Morning Report 3Q GDP, NAR house price forecast

Vital Statistics:

	Last	Change	Percent
S&P Futures	1403.7	-4.5	-0.32%
Eurostoxx Index	2481.1	-2.3	-0.09%
Oil (WTI)	86.11	0.1	0.07%
LIBOR	0.313	0.000	0.00%
US Dollar Index (DXY)	80.18	0.138	0.17%
10 Year Govt Bond Yield	1.78%	-0.04%
RPX Composite Real Estate Index	193.9	-0.1

Markets are flat after a better than expected GDP report offset the earnings miss from Apple. Surprisingly, bonds and MBS are rallying on the GDP number. Not sure what to make of that.

3Q GDP came in at +2%, higher than the +1.8% expectation.  This is the "advance estimate," which means the source data are still incomplete, so the number will be subject to two revisions.  Increases in consumption and government spending were offset by a drop in nonresidential fixed investment.

The NAR is forecasting that home prices will increase by 3.25% in 2013 based on its survey of 50,000 real estate practitioners.

If Obama wins re-election, Ed DeMarco's days at FHFA are probably numbered. To overcome Republican opposition, he will probably be fired and replaced while Congress is in recess. He has continued to butt heads with the Administration over principal reductions for GSE loans.

The MR may be a casualty of Sandy next week.  Hopefully not.

Morning Report - No Good Deed Goes Unpunished

Vital Statistics:

	Last	Change	Percent
S&P Futures	1413.5	8.2	0.58%
Eurostoxx Index	2500.1	9.5	0.38%
Oil (WTI)	86.63	0.9	1.05%
LIBOR	0.313	-0.001	-0.32%
US Dollar Index (DXY)	79.82	-0.091	-0.11%
10 Year Govt Bond Yield	1.84%	0.05%
RPX Composite Real Estate Index	194.1	-0.1

Markets are stronger this morning after a strong durable goods report and a good UK GDP number. Initial Jobless Claims came in at 369k and last week was revised upward to 392k.  Capital Goods orders were flat. We had a slew of decent earnings reports this morning, and Apple will report after the close. Bonds are getting clocked on the durable goods number, with the 10 year down a point and mortgages down 10 ticks.

The Chicago Fed National Activity Index came in flat, but the 3 month moving average is still negative, indicating the economy is growing below trend.

The FOMC statement yesterday was more or less a rehash of the prior statement.  Bond Traders who were looking for the Fed to add Treasuries to the QE mix were disappointed. The Fed noted that household spending has been advancing, while growth in fixed business investment has slowed.  Today's durable goods and capital goods reports bear that out.

The global slowdown is causing another round of job cuts.  This time, it is more than just Wall Street as Ford, Dow Chemical, Colgate Palmolive, AMD, and HP are all cutting staff.  The number of announced job cuts in the last 2 months is the highest since 2010.

The government is going after Bank of America for the sins of Countrywide. Needless to say, the consumer groups are delighted.  Lenders warn that credit will become even tighter. Certainly the litigation risk will get passed onto borrowers through higher rates and fees. Barney Frank believes the government should lay off JP Morgan for the sins of Bear, and claims that the government asked BOA to buy Merrill, but not Countrywide.

Whatever happened to the San Bernardino eminent domain idea?  This was the plan that involved the county taking performing underwater mortgages from the banks and forgiving principal. It appears the firestorm of criticism has caused the county to quietly table the idea.

Speaking of foreclosures, ABC News has a depressing photo essay of the foreclosure crisis.

