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.