Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1433.2	-7.9	-0.55%
Eurostoxx Index	2470.5	-35.6	-1.42%
Oil (WTI)	91.65	-0.2	-0.22%
LIBOR	0.359	-0.002	-0.49%
US Dollar Index (DXY)	79.56	0.009	0.01%
10 Year Govt Bond Yield	1.61%	-0.05%
RPX Composite Real Estate Index	194.5	0.0

Markets are weaker on no real news.  Personal Income came in weaker than expected and personal spending was in line with estimates. The .5% increase in spending was driven by a .4% increase in prices. Bonds are up about half a point and MBS are up 1/4.

On the back of the puzzling statistic showing a 17% increase in new home prices, BLS is now saying an additional 453k jobs were added in 2011, bringing the hiring estimate up from 1.9 million to 2.3 million. Is the obama administration playing jiggery-pokery with the economic data?  Well, that is one way to fix the economy.

Amidst all of the usual theories about the cause of the financial crisis (Glass-Steagall, nefarious bankers, Fannie and Fred) we have another - flaws in democracy itself.  He does sound a bit like Thomas (Flathead) Friedman in that he envies more authoritarian societies that are able to push through policies without much opposition.

Is QEIII going to do much for the real estate market? According to Thomas Flexner, global head of real estate at Citi, it won't "do very much at all."  Blame tight lending standards. Also, as g-fees increase that will offset part of the lower interest rate effect.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1434.2	7.3	0.51%
Eurostoxx Index	2507.7	9.2	0.37%
Oil (WTI)	91.23	1.3	1.39%
LIBOR	0.36	-0.002	-0.55%
US Dollar Index (DXY)	79.74	-0.141	-0.18%
10 Year Govt Bond Yield	1.64%	0.03%
RPX Composite Real Estate Index	194.5	0.1

Markets are higher this morning on speculation of further stimulus measures out of China, in spite of some lousy economic data. Bonds and MBS are down.

2Q GDP was revised down to +1.3% from +1.7%. Big revision downward. Durable goods slumped 13% on a decline in aircraft orders.  Revisions were down across the board. About the only bright spot was a drop in initial jobless claims to 359k.  While some might dismiss the drop in durables as just normal volatility, I would point out that Caterpillar has already warned.  Speaking of which, we are getting pretty close to pre-announcement season, when companies that are going to miss their quarter fess up to the Street.

Yesterday's report from the Commerce Department noted that sales of new single-family houses in August were at a seasonally adjusted rate of 373k, up 28% from Aug 11.  The shocking statistic from the report was that the median sales price of a new home was 257k, up 17% from a year ago. The homebuilders aren't reporting price increases like that -  KB Homes said sales prices were up 5% YOY in their 3Q results, while Lennar reported a 4% price increase.  Is it perhaps that bigger houses are being sold now and that accounts for the increase?  Nope - McMansion builder Toll Brothers reported prices increased only 1%, and we all know that the remaining problems in the real estate market are at the high end, where it is cheaper to buy than build. And if prices really were increasing 17% YOY, housing starts wouldn't be 750k, half of the 1959-2002 average run rate.  So something fishy is going on - perhaps Commerce is trying to put out good statistics to help Obama's campaign and intends to quietly revise the numbers downward once he gets elected.

The first time homebuyer is still struggling to get involved in the real estate market.  The latest NAR Confidence Index Report showed that first time homebuyers were only 31% of all sales, much lower than their typical 40% share.  Tight credit and cash buyers account for the drop. Buyer traffic has jumped considerably over the past year, while seller traffic has remained flat.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1433.8	-3.4	-0.24%
Eurostoxx Index	2512.3	-56.2	-2.19%
Oil (WTI)	89.94	-1.4	-1.57%
LIBOR	0.362	-0.001	-0.34%
US Dollar Index (DXY)	79.93	0.376	0.47%
10 Year Govt Bond Yield	1.64%	-0.03%
RPX Composite Real Estate Index	194.5	0.0

Markets are weaker this morning as Europe sells off and commodities weaken. Spanish bond yields are back above 6%.  Perhaps the late summer lull in European news is over and it will take center stage again.  If so, the markets didn't have much time to bask in the glow of QE infinity. This is pushing yields down on the 10 year, and MBS are up slightly. Volumes should be light today for the Jewish holiday.

