Trading the Presidential Race

How are the markets currently handicapping the 2012 election?

Intrade currently has obama trading at about 60

Sporting Index (A UK spread betting index) has him at 62.

Sporting Index Markets:

Obama chart (Intrade markets):

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1403.9	5.7	0.41%
Eurostoxx Index	2471.7	19.0	0.77%
Oil (WTI)	103.52	0.7	0.72%
LIBOR	0.4682	0.000	0.00%
US Dollar Index (DXY)	78.81	-0.376	-0.47%
10 Year Govt Bond Yield	2.15%	-0.01%
RPX Composite Real Estate Index	170.13	0.4

Markets are higher this morning on no major news except for the increase in the European firewall. There is probably an element of end-of-the-quarter window dressing to it as well.

Personal Income came in +.2%, lower than expectations, while Personal Spending increased .8% higher than expectations. Inflation data came in as expected. Overall, no reaction in the futures. Chicago Purchasing Manager, Michigan confidence, NAPM, and some revisions are coming out later this morning.

The NYT notes that Moody's may lower the credit ratings for B of A, Citigroup, and Morgan Stanley in mid-May. The side effect of this downgrade would be to kill their derivatives businesses, as the lower rating will force them to put up much more collateral against their derivatives books, and force many large buy-side clients to trade elsewhere. This could be the impetus to turn Citi and B of A back into plain old commercial banks.

Goldman is raising money for a new fund to buy distressed home loan bonds without government backing. The documents state this is a bet on improving fundamentals in U.S. housing. The story also goes on to say that Goldman bid on mortgage bonds from AIG in a Feb 8 auction, and decided to hold the merchandise instead of selling it. Most of these bonds are trading in the 50s. Non-agency MBS have done well this year as credit conditions have eased - enough that some funds are paring their bets.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1394.3	-5.9	-0.42%
Eurostoxx Index	2468.1	-28.6	-1.15%
Oil (WTI)	105.23	-0.2	-0.17%
LIBOR	0.4682	-0.002	-0.32%
US Dollar Index (DXY)	79.244	0.118	0.15%
10 Year Govt Bond Yield	2.16%	-0.04%
RPX Composite Real Estate Index	169.77	0.0

Markets are weaker as S&P warns that Greece may have to restructure its debt again and a disappointing report from H&M. Best Buy reported better-than-expected earnings this morning and will close 50 stores.

The third revision to 4Q GDP was released this morning, unchanged from the 2nd revision at 3%. Initial Jobless claims were slightly higher than expected at 359,000. Bloomberg Consumer Comfort and Kansas City Fed come out later this morning.

Bill Gross of PIMCO told Bloomberg that the Fed will probably concentrate on supporting MBS once Operation Twist ends in June. He referred to a "sterilized twist" where the Fed would buy current coupon MBS and simultaneously repo out the Treasuries. This would cause MBS spreads to tighten. So even if the sell off in Treasuries continues, mortgage rate may not rise as rapidly.

Bloomberg had a good interview with FHFA Acting Director Ed DeMarco regarding principal forgiveness on underwater homeowners. It certainly does not appear that a mass taxpayer-funded principal forgiveness, (or cramdown for investors) is in the cards. FHFA prefers to mod interest and term first in order to make an affordable payment. If they cut the principal and the house increases in value, the borrower gets all of the benefit. If they don't cut the principal, then taxpayers share in that upside. Ed has been a pinata to the Left who want mass cramdowns.

American borrowers fear the Repo Man over everyone else, at least according to a TransUnion survey cited in the Washington Post. It used to be that the mortgage payment was the first priority, but with foreclosure pipelines so elongated, the car loan now takes priority.

Dealbook has been the go-to place for all things MF Global. Yesterday, regulators held a hearing with several top executives of MF, who took the Fifth. The CFO has apparently offered a proffer statement, which means he is negotiating to talk.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1407.2	0.8	0.06%
Eurostoxx Index	2522.2	-3.0	-0.12%
Oil (WTI)	106.12	-1.2	-1.13%
LIBOR	0.4697	-0.001	-0.21%
US Dollar Index (DXY)	79.086	0.039	0.05%
10 Year Govt Bond Yield	2.21%	0.02%
RPX Composite	169.78	0.2

Markets are flattish after Durable Goods orders, which came in below expectations. February Durable Goods came in at 2.2% vs 3% expectations. Bonds and mortgages are off slightly. June 10-year bond futures are trading at 138 after bouncing off a low of 135-05 last week. Mortgage applications also fell 2.7% for the week ending Mar 23 as the backup in mortgage rates hurt refinancings.

The American Bankers Association released its Real Estate Lending Survey yesterday. The survey of 185 respondents, of which the vast majority are small community banks, said that lending conditions at the end of 2011 are about the same as they were at the end of 2010, with regulatory uncertainty as the main concern. The average delinquency rate fell slightly over 2011.

Is Mark Zandi becoming the Abby Joseph Cohen of real estate and the economy? Seems so. The Washington Post locates a pocket of optimism in real estate, citing Zandi and some Northern Virginia Realtor. Washington DC real estate inhabits a world of its own, so I don't think it necessarily applies nationwide.