Morning Report: QE (Infinity)

Vital Statistics:

	Last	Change	Percent
S&P Futures	1411.8	5.0	0.36%
Eurostoxx Index	2489.5	11.6	0.47%
Oil (WTI)	86.67	0.0	0.00%
LIBOR	0.314	-0.001	-0.32%
US Dollar Index (DXY)	80.02	0.041	0.05%
10 Year Govt Bond Yield	1.77%	0.01%
RPX Composite Real Estate Index	194.1	0.3

Stock index futures are stronger this morning after yesterday's rout. Dow Chemical reported better than expected earnings in spite of a leaked memo that said the company was considering laying off 5% of its workforce. Facebook surprised to the upside by cracking the code on monetizing mobile. Mortgage aps dropped 12% last week.  The Markit PMI (a predictor of the the ISM PMI) came in light, but still improved from Sep. Bonds and MBS are down small.

The FOMC rate decision is scheduled for 2:15 EST.  Historically the Fed has tried to stay out of the way this close to the election - in fact, the last announcement on QE (Infinity) was pushing it.  Which means the smart bet is going to be that this is a non-event.  That said, the Street is expecting some change - where the Fed adds Treasuries to its QE mix - so there is the possibility of market movement, especially MBS versus Treasuries. I wouldn't want to be floating going into that announcement.

The FHFA House Price Index rose .7% in August, and is up 4.7% YOY.  This index covers only conforming mortgages, so it is less noisy than Case-Schiller or Radar Logic.

Freddie Mac's latest US Economic and Housing Market Outlook expects QEIII to spark a further pick-up in housing activity, noting that housing has turned from a headwind to a tailwind for the economy. They are forecasting $2 trillion in originations this year, followed by a 15-20 percent contraction in 2013 as the refi boom plays out. They do worry about the fiscal cliff taking 2 percentage points out of GDP, although Obama is playing cat and mouse with the defense budget cuts, as he says one thing in the debates "cuts will not happen" and his advisers walk back the comments afterward. Elmer Fudd is quite concerned about the fiscal cliff as well.

Finally, Rob Chrisman gives you the data dump from the MBA Conference in Chicago.  Originators are adding capacity, the CFPB wants a flat fee for all mortgage originations, and the Street gets ticked when clients have the gall to check multiple dealers in order to get the best price on their TBA transactions.

Morning Report - QE (Infinity) and flopping

Vital Statistics:

	Last	Change	Percent
S&P Futures	1413.9	-16.2	-1.13%
Eurostoxx Index	2496.3	-34.9	-1.38%
Oil (WTI)	87.39	-1.3	-1.42%
LIBOR	0.315	-0.001	-0.16%
US Dollar Index (DXY)	79.85	0.202	0.25%
10 Year Govt Bond Yield	1.77%	-0.04%
RPX Composite Real Estate Index	193.9	-0.1

Markets are lower this morning on earnings misses.  DuPont is down 5% pre-open after missing estimates badly.  Economic bulls will note that when late cyclicals like Dupont start reporting declines, that is usually an ominous sign for the expansion. UPS noted "uncertainty around the magnitude of the holiday shopping season." Commodities are weaker as well.  Unsurprisingly, bonds and MBS are benefiting from the "risk off" trade.

Today is another light day, economics wise, but tomorrow we get the FOMC announcement. The Street is looking for the Fed to broaden QEIII to include Treasuries.  Federal Reserve Bank of New York President William Dudley acknowledged in a recent speech that current policy "could distort asset allocations and lead to renewed financial asset bubbles. To date, there is little evidence of problems or excesses" Okay.  The 10-year is yielding 1.76%, below your stated inflation target of 2%. It makes you wonder where he would consider the 10-year to be in bubble territory.

Ever heard of "flopping?" It is the new scam where an underwater homeowner sabotages the resale value of a house in a short sale, which gets the bank to lower the asking price. The homeowner partners with a speculator who buys the property on the cheap, cleans it up, and flips it. The homeowner supposedly gets a piece of the action.

The Atlantic surveys the carnage of the lending industry from 2006 to the present.  3/4 of the biggest home lenders in 2006 no longer exist. I always thought the Super Bowl ad distribution is a tell - in the 2000 Super Bowl, the ads were dominated by dot coms.  In 2006, it was dominated by lenders. Hubris before the fall. Employment in the mortgage industry is roughly half of what it was at the height of the boom. Of course, now we have the opposite problem, with capacity constraints in the banking industry.  Of course regulatory uncertainty is playing a role, as Douglas Lebda of Lending Tree notes.