The FHFA House Price index increased 3.7% annually in July. This index focuses on Fan and Fred conforming loans, so it is more of a "core" index than Radar Logic or Case-Schiller which are affected by sales at the extremes of valuation.  This index is much more stable - the peak to trough drop for the FHFA index was only 20%, vs. something like 33% for the other indices.

Unsurprisingly, Philly Fed President Charles Plosser doesn't think much of QE Infinity. Plosser hits at the Fed's credibility in an unusual way - "Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed's credibility."  It is unusual in that we typically mean "inflation fighting" when we mention credibility.  Plosser is one of the most hawkish members of the Fed. He forecasts the economy will expand by 3% in 2013 and 2014, which is an aggressive forecast, to say the least.

If noted that actual borrowing rates have not been affected by GE Infinity, even though MBS have moved, you would not be alone. This has been a continuing theme in the press, which brings with it the predictable questions of price gouging.  Part of the problem is that so much capacity has been taken out of the banking sector in the last 5 years that they cannot handle the volume.  Since most of these loans are refis, the banks view this boomlet as temporary and are reluctant to hire for fear that they will end up being overstaffed when rates start rising. 

Real "inside baseball" stuff, but University of Chicago professor Casey Mulligan discusses how our redistributive social safety net is skewing incentives to work, and also challenges Paul Krugman's "Its the demand, stupid" argument.  Casey's argument is basically this:

I don't normally get too political here, but I thought that was funny.  If obama also proposed his gorilla glue regulatory lube job, the joke would have been perfect.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1454.8	3.4	0.23%
Eurostoxx Index	2553.3	-4.6	-0.18%
Oil (WTI)	92.97	1.0	1.13%
LIBOR	0.364	-0.004	-1.02%
US Dollar Index (DXY)	79.5	-0.015	-0.02%
10 Year Govt Bond Yield	1.71%	0.00%
RPX Composite Real Estate Index	194.5	-0.2

Markets are up slightly on no real news. Caterpillar issued a profit warning based a drop in capital expenditures from the miners, which is a bad sign for the world economy, particularly China. Nevertheless, commodities are up this morning. Bonds and MBS are up small.

The S&P / Case-Schiller index showed a 1.2% annual increase in July. They note the recent strength of the housing market and that inventory is down.  FWIW, the strategist at Radar Logic (the publisher of the RPX index) believes the strength is a head fake due to the large amount of shadow inventory.  One big question regarding shadow inventory is how much has been picked over?  Is the remaining shadow inventory the least salable garbage that nobody wants?  If so, will its liquidation matter that much to prices? How much of it is vacant dilapidated blight in places like Detroit and Toledo, which will never sell and will probably get demolished?

Chart:  Case-Schiller:

The Romney campaign has released its plan for the housing market. The most significant departure from the Obama administration is an end to REO-to-rentals.  A President Romney, observing that a ton of money has been raised to invest in resi, would simply sell the property as opposed to using various strategies like REO to rental to keep it off the market.  He would end TBTF Fan and Fred (he doesn't say how) and he would usher in "sensible, but not overly complex financial regulation to allow banks to approve loans to families with good credit rather than rejecting their mortgage applications."  I take it the last statement means we will finally learn what the government considers a "qualified mortgage." Basically, the plan boils down to "hit the bid, stop trying to manipulate the real estate market, and make some decisions on how we are going to regulate the banks."

RBS has been implicated in the LIBOR scandal, along with Barclay's. This time, it looks like RBS was not simply falsely reporting LIBOR during the financial crisis to prevent a bank run, it was doing it over a longer period to benefit positions.  Regulators might let the first case slide; they certainly won't let the second one.

Yet another unintended consequence of ZIRP - the death of the "free" checking account.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1446.6	-5.3	-0.37%
Eurostoxx Index	2553.6	-23.5	-0.91%
Oil (WTI)	91.84	-1.1	-1.13%
LIBOR	0.367	-0.002	-0.54%
US Dollar Index (DXY)	79.59	0.265	0.33%
10 Year Govt Bond Yield	1.72%	-0.03%
RPX Composite Real Estate Index	194.5	-0.2

Markets are lower after a disappointing German business sentiment survey and some German officials criticized Spanish Prime Minister Rajoy's foot-dragging on an aid package.  The financial industry jobs bleed continues - after BOA announced it would cut 16,000 jobs late last week, RBS is cutting another 300 and Nomura is reorganizing (read cutting jobs) in its Asian Finance Unit. According to Olivetree financials strategist, this is just the start. Bonds and MBS are up.

