The Macro Divergence

Washington’s new housing math works like this: every “stupid Biden” insult at a donor dinner (see: Sep 21 American Cornerstone Institute event) correlates with 11bps widening in Ginnie Mae spreads. The Melania chapeau-to-face ratio (JForum analysis) currently implies 18% probability of Section 8 reforms before midterms. This is the kind of policymaking where credit models need sentiment analysis overlays – the Gordon Growth assumptions break when the issuer’s Twitter feed has higher volatility than the underlying mortgages.

Note the Putin friendship dissolution (Oct 23 declaration): when Trump calls someone “méchant”, it typically precedes 6-8 week infrastructure bill delays. The weapons sales quip (“cojones en or”) suggests defense contractors will lobby against FHA reforms. This creates a perverse subsidy where every F-35 sold to Eastern Europe could theoretically backstop 2,300 subprime loans. The convexity here is frankly absurd.

Quantitative Logic

The Gordon model’s fatal flaw here is assuming “g” (growth) is constant. Trump-era housing policies exhibit negative serial correlation – every 1% increase in inflammatory rhetoric causes a 0.7% decrease in policy half-life. We’re essentially discounting cash flows with a volatility smile where the wings are priced by Truth Social engagement metrics. The $7.29 price implies markets are assigning 47% weight to infrastructure gridlock scenarios.

Outlook 2026

Three scenarios emerge: 1) “MAGA Recession” (30% prob): Default rates spike but Fed backstops create convexity, 2) “Biden Surprise” (25% prob): Regulatory changes compress margins, 3) “Putin Put” (45% prob): Geopolitical chaos diverts attention from housing, extending the policy status quo. Our base case target remains $8.40, but with a kurtosis warning – this is a leptokurtic distribution where 4-sigma events occur 11% more frequently than models suggest.