Is it really all just about price?  Financial and tech consulting firm Carlisle and Gallagher conducted a survey which revealed 34% of consumers are willing to pay more for a mortgage if it comes with superior customer service.  52% said they were willing to pay more to complete the mortgage process more easily. Note to Washington, only 23% of US consumers believe regulatory changes will have a positive impact on their next mortgage.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1426.5	2.5	0.18%
Eurostoxx Index	2544.6	2.4	0.09%
Oil (WTI)	90.51	0.5	0.51%
LIBOR	0.316	-0.002	-0.47%
US Dollar Index (DXY)	79.54	-0.083	-0.10%
10 Year Govt Bond Yield	1.81%	0.04%
RPX Composite Real Estate Index	193.9	0.1

Markets are up slightly in spite of weak guidance out of Caterpillar. CAT is forecasting a 5% decline in next year's sales based on the weak global economy. This week is heavy with earnings reports with Dupont, Facebook, 3M, Coca Cola, Conoco, and Amazon.com. On the economic front, we will have the FOMC rate decision tomorrow and the first estimate of 3Q GDP on Thursday.  Bonds are down 25 ticks and MBS are down 6 or 7.

Mark Zandi of Moody's is endorsing the the qualified mortgage rule. This rule should provide lenders some relief from litigation as long as the mortgage was underwritten in accordance with CFPB guidelines. As far as loans outside those guidelines?  They "will remain toxic water for most lenders."

Many market participants are expecting the Fed to announce that treasuries will be included in future QE.  The Fed has already committed to buy $40 billion of MBS a month until unemployment is down and it surprised many observers by not including Treasuries in that statement. This caused MBS to rally way in excess of what the moves in the 10-year would predict.  In some ways, this would offset the buying that would be lost when Operation Twist ends this year.  Bank of America is predicting the Fed will buy $45 - $60 billion of Treasuries in addition to the $40 billion in MBS.

Still, banks are understaffed as the volume of mortgage applications swells, where timelines are being stretched from the typical 45-days to 90. Banks undoubtedly believe that the current volume is being driven by refis, which they view as temporary.  The article goes on to say that mortgage rates to the consumer should be lower, but they do note the increase in guarantee fees.

Ocwen and Walter Investment are teaming up to out-bid Nationstar for Rescap.

The Bipartisan Policy Center is launching a Dodd-Frank initiative, where they try and do a "cost-benefits" analysis to Dodd-Frank. They frame it as a "stability vs growth" issue.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1448.5	-3.0	-0.21%
Eurostoxx Index	2548.0	-26.2	-1.02%
Oil (WTI)	92.29	0.2	0.21%
LIBOR	0.317	-0.002	-0.47%
US Dollar Index (DXY)	79.52	0.151	0.19%
10 Year Govt Bond Yield	1.81%	-0.02%
RPX Composite Real Estate Index	193.8	0.1

Markets are weaker this morning after earnings misses from bellwethers Google, Microsoft, McDonalds, and GE.  Euro sovereign yields continue to decrease.  Bonds and MBS are up about 1/4 of a point.

The CFPB is starting to put some more meat on the bones with respect to a qualifying mortgage. Lenders would be protected from penalties if the borrower is given a prime rate and the back-end debt ratio doesn't exceed 43%. The NAR has already weighed in saying that "any partial safe harbor would need to go much further to avoid harm to the mortgage market."

The Mortgage Bankers Association has sent a letter regarding proposed Basel III rules. They correctly note that the penalties on mortgage servicing rights are going to create a problem. Add the proposed new servicing standards out of the CFPB, and you may in fact turn mortgage servicing into a business nobody wants to perform.