The Chicago Fed National Activity Index deteriorated in August, which was the 6th consecutive month activity was below trend. The number came in at - .87, which is below the - .7 mark.  If the 3 month moving average falls below .7, it typically means a recession has already started. FWIW, employment was not the big driver - it was production.

Lennar reported better than expected sales and profits this morning. Stuart Miller characterized the housing market as "The housing market has stabilized and the recovery is well underway.  Low mortgage rates, affordable home prices, increased buyer confidence and an extremely favorable rent-to-own comparison are driving growth in each of our markets.  Additionally, reduced foreclosures and declining distressed home inventory are further contributing to the improvement in the housing market."  Granted, the homeboys are the biggest cheerleaders of real estate there is, but still...  BTW, KB Homes was up 16.5% on Friday after it reported a good quarter.  LEN is up 4% pre-open.

After the fact, Shelia Bair thinks Hank Paulson's bazooka was too big.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1459.3	5.5	0.38%
Eurostoxx Index	2569.4	16.4	0.64%
Oil (WTI)	93.42	1.0	1.08%
LIBOR	0.369	-0.004	-1.01%
US Dollar Index (DXY)	79.11	-0.303	-0.38%
10 Year Govt Bond Yield	1.79%	0.02%
RPX Composite Real Estate Index	194.5	0.0

Markets are higher this morning on no real news.  Today is Triple Witching (the expiration of Sep index options and futures) so sometimes you get funny moves pre-open and on the close. There is no economic data this morning. Bonds are down a few ticks, while MBS are up a few.

KB Home reported good numbers last night, with 16% increase in revenues and a 33% increase in backlog. "It is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise.  In particular we are seeing dramatic improvement in California, where we are the state's largest homebuilder, as the continued strengthening in the coastal markets is now spreading inland to Sacramento, the Central Valley, and the Inland Empire."  The stock is up 2.5% pre-open.

While housing is definitely improving here, Europe still has to contend with its slow-motion bank run.  Which means that banks in Spain or Italy have to increase deposit rates to prevent capital from leaving, which naturally gets passed on to borrowers.  Which contracts credit in spite of what the ECB is trying to do.

The Senate is looking into high frequency trading. The regulators are looking into whether HFT increases volatility, which is the wrong question to ask.  The correct question to ask is if they are front-running orders - meaning if you enter your order to buy 200 shares of Apple stock via your Charles Schwab account, does someone see your buy order before it hits the exchange and are they stepping in front of you and buying the stock that is out there in the hopes of selling to you a penny or two higher?  Arbitraging the different exchanges is one thing - front running is another.  To put it in perspective, if I did that as a block trader, I would probably lose my job and maybe my Series 7 license if the regulators found out. This could become a battle royale, because the NYSE loves HFT because it is such a money maker.  And it is a private entity. However as Jack Reed points out, the capital markets are also a public good.  Meh, as much as I used to gripe about the specialists on the floor of the NYSE, they did serve a purpose.  But market-making, at least in the equity markets, is long gone.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1447.3	-5.9	-0.41%
Eurostoxx Index	2545.6	-22.1	-0.86%
Oil (WTI)	91.68	-0.3	-0.33%
LIBOR	0.373	-0.003	-0.73%
US Dollar Index (DXY)	79.48	0.423	0.54%
10 Year Govt Bond Yield	1.73%	-0.04%
RPX Composite Real Estate Index	194.1	-0.1

Markets are lower this morning after some disappointing European reports and a soft initial jobless report. 383K people filed for unemployment last week, higher than the survey of 379k.  Last week was revised upward as well. Later this morning we will get Leading Economic Indicators. Bonds are up a point and MBS are up 1/4.

It looks like HUD paid out over $1B in false claims for its Preforeclosure Sale Program. The program ran from 9/10 to 8/11 and paid out $1.7B in total.  It was intended to help homeowners who must sell their home for less than it was worth, provided they had an unavoidable financial crisis, lived in the home and did not have sufficient income to make the payments. The IG sampled 80 random cases and found 3/4 failed to meet the criteria. Ironically, it may have been a blessing in disguise since the homes would have probably gone into foreclosure anyway and FHA would have lost more in that event.

FHFA has sent to the Federal Register its approach for setting guarantee fees on a state-by-state basis, to account for the fact that foreclosures take longer and are more expensive in some states than others.  Housing advocates will undoubtedly object strongly to this measure. I guess they believe that borrowers in non-judicial states should subsidize borrowers in judicial states.

