bargaining chip with the left. 

Donald Trump has also been critical of the Fed, and he probably will nominate a more hawkish Chair than Janet Yellen, however her term expires in 2018 so this isn't a front-burner issue. The action in the 2 year suggests the markets are handicapping a lower chance of a hike at the December meeting. IMO, the Fed will do what it usually does: take a cue from the behavior of the markets. 

Here is what Trump might do for housing finance reform. Punch line: Housing finance reform simply isn't going to be a front-burner issue. It wasn't really discussed by either party during the campaign, and the current system might not be ideal, but at least it isn't a problem. 

With respect to foreign policy, remember that Barack Obama ran as the anti-GWB. He would end the wars in the Middle East, close Guantanamo Bay, and build on our alliances in Europe. After all was said and done, he pretty much continued to do what GWB was doing. Trump will have the same constraints, especially in trade.