While institutional investors are raising money to get into the REO-to-rental businesses, one of the pioneers, hedge fund Och Ziff, is looking to cash out.  Turns out that renting properties on such a vast scale isn't as profitable as it initially appears.

Today is the 25th anniversary of the Crash of 87. I think in some ways, we can trace the origins of the financial crisis to this event. During the crash, newly appointed Fed Chairman Alan Greenspan pledged the Federal Reserve would provide liquidity to anyone who needed it. At the time, it was probably the right thing to do, as it prevented the stock market crash from ballooning into something bigger.  I think the Chairman recognized its success and used it every time the financial markets had a hiccup - from the Mexican Peso Crisis, to Long Term Capital, to the Asian Crisis. This behavior became affectionately known as the "Greenspan Put," which means that even if you screw up, the Fed will come to the rescue. This created a underpricing of risk, which laid the groundwork for the real estate bubble.  Real estate prices became unmoored from their traditional relationship with incomes around the year 2000, just as the stock market bubble was going critical, and continued to inflate as the Fed flooded the system with liquidity in the aftermath. And since the Fed is still doing the same thing in response to the burst real estate bubble, this time on steroids, the game continues..

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1453.1	-4.0	-0.27%
Eurostoxx Index	2561.6	-8.2	-0.32%
Oil (WTI)	91.7	-0.4	-0.46%
LIBOR	0.319	-0.002	-0.62%
US Dollar Index (DXY)	79.14	0.120	0.15%
10 Year Govt Bond Yield	1.80%	-0.02%
RPX Composite Real Estate Index	193.7	0.5

Markets are weaker on a weaker this morning ahead of the EU summit in Brussels. Euro sovereign yields continue to drop, which means the benign backdrop to the markets continues.  Earnings reports continue to exceed expectations, though the bar is set very low this quarter. Bonds and MBS are slightly higher.

It turns out that last week's dramatic drop in initial jobless claims was due to technical problems with seasonal adjustments in one state, as reported by CNBC.  Initial Jobless Claims increased to 388k from a revised 342k last week.

The Leading Economic Indicators had a big jump, up from -.4 to + .6,  We still seem to be oscillating around 0, with a positive reading followed by a negative one. This is indicative of a slow growth trend.

Similarly, the Philly Fed Business Outlook Survey noted that conditions in the manufacturing sector remain weak. Labor conditions dropped as 22% of all firms reported decreases in employment and 11% reported increases. The average workweek dropped as well.  In terms of the mix of employees, more firms decreased the number of full-time employees and increased the number of temp workers.

Prepare for a battle over the fiscal cliff. No tax hikes on the wealthy, no deal. Of course Obama has said that before.

The WSJ discusses yesterday's big housing starts number. As the inventory of foreclosures declines and underwater sellers sense a turnaround in pricing, more and more buyers are looking to new construction.  Foreclosures as a percent of sales dropped to 14% in September, and are down from 50% a couple of years ago.

Morning Repot

Vital Statistics:

	Last	Change	Percent
S&P Futures	1453.8	4.6	0.32%
Eurostoxx Index	2557.0	9.1	0.36%
Oil (WTI)	92.48	0.4	0.42%
LIBOR	0.321	-0.004	-1.23%
US Dollar Index (DXY)	78.96	-0.444	-0.56%
10 Year Govt Bond Yield	1.77%	0.06%
RPX Composite Real Estate Index	193.3	-0.1

Markets are higher after a strong report on housing starts. The banks reported good numbers while the techs disappointed. Mortgage applications fell, while building permits came in well above expectations.  Signs of strength in housing are pushing yields higher on Treasuries and MBS

Housing starts were 872k in September a rise of 15% MOM and 35% YOY.  Proportionally, multi-family had the biggest increase, which speaks to the strength in the rental market. While this level is a 4 year high, it still is just about the same level as the nadirs following the 82-82 and 91-92 recessions.  So we have a long way to go to get back to "normalcy" which is around 1.5 million, but things seem to be picking up in the housing sector, which has been a major drag on the economy.