On the back of yesterday's WaPo story highlighting the difficulty the Fed is having getting the benefits of QE to Main Street due to bottlenecks in mortgage origination, Bank of America announced they are cutting 16,000 jobs by year end, of which 3200 are in new mortgage origination. It is astounding how much national  capacity has been taken out of mortgage origination over the past 5 years. I suspect a lot of people will find themselves caught flat-footed when the turn happens.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1455.6	2.7	0.19%
Eurostoxx Index	2557.9	4.5	0.18%
Oil (WTI)	94.87	-0.4	-0.44%
LIBOR	0.376	-0.003	-0.79%
US Dollar Index (DXY)	79.39	0.141	0.18%
10 Year Govt Bond Yield	1.78%	-0.02%
RPX Composite Real Estate Index	194.3	0.7

Markets are higher this morning after the Bank of Japan increased monetary stimulus.  This is in spite of a disappointing report on housing starts. Bonds are up half a point and MBS are up 1/4.

Housing starts climbed to an annual 750k pace in August, still roughly half of the pre-bubble average since we started keeping records in the late 50s.  To put that number in perspective, in 1959, we had just over 1.5 million housing starts with a population of 177.8M people. Fast forward today, starts are down 50%, while the population is up 75%.  Low household formation numbers combined with underwater homeowners is keeping demand low. That situation will not last forever - the low household formation numbers are creating pent-up demand that eventually gets released.  Even in a lousy economy, people still get married, have kids, and will need housing. We have underbuilt new housing for the past 10 years.

Chart:  Housing starts (1959 - Present)

The recent QE-driven bull run in stocks has left many people skeptical, given that profitability may have peaked and Taxmageddon may usher in an early 2013 recession. Professional short-seller Jim Chanos is finding value traps in nat gas, iron ore, HP and Coinstar. Doug Kass mentioned Dell and Microsoft as short ideas on Bloomberg radio this am. 

WaPo has an article accusing the banks of price gouging in the latest round of QE. Basically so much capacity has been taken out of the mortgage banking industry that banks cannot handle the amount of business coming their way, especially as GMAC sits in bankruptcy and Bank of America pulled out of correspondent lending. Much of this new business is refinancing, which the banks view as temporary.  As a result they are reluctant to hire, knowing that the refi business is going to disappear once rates start backing up. Also, guarantee fees are increasing, which is working against what the Fed is trying to accomplish.

Morning Report 9/18/12

Vital Statistics:

	Last	Change	Percent
S&P Futures	1453.2	-0.8	-0.06%
Eurostoxx Index	2563.5	-20.1	-0.78%
Oil (WTI)	95.89	-0.7	-0.76%
LIBOR	0.379	-0.002	-0.53%
US Dollar Index (DXY)	79.08	0.073	0.09%
10 Year Govt Bond Yield	1.79%	-0.05%
RPX Composite Real Estate Index	194.3	0.7

Markets are lower on the back of a decline in European stocks and a profit warning from Fed Ex. The current account deficit came in lower than expected and foreign purchases of US assets jumped to 67B in July from 9B in June.  Bonds and MBS are stronger.

The National Association of Homebuilders Market Index rose to the highest level since early 2007, the latest sign that things are getting better for the homeboys. The Homebuilder ETF (XHB) has been on a tear since the beginning of summer, rallying 21%, but is still 45% off of its bubble highs.

Chart:  SPDR S&P Homebuilder's Index ETF (XHB)

Funny tweet from Bill Gross:  Central banks are where bad bonds go to die. The article goes on to discuss whether to be long Treasuries.  IMO - obama win, bond bullish, Romney win, bond bearish.

Bloomberg discusses the foreclosure backlog in New Jersey. The upshot - shadow inventory is decreasing everywhere except for the Northeast where judicial foreclosures are slowing the pace of foreclosures and creating a backlog. This is primarily affecting NY, NJ, CT, and PA. Which is why prices are rebounding in Phoenix and still falling in Fairfield County.  Wasn't the plan in Washington to hold foreclosures off the market in the hope that less selling pressure means prices hold up?  So much for that theory....

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1457.1	-1.9	-0.13%
Eurostoxx Index	2583.8	-10.7	-0.41%
Oil (WTI)	99.07	0.1	0.07%
LIBOR	0.381	-0.005	-1.17%
US Dollar Index (DXY)	78.91	0.063	0.08%
10 Year Govt Bond Yield	1.85%	-0.01%
RPX Composite Real Estate Index	193.6	-0.1

Expect a quiet market today and tomorrow for the Jewish holidays. S&P futures are down a couple of points and bonds / MBS are up a few ticks. There is not much on the economic calendar this week.

