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.