Morning Report: Gary Cohn resigns

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10 Year Govt Bond Yield	2.86%
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Current Coupon Ginnie Mae TBA	102.5
30 Year Fixed Rate Mortgage	4.4

Stocks are lower this morning on the prospect of a trade war. Bonds and MBS are up.

White House Economic Adviser Gary Cohn has resigned after losing the argument on tariffs. Cohn, a Democrat, was one of the more moderate voices in the Trump Administration, and his resignation cements the idea that the Administration is turning away from globalization, which has marked Washington establishment for decades.  

So far the potential trade war hasn't had much of an effect on the Fed Funds futures, which are handicapping a 86% chance of a hike in May and have centered on 3 hikes for the full year. The impact of a trade war will be an interesting question for the Fed. On one hand, they raise prices, which should translate into higher inflation. On the other, they depress economic activity which should translate into slower growth and higher unemployment. The first effect is more near term, while the second order effect is longer-term. 

Bolstering the Administration's case for tariffs is the fact that the trade deficit rose to a 9 year high last month. 

Atlanta Fed President Raphael Bostic says that the Fed should take a "wait and see" approach to a trade war. While the Trump Administration may be pushing back from globalization, Congress has not, and the courts provide another speed bump to tariffs. Note as well, that the US "ask" in trade negotiations usually centers on intellectual property protection, and that means Hollywood and Big Tech. Their partisanship will probably come back to haunt them. Think Trump is going to care about the Chinese pirating the latest Michael Moore flick? Or the latest left-wing Netflix "documentary?"

The economy added 235,000 jobs in February, according to the ADP Employment survey. The Street is looking for 205,000 jobs in Friday's jobs report. The ADP report has been coming in higher than the BLS reports lately, so this should have a muted effect. Secondly, the focus on the jobs report (at least from the Street's perspective) has shifted from payroll growth to wage inflation. 

Mortgage Applications rose 0.3% last week as purchases fell 1% and refis rose 2%. The average 30 year mortgage rate rose 1 basis point to 4.65%, the highest since early 2014. 

Nonfarm productivity for the fourth quarter was revised upward to flat, while unit labor costs were revised upward to 2.5% from 2.0%. Compensation costs drove the increase. So far, companies have been unable to pass on higher costs in the form of higher prices, which should mean profit margins will come in, making stocks vulnerable.  This should translate into lower interest rates at the margin.

A real estate startup called Knock is looking to disrupt the real estate industry by acting as a market maker for homes. They will buy a seller's home, move them into a new one, and then sell the old home. The benefit for the home seller is that they will now be able to compete in bidding wars without having any sort of home sale contingencies. That said, this is clearly a bull market phenomenon, and in this market the tough part is not selling your current house - it is getting (and winning) your new one. Still an interesting idea.