The Empire State Manufacturing Survey showed manufacturing in the New York region contracted more than expected. Just more evidence that the economy is losing steam going into the election. The diffusion index is now at the lows of late 2010. FWIW, I am hearing initial forecasts for 3Q GDP growth coming in around 1%. Meanwhile, several business owners testified last week that regulatory uncertainty is driving a lot of the inaction.

Paul Krugman has yet another editorial ridiculing anyone who disagrees with ZIRP and QE.  Nobody attacks a strawman with more savagery than Dr. Cowbell, who imagines he is debating with someone who honestly fears Zimbabwean style inflation (yes, he actually did say that).  Right now, commodities are soaring along with the stock market.  Wages are flat to falling.  So, a combination of flat wages and increased food and energy prices equals lower disposable income. I suspect a lot of middle class people would prefer not to have this "help."  Or seniors, for that matter, who receive meager interest income from Treasuries and high quality corporate bonds.

Rick Santelli (kind of the anti-Krugman) raises some good points about why QE might not end up influencing mortgage rates to the consumer.  Why?  Because we are raising the guarantee fee on conforming mortgages, and the banks will respond to the GSE's round of put-backs by increasing borrowing costs. His view on ZIRP - the government needs to borrow a lot of money and needs interest rates as low as possible. He also notes that a lot of the floor traders have become mortgage bankers.

Investors in foreclosed properties now have a new source of funds - banks! Waypoint Real Estate Group got $65 million from Citi to buy foreclosed properties. Citi is also working on a way to issue securities backed by rental income streams. This is very good news for the housing market.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1456.8	6.4	0.44%
Eurostoxx Index	2592.6	49.3	1.94%
Oil (WTI)	99.66	1.3	1.37%
LIBOR	0.385	-0.004	-0.90%
US Dollar Index (DXY)	78.9	-0.366	-0.46%
10 Year Govt Bond Yield	1.82%	0.10%
RPX Composite Real Estate Index	193.7	0.3

Welcome to the world of QEU (QE Unlimited). Markets worldwide rocketed on the Fed's decision and the rally continues this morning. Commodities have a bid, while bonds and down a point and MBS are flat, continuing the divergence that began on the announcement.

In economic data, the Consumer Price Index (which became officially irrelevant yesterday) came in at +.6% and retail sales data came in a little better than expected, though higher gas prices may have been driving that number. The dollar continued to weaken against the euro.

The Fed's announcement had opposite effects on Treasuries and MBS.  Treasuries sold off 2 points on the announcement, while MBS gained a point. While Treasuries did recoup some of their losses, MBS went out at the highs of the day. This puts the 30 year Fixed Best-Ex rate somewhere between 3 3/8% and 3 1/2%. The NY Fed has the particulars on the MBS purchases.

Former Fed Governor Kevin Warsh told CNBC that the Fed's action reflects deep concerns that the economy is at stall speed or worse. He also noted that the iPhone 5 would have more of an effect on the economy than QE.  Someone else made the same point, and took it further by saying if you believe that incremental consumer spending is good for the economy then you must support the New Deal II.

The FHFA is developing a new securitization platform as a way to let other lenders compete with Fan and Fred in the secondary market and to reduce the GSEs role in the mortgage markets overall.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1437.0	-2.5	-0.17%
Eurostoxx Index	2546.8	-18.0	-0.70%
Oil (WTI)	97.32	0.3	0.32%
LIBOR	0.389	-0.006	-1.40%
US Dollar Index (DXY)	79.67	-0.071	-0.09%
10 Year Govt Bond Yield	1.73%	-0.02%
RPX Composite Real Estate Index	193.4	0.3

Markets are lower this morning after initial jobless claims ticked up to 382k and the Producer Price Index showed inflation in check. All eyes turn to the FOMC decision scheduled for 12:30 est. Here is the summary of what to look for. Bonds and MBS are both stronger.

Fannie Mae's latest issue of Housing Insights does a deep dive into the latest employment statistics. While average weekly earnings have rebounded from the recession, aggregate weekly earnings have not. What did Keynes say about "sticky wages?"  What this means is that wages have recovered for the people that have jobs, but is you add up everyone's salaries, that number has not. Which pretty much tells us what we already know - wages are flattish and unemployment is high. They blame the construction sector for the weakness.  As I have said before, we have under-built housing for the past 10 years. Tight credit and temporarily depressed housing formation has masked the effect on housing demand. That won't last forever.