Will investors do the heavy lifting of shrinking the TBTF banks? Given languishing stock prices and large discounts to book value, shareholders will be pressuring the banks to exit marginal businesses and either sell them or spin them off to shareholders. For example, Citi's investment banking division is about the size of Goldman Sachs. Goldman trades at an 11 multiple, while Morgan Stanley trades at a 30 multiple. It would make sense for Citi, which trades at a 9.7 P/E to spin off the investment bank, which should unlock shareholder value.  Maybe they could resurrect the old Salomon Brothers.

The WSJ was out with a story last night which said the CFPB is considering giving lenders safe harbor if they originate a qualified mortgage.  It sounds like this safe harbor wouldn't insulate the banks from buyback risk, but it would insulate them from lawsuits and penalties from the government. If there isn't any protection from buyback risk, I am not sure how much this would end up mattering in the end.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1442.5	7.0	0.49%
Eurostoxx Index	2527.9	42.8	1.72%
Oil (WTI)	91.98	0.1	0.14%
LIBOR	0.325	-0.006	-1.67%
US Dollar Index (DXY)	79.33	-0.413	-0.52%
10 Year Govt Bond Yield	1.71%	0.04%
RPX Composite Real Estate Index	193.4	-0.7

Markets are higher this morning after a slew of good earnings reports and a positive reading on German confidence. Vik Pandit has stepped down as CEO of Citigroup.  The Consumer Price Index (which officially does not matter anymore) came in as expected. Bonds and MBS are down.

Yet another article complaining that mortgage rates aren't dropping enough in response to QE. At least this one mentions the increase in G-fees, though it implies that it is a minor reason.

One way of handling the TBTF issue that is being bandied about is to place a cap on bank balance sheets as a percent of GDP. Ohio Democrat Sherrod Brown introduced a bill to cap liabilities at 2% of GDP which went nowhere (JPM has liabilities of 8% of GDP).  But now a Federal Reserve Governor has mentioned the idea as well.  He doesn't mention a specific number though.

The first time homebuyer may be coming back.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1429.1	7.6	0.53%
Eurostoxx Index	2498.5	29.5	1.19%
Oil (WTI)	91.96	0.1	0.11%
LIBOR	0.33	-0.004	-1.20%
US Dollar Index (DXY)	79.66	-0.007	-0.01%
10 Year Govt Bond Yield	1.68%	0.02%
RPX Composite Real Estate Index	194.1	-0.3

Markets are higher this morning on lower Chinese inflation.  Part of the recent strength (it seems like almost every day, the S&P futures are up 5 points pre-open) is being driven by the steady drop in Euro sovereign yields. Italy is trading below 5% and post-re-org Greek debt is trading at 17.5% after reaching 30% in late spring. Whether the crisis is over, or merely taking a breather is anyone's guess. Of course there is the possibility of a hard landing in the emerging markets looming on the horizon.

On the economic news front, retail sales came in at 1.1%, and look even better when you strip out autos and gasoline. Maybe there was something to that University of Michigan consumer confidence number last Friday. It certainly bodes well for a good holiday season for the retailers. On the other hand, the NY Fed's Empire Manufacturing Survey continued to decline.

Citigroup reported better than expected earnings, though it appears one-time items drove the results.  The Street is still refusing to give much credit to Citi's turnaround - book value is $63.59 a share and the stock is trading at 35.25, up about a half.

The NY Times has another article discussing the problems with appraisals. Given that the real estate market has been slow for so many years, finding enough non-distressed comps is proving to be a problem.  Sellers who think they are lowballing their prices find that appraisals are coming in well below their offers.  Appraisers counter that they don't set the market - they reflect it, and blaming appraisers for a lousy housing market is like blaming the weatherman for lousy weather.

