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.