Census points out that median income fell 1.5% in the last two years. Interestingly 2010 was the peak of average or median wages and they have been falling ever since. The two reports do disagree somewhat - Fannie has average wages up about 2% since the recession began, while census shows them 8.1% lower. Both adjust for inflation, and I cannot imagine the difference between median and average would be that great, so I am not sure what is going on there.  Census also notes the income gap is widening, so expect the study to be political fodder.

Rob Chrisman dissects the recent G-fee increase and its effect on the mortgage market. RTWT.

Is the rental boom reaching the end of the line? Maybe in Manhattan.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1435.8	5.2	0.36%
Eurostoxx Index	2568.4	10.7	0.42%
Oil (WTI)	97.4	0.2	0.24%
LIBOR	0.394	-0.005	-1.13%
US Dollar Index (DXY)	79.74	-0.113	-0.14%
10 Year Govt Bond Yield	1.74%	0.03%
RPX Composite Real Estate Index	193.2	0.1

Markets are buoyant this morning after a German Court ruled against efforts to block a european rescue fund. Apple is unveiling the iPhone 5 today as well. Mortgage applications rose, while import prices fell. Bonds are down about 3/4 of a point and MBS are down 1/4 or so.

The FOMC starts their two day meeting today, and will release their decision tomorrow around noon. The market expectations are for an extension of ZIRP into 2015 and a new round of bond buying. Given the run we have had in the stock market, we are possibly setting ourselves up for disappointment or a "buy the rumor, sell the fact" reaction.

If you live in a state with judicial foreclosures (e.g. New York, New Jersey, Florida), you may find that it will cost you more to get a mortgage. Acting FHFA Chairman Ed DeMarco has suggested that Fan and Fred increase their guarantee fees in these states to compensate the fund for the elongated timelines. (It can take 5 years to complete the entire process in NY, while in non-judicial states like AZ the process can be done in 2).  JP Morgan estimates that the proper compensation would be 10 - 20 basis points up front. FHFA intends to put the policy out for comment in the near future, where it will undoubtedly get panned by housing advocates.

WaPo has a long background piece on the CFPB and what it is up to (spraying lenders with subpoenas).

Foreclosure auctions are attracting big institutional money.  Colony, Blackstone, Och-Ziff and Oaktree have raised $8 billion for the activity. The plan is to rent them out of drip them out slowly into a rising housing market. In an era of ZIRP, high single digit rental yields are appealing to yield starved investors.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1431.7	5.3	0.37%
Eurostoxx Index	2521.7	-6.8	-0.27%
Oil (WTI)	96.72	0.2	0.19%
LIBOR	0.399	-0.006	-1.36%
US Dollar Index (DXY)	80.23	-0.172	-0.21%
10 Year Govt Bond Yield	1.68%	0.02%
RPX Composite Real Estate Index	193.1	0.2

Markets are stronger this morning after the government sold a stake in AIG and the National Federation of Independent Businesses noted an increase in optimism.  Deutsche Bank is looking to cut $6 billion in expenses by 2015. The trade deficit shrunk from 44B to 42B.  Bonds are up 7 ticks, while MBS are down a couple.

The National Federation of Independent Business released their Small Business Optimism Report for September, which showed improvement, but is still solidly in recession territory. On the positive side, hiring plans are the best they have been in years; but on the negative side, they aren't hiring now. It also weighs in on QE, asking the obvious question:  "Is anyone not hiring because interest rates are too high?" They also note that "political uncertainty" is at a new high - 22% of respondents cited that as a reason they are sitting on their hands. That said some pizza parlor owners must be doing okay.

Chart:  NFIB Small Business Optimism Index:

Fannie's first sale of REO-to-Rentals traded at 96% of BPO.  That is an eye-popping number, given that distressed pools have been trading in the mid / high 60s, but this is an oddball transaction - the buyer (Pacifica) will participate in a JV with Fannie, will put up under 16% of the purchase price, manage the properties, split the cash flows with Fannie and will receive a management fee. It seems odd that Fannie is basically buying properties from itself - Pacifica puts up 12.3MM, while Fannie puts up the rest.  Let me guess, there is a mark-to-market angle here...