Bob Schiller and Rick Santelli discuss ZIRP and housing. Santelli, no fan of ZIRP calls it "money for nothing" and believes that the message it sends (that the Fed is really worried about the next few years) is putting a damper on the animal spirits. Plus, as Schiller has pointed out, there isn't a lot of evidence that mortgage rates explain house prices.

Mark Zandi believes that the deleveraging process is largely over. Certainly debt service payments relative to income are at the lowest level in 20 years, courtesy of low interest rates.  Debt however, is not, although it is off the highs of 2007.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1433.4	5.0	0.35%
Eurostoxx Index	2492.4	5.3	0.21%
Oil (WTI)	92.14	0.1	0.08%
LIBOR	0.334	-0.006	-1.76%
US Dollar Index (DXY)	79.61	-0.161	-0.20%
10 Year Govt Bond Yield	1.68%	0.01%
RPX Composite Real Estate Index	194.4	0.1

Stocks are higher this morning after positive earnings out of JP Morgan and Wells Fargo. Mortgage banking drove revenues and profits. The Producer Price Index came in higher than expected, although it was lower ex-food and energy.  Bonds and MBS are flattish.

Was the debate last night market moving?  Of course not.  Best headline to sum it up:  GOP and Dems agree: Our guy won.

It turns out yesterday's unexpectedly large drops in unemployment claims was due to a large state mistakenly reporting its claims.

Frank Blake of the Home Despot sees a full blown housing recovery as a year or two away. He points to customer attitudes - do homeowners consider a home improvement as an investment to be recouped when the house is sold, or simply an expense.  I would agree - considering a granite countertop an "investment" is definitely bull-market thinking.

What is the role of the CFPB?  It was sold as an agency dedicated to more transparency and ensuring consumers are fully informed when making financial decisions.  But to the people that work there, the mission is to force financial service providers to give consumers a better deal. The Mortgage Bankers Association warns of unintended consequences.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1433.8	7.5	0.53%
Eurostoxx Index	2473.0	16.4	0.67%
Oil (WTI)	92.44	1.2	1.30%
LIBOR	0.34	-0.003	-0.73%
US Dollar Index (DXY)	79.83	-0.092	-0.12%
10 Year Govt Bond Yield	1.71%	0.04%
RPX Composite Real Estate Index	194.3	-0.4

Markets are firmer after a surprisingly low initial jobless claims report. Initial Jobless claims fell to 339k, which is below the average over the past 45 years and more or less consistent with normal non-recessionary economies. Bonds and MBS are down on the report.

At the Council on Foreign Relations yesterday, Jamie Dimon revealed the background to the Bear Stearns deal:  "We did them [the government] a favor.  We were asked to do it and we did it at great risk to ourselves."  Many on Wall Street suspected the flurry of merger activity at the height of the financial crisis - JPM / Bear & Wamu, Bank of America / Countrywide and Merrill, and Wells / Wachovia were a series of shotgun weddings ordered by the government.  Now we have someone explicitly saying that it was.  You would think that would be news, especially since the government is suing JPM for stuff that Bear did prior to the merger.  Or that fact would be interesting to people who bemoan TBTF. To the Washington Post, they discuss Dimon's comments with the snarky headline "The Financial Gospel according to JP Morgan Chase CEO." without mentioning the Bear issue, where they focus on the London Whale. If WaPo is truly representative of the Washington mindset, I guess that article speaks volumes about the disconnect between Wall Street and Washington.

California led the nation into the housing bust; now it is leading the nation out of it. Strength on the coast is steadily moving inland.  The Northeast was one of the last to go into crisis, and is still lagging, although rents are up 10% in Manhattan.