Redwood Trust did another jumbo securitization yesterday, more evidence that the private label market is returning.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1413.8	-1.3	-0.09%
Eurostoxx Index	2543.8	3.9	0.15%
Oil (WTI)	107.1	0.1	0.07%
LIBOR	0.4707	-0.002	-0.42%
US Dollar Index (DXY)	79.023	0.041	0.05%
10 Year Govt Bond Yield	2.23%	-0.02%
RPX Composite	169.62	-0.2

Markets are largely maintaining their gains after yesterday's huge rally. Bonds and MBS are up slightly.

The S&P / Case-Schiller index showed a 3.8% decline year over year. Only Miami, Phoenix, and Washington DC reported increases. Atlanta was the outlier on the downside, with a nearly 15% decline YOY. Note that these are January numbers - Case-Schiller has a couple month lag.

Bloomberg has a story about bidding wars for homes in some parts of the US. While I had heard about bidding wars in the usual places - NYC and DC, this is the first I have heard about bidding wars in places like Seattle. The big question will be whether this is a permanent or temporary phenomenon. Supposedly the settlement with the State AGs ended foreclosure moratoriums, which means more supply is going to be dumped on the market. That said, I am hearing anecdotes of bidding wars in hard hit areas like Phoenix, at least in the $80k - $120k range.

On the other side of the coin, the Campbell / Inside Mortgage Finance survey notes that investors purchases are becoming a larger proportion of home sales, particularly short sales. This is being driven by the long financing timeline. Their Distressed Property Index shows that nearly half of home sales are distressed.

Chart: S&P / Case-Schiller Composite Index

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1403.7	9.6	0.69%
Eurostoxx Index	2537.3	11.9	0.47%
Oil (WTI)	107.2	0.3	0.31%
LIBOR	0.4727	-0.001	-0.11%
US Dollar Index (DXY)	79.272	-0.073	-0.09%
10 Year Govt Bond Yield	2.27%	0.04%
RPX Composite	169.79	0.1

Markets are generally higher this morning on no real news. Bonds and MBS are weaker as risk aversion continues to wane. Commodities are slightly higher.

The Chicago Fed National Activity Index came in at -.09 in Feb, down from +.33 in Jan and below expectations. Essentially the index tells you whether the economy is growing above trend (positive number) or below trend (negative number). It takes into account 85 different economic indicators. The biggest positive contributor was employment, while consumption and housing were the biggest negatives.

Meanwhile, Ben Bernake is saying the job market remains weak and the recent drops in unemployment are unlikely to continue.

Speaking of housing, KB Homes released numbers on Friday and the stock was pummeled, as the street was spooked by the lower new orders numbers. KB was blaming the number on their preferred lender (Met Life) exiting the market. Overall, the tone of the conference call was constructive, with the company noting several signs that the housing market is steadily improving.

Smoking Gun at MF Global

According to Bloomberg, the government thinks so.

Wow, Jon. You had it all, money and power, and threw it all away.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1387.6	-1.3	-0.09%
Eurostoxx Index	2510.8	-19.5	-0.77%
Oil (WTI)	105.76	0.4	0.39%
LIBOR	0.4732	-0.001	-0.11%
US Dollar Index (DXY)	79.483	-0.253	-0.32%
10 Year Govt Bond Yield	2.25%	-0.03%
RPX Composite Real Estate Index	169.74	0.0

Markets are flat this morning on a lack of news. Bonds and MBS continue to retrace their large move downward after the FOMC statement. New Home Sales are due at 10:00 am.

Radar Logic released their Monthly Housing Report yesterday, noting that price declines are slowing, but we are not at a bottom. Distressed sales declined 21.8%, although the settlement between the State AGs and the 5 big banks means that foreclosures are going to pick up again. Interestingly, while Radar Logic has the opinion that housing has yet to bottom, the Radar Logic futures indicate that real estate will stay flat in 2012 and 2013 and then start increasing. The RPX futures are very illiquid, so take what they say with a grain of salt, but still...

Bank of America is launching a pilot program for distressed homeowners, where they follow a Deed In Lieu process to turn over the title to the bank and then rent at sub-market rates for up to 3 years. Bank of America would then sell the properties to outside investors. Speaking of which, we should be hearing the results of the FHFA's REO-to-Rental program soon. In my opinion, the government made it very difficult for investors to take a look, (you have to pay $250,000 just to find out basic information) which I found surprising.

In the "because I said so" category, Ben Bernake said the Fed's easy monetary policy after the stock market bubble burst wasn't responsible for the housing bubble.

As I noted yesterday, the homebuilders have quietly put in a huge rally since last fall. (Note to the business press: there are more stocks in the US than Apple) Is the move over? Perhaps. KB Homes reported disappointing Q1 earnings and the stock is down 14% pre-open.

Etch-a-Sketch-gate was actually market-moving, believe it or not. Yesterday, shares of little Ohio Art (NASDAQ - OART) more than doubled on the prospect that Democrats will be buying Etch-a-Sketches en masse as props for upcoming election. The stock trades by appointment and has a miniscule market cap ($8.6 million), but there you go.