FHFA and F&F have launched a new Reps and Warranties framework for conventional loans sold after Jan 1.  Put-Back risk - the risk that the government could come after you and force you to re-purchase a loan if the borrower starts missing payments - has been weighing on mortgage bankers and explains why banks have put such stringent overlays on F&F loans. The government will release banks from this requirement if the loan pays consistently for 36 months. For HAMP loans, it will be 12 months.  Co-incidentally, Congress has a re-introduced a bill to expand HARP refis which may contain language regarding the Qualified Mortgage safe harbor provision. The QM has been a big source of uncertainty for lenders. Finally specifying what constitutes are qualified mortgage could go a long way towards getting mortgage credit flowing again.

Redwood is doing another deal - $312 million of jumbos - the 9th deal since the market froze in 2008. Only 9 jumbo securitizations in 4 years. Probably $2 billion in total. To put that number in perspective, non-agency deals topped 1.2 trillion in 2004 and 2005.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1435.6	-2.6	-0.18%
Eurostoxx Index	2528.4	-10.2	-0.40%
Oil (WTI)	96.16	-0.3	-0.27%
LIBOR	0.404	-0.004	-0.86%
US Dollar Index (DXY)	80.35	0.100	0.12%
10 Year Govt Bond Yield	1.68%	0.01%
RPX Composite Real Estate Index	192.9	0.0

Markets are down slightly on no some disappointing economic data out of China. Treasury plans to sell $18 billion worth of shares in AIG. Bonds are down 1/2 a point, while MBS are flat.

In spite of the disappointing Chinese data, the Street is heavily long commodities. Chart:  GSCI Index:

Italian Prime Minister Mario Monti told CNBC over the weekend that he does not expect Italy to participate in the ECB's bond buying program, at least initially.  Remember, the individual states have to request the ECB to purchase their debt.

JP Morgan is out this morning with a note saying they expect the FOMC to extend the low rate guidance through 2015, and initiate a small asset purchase program (maybe $300b) primarily focused on MBS. The FOMC decision is scheduled to be released Thursday at 12:30 est.

The NAR is reporting that housing affordability continues to increase in spite of the fact that prices are up 9.4% YOY.  Decreasing mortgage rates are able to offset the price increases.

SIFMA and others have provided a formal response to FHFA regarding the Eminent Domain issue in San Bernardino.  They provide a helpful table lining out the trade and who makes / loses money. Basically the winners are the hedge fund behind this and the borrower.  The table doesn't break out what the state gets, but presumably they will get something out of this as well.  The lender gets slammed.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1435.1	4.1	0.29%
Eurostoxx Index	2556.1	31.1	1.23%
Oil (WTI)	95.63	0.1	0.10%
LIBOR	0.408	-0.001	-0.15%
US Dollar Index (DXY)	80.77	-0.272	-0.34%
10 Year Govt Bond Yield	1.66%	-0.02%
RPX Composite Real Estate Index	192.8	0.2

Markets are giving back earlier gains after a disappointing jobs report. Bonds and MBS are rallying on the number. The markets should be selling off on the lousy jobs report, but perhaps they are reacting to the possibility of more QE. Don't fight the Fed, as they say.

Nonfarm payrolls increased by only 96k, a surprisingly weak number given yesterday's ADP number which showed an increase of 200k. The Street was expecting 130k. June and July payrolls were revised down by 20k each. The unemployment rate fell to 8.1% from 8.3% due to a drop in the labor force participation rate, which now stands at 63.5%, the lowest level since the 81-82 recession.

Lawrence Yun has an interesting post showing how low mortgage rates are over the past 40 years. Unfortunately, it is mainly the professionals who are able to take advantage of these rates - the first time homebuyer is largely shut out.

Chart:  30 year fixed rate mortgage:

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1411.0	7.5	0.53%
Eurostoxx Index	2475.4	33.6	1.38%
Oil (WTI)	96.28	0.9	0.96%
LIBOR	0.408	-0.002	-0.37%
US Dollar Index (DXY)	81.08	-0.156	-0.19%
10 Year Govt Bond Yield	1.64%	0.05%
RPX Composite Real Estate Index	192.7	-0.2

Markets are higher this morning after the ECB maintained rates and the ADP Employment Change came in better than expected.  The ADP number came in at 201k, which suggests the street estimates for nonfarm payrolls is too low. Initial Jobless claims were 365k, better than expected.  Bonds are down a point, and MBS are down about 10 ticks.