Are distressed sales artificially lowering comps, which feeds into appraisal problems with home sales?  The NAR thinks so. Given that you have to use comparable sales, appraisals will lag the market, almost by definition.  This has caused problems on 35% of sales.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1437.2	1.3	0.09%
Eurostoxx Index	2467.5	-4.8	-0.19%
Oil (WTI)	92.42	0.0	0.03%
LIBOR	0.343	-0.004	-1.15%
US Dollar Index (DXY)	79.93	-0.018	-0.02%
10 Year Govt Bond Yield	1.75%	0.03%
RPX Composite Real Estate Index	194.8	0.1

Markets are flattish after Alcoa cut its forecast for global aluminum demand in its earnings release.  Earnings were better than expected, but the forecast is weighing on the stock, which is down a couple of percent pre-open. Analysts are predicting a 2% drop in Q3 earnings for the S&P 500.  Mortgage applications fell. Bonds and MBS are down small.

Corelogic reported a 10% decline in shadow inventory down to 2.3 million units in July. This represents six month's supply.  Geographically, Florida, California, Illinois, New York, and New Jersey account for 45% of all distressed properties. Currently, the flow of properties into shadow inventory is more or less equal to outflows. Remember that shadow inventory does not count properties currently listed on MLSs so it isn't a full picture of housing inventory.

The government is going after Wells for reckless lending on FHA loans. Prosecutors say the bank claimed over 100,000 loans were FHA compliant when it knew they were not. Wells notes that its FHA delinquency rates are half the industry average. Meanwhile, revenues are up 37%  for mortgage bankers and Wells is the biggest.  The government giveth, the government taketh away...

Issuers of MBS are going to be watching the outcome of the lawsuit against Flagstar closely.  Judge Rakoff is no friend of the securities industry...

FHFA has released its new strategic plan for the mortgage market. Housing advocates will dislike two portions of this - first the fact that there remains no interest in principal reductions, and second, that FHA remains interested in varying guarantee fees by state.  Which means that judicial states will have higher mortgage rates than non-judicial states. They also intend to review the servicing compensation model.

Fannie Mae has a touchy-feely survey of attitudes about homeownership and the economy.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1452.0	2.2	0.15%
Eurostoxx Index	2493.4	-2.7	-0.11%
Oil (WTI)	90.29	1.0	1.07%
LIBOR	0.347	-0.004	-1.00%
US Dollar Index (DXY)	79.64	0.098	0.12%
10 Year Govt Bond Yield	1.72%	-0.02%
RPX Composite Real Estate Index	194.6	0.3

Markets are slightly higher this morning in spite of the fact that the IMF cut its global growth forecast. Alcoa kicks off earnings season after the close tonight.  S&P expects earnings to drop by 2% this quarter. Bonds are down slightly while MBS are up.

The National Federation of Independent Businesses reported small business optimism dropped slightly in September.  Overall, the mood is one of "uncertainty" and the outlook remains glum.  Topping the list of concerns was the rising cost of health care insurance, followed by economic conditions, energy costs, and taxes & regulation. Access to credit is not an issue anymore.

FBR banking analyst Paul Miller says its time to start falling in love with mortgage banks again. Of course virtually all of the publicly traded mortgage banks went under during the crisis. He makes an aggressive interest rate forecast - mortgage rates dropping to 3% over the next quarter or two.  As a result, he sees the refi boom lasting until late 2013. Ben Bernake's Refi Nation continues...

The battle over last Friday's surprising payroll continues with a novel angle:  the payroll employment survey numbers were too low. Needless to say, the interpretation of the jobs report has fallen along partisan lines, with those who doubt the numbers being compared to the black helicopter crowd.  Jack Welch opened up a hornet's nest with that tweet calling B.S. on the B.L.S. Is there an election coming up or something?

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1449.8	-5.7	-0.39%
Eurostoxx Index	2501.7	-29.5	-1.16%
Oil (WTI)	88.55	-1.3	-1.48%
LIBOR	0.35	-0.001	-0.28%
US Dollar Index (DXY)	79.62	0.281	0.35%
10 Year Govt Bond Yield	1.74%	0.00%
RPX Composite Real Estate Index	194.6	0.3

Stocks are lower this morning on no real news. There is no economic data this morning and the bond market is closed for Columbus Day. Alcoa kicks off the earnings season tomorrow.

