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.