Mario Draghi is discussing the ECB bond purchase program right now. It seems consistent with what had been leaked earlier - unlimited, fully sterilized purchases. It appears the plan requires that the governments need need to formally ask the ECB to conduct purchases of their debt. So, if there are strings attached that Spain or Italy do not like, nothing may happen at all.

Bob Woodward's new book, The Price of Politics, gives insight into how the Obama Administration's White House worked (or didn't). It does not paint a rosy picture of the Obama White House.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1403.6	-2.4	-0.17%
Eurostoxx Index	2439.2	2.6	0.11%
Oil (WTI)	95.58	0.3	0.29%
LIBOR	0.41	-0.002	-0.49%
US Dollar Index (DXY)	81.21	-0.105	-0.13%
10 Year Govt Bond Yield	1.58%	0.01%
RPX Composite Real Estate Index	192.1	-1.0

Stock index futures are lower after the ECB released its blueprint for unlimited bond purchases and FedEx warned. A positive surprise in productivity was offset by higher unit labor costs. Bonds and MBS are flat.

The ECB has declined to put a cap on yields and will sterilize bond purchases to prevent inflation. The plan will also focus on short term government debt with maturities up to 3 years. Bill Gross must have gotten the advance word, as he tweeted yesterday "Draghi appears willing to write 2-3 year "checks" to peripherals. Very relationary.  Buy gold, TIPS, real assets."  The Bundesbank is anticipated to be the only objection.

The CoreLogic Home Price Index grew at 3.8% and the early indication for August is + 4.6%.  Excluding distressed sales, August is expected to come in + 6%. While they anticipate a seasonal slowdown in the growth rate, they are forecasting a gain for the full year 2012.

Toll Brothers just priced a convertible bond issue.  $250MM, 20 year senior debt, 50 basis point coupon, 50% premium. Japanese coupon, American premium.  Old school convertible arbs are shaking their heads at that one. Credit Crunch?  What Credit Crunch? Arbs better hope the company never institutes a dividend because that bond will get smoked.

Ally is auctioning off 4 billion of subprime loans.  There has been a lot of money raised for distressed mortgage purchases in the last year, and Nationstar, Fortress, and Berkshire Hathaway are some of the high profile bidders. GMAC expects to emerge from Chapter 11 sometime in Q113.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1405.6	0.5	0.04%
Eurostoxx Index	2458.5	-4.7	-0.19%
Oil (WTI)	97.09	0.6	0.64%
LIBOR	0.412	-0.003	-0.60%
US Dollar Index (DXY)	81.2	-0.011	-0.01%
10 Year Govt Bond Yield	1.56%	0.02%
RPX Composite Real Estate Index	192.1	-1.0

Markets are flat after the long weekend with no major news pre-open.  We will get ISM and Construction spending at 10:00 am. Moody's cut the outlook of the EU to negative. Bonds and MBS are down a few ticks.

As we head into fall, remember that most of Europe takes August off and therefore no real decisions get made. Part of the complacency in the US markets has been driven by a lack of bad news out of Europe.  Nothing has changed since mid-summer, so I would expect Europe to take the forefront again (along with the election).  WaPo has a depressing piece on the state of the young in Spain, Italy, and Greece. And there is a small matter of a slow motion bank run in Spain, in spite of another rescue. Welcome back.

A paper presented at Jackson Hole last week is generating some discussion, in that it gives ammo to advocates of further quantitative easing.  It also recommends the Fed issue guidance for rates based on nominal GDP, not a timeframe (late 2014). FWIW, PIMCO CEO Mohammed El-Arian believes the Fed is signalling more activism. The sidestory is that a President Romney will replace Ben Bernake with someone more hawkish. A Romney win could be bond bearish.  How that would affect equities is anyone's guess.

In spite of the gloom, Roger Altman makes the case that the economy will surprise on the upside. Housing and energy will lead the rebound. From 1980 to 2005, housing accounted for 4.5% of GDP.  This year, it is projected to be 2.4%.  As I have been pointing out, we have underbuilt by about 200k units for the past 10 years (even ignoring population growth).  There is pent-up demand and eventually it will be released in spite of the current economic gloom - even in hard times, people still get married, have kids, and move out of their parent's homes. This will affect demand at the starter home level, which has been the part of the market that has been lagging. This  will enable the move-up trade that will start impacting mid-price homes. The high end (especially in the NYC metro area) probably has further to fall.

A new book details the bipartisan trainwreck that was Fannie Mae and looks at the options going forward.