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.