Treasury and HUD released their monthly Housing Scorecard, which shows that the number of underwater homeowners fell from 12.1 million in Q411 to 10.8 million in Q212.  The report doesn't really delve into what caused the drop - was driven by home appreciation, or was it driven by foreclosures and short sales? Most of the report focuses on the Administration's efforts regarding aid to distressed borrowers.

Bob Schiller has an interesting article on the psychology of the housing market during the bubble years and now. He makes an interesting observation - "In 2004, there was little about the economic climate that would explain why a housing peak should be coming soon.  The world was widely believed to be slowly emerging from the early-2000s recession, which had been associated with the bursting of the stock market bubble of the 1990s.  The stock market was just starting to recover.  It seemed a time of healing."  The real estate market will surely recover, and while we are breathing a sigh of relief, some other bubble may be forming.  That is the problem when you have a Federal Reserve which keeps trying to put the wealth-effect genie back in the bottle.

The latest "selling you the Brooklyn Bridge" scam - advertising REO as rentals.  Pretty brazen stuff.

Commercial real estate pricing has almost returned to its 2007 peak.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1463.6	7.8	0.54%
Eurostoxx Index	2523.8	38.1	1.53%
Oil (WTI)	91.12	-0.6	-0.64%
LIBOR	0.351	-0.001	-0.28%
US Dollar Index (DXY)	79.3	-0.050	-0.06%
10 Year Govt Bond Yield	1.73%	0.06%
RPX Composite Real Estate Index	194.3	-0.1

Markets are higher this morning after a surprisingly good employment report. Stock index futures initially jumped on the number and now have given back the gains. Bonds are down a point and MBS are down 6 ticks on the number.

The unemployment rate dropped to 7.8% from 8.1% in September and total nonfarm payrolls rose by 114k.    The Street was expecting an 8.1% rate.  U6 (the underemployment rate) didn't change at 14.7%.  873k people became employed in September and the participation rate ticked up to 63.6% from a 30 year low of 63.5%.  It looks like the job gains were largely part time, as that sector increased 582k.  Average weekly hours ticked up to 34.5, and earnings increased .3%.  This report does seem at odds with other economic reports showing the economy is slowing.  It certainly makes you wonder what the Fed was looking at when it announced QEIII.

In response to the numbers, Jack Welch tweeted: "Unbelievable jobs numbers...these Chicago guys will do anything... can't debate so changes numbers."  Unsurprisingly the left blogosphere is swarming.  That said, Jack (We always beat by a penny) Welch should be the last person throwing stones about massaging the data.  Given that BLS magically found half a million jobs in the sofa cushions, which allows Obama to claim that the economy has reclaimed all the jobs it lost since he took office, we are going to see some predictable partisan doubt on the economic numbers coming out of Washington.

The minutes from the 9/13 FOMC meeting didn't have anything groundbreaking in it. Some of the regional presidents are doubting how much of an effect further QE can really have.  Certainly there is nothing in the minutes that suggests that the Fed is seeing more strength in the labor market; if anything they note decreases in hiring plans.

Larry Fink of Blackrock told Maria Bartiromo that "we are about a year away from a full rebound in American housing."  He is worried about the fiscal cliff:  "The fiscal cliff is probably the biggest problem facing us.  We are already seeing a slowdown in the U.S. economy.  I know many CEOs who are sitting with large sums of cash.  If the government comes up with a comprehensive plan to handle it, we would see a huge rally."

FHFA has a new white paper out for comment regarding a new infrastructure for the secondary mortgage market.  It envisions a platform that could be used by multiple issuers - which could be laying the groundwork for an MBS exchange where issuers can sell new issues electronically instead of over-the-counter.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1451.4	6.7	0.46%
Eurostoxx Index	2495.3	2.8	0.11%
Oil (WTI)	88.75	0.6	0.69%
LIBOR	0.352	0.000	-0.07%
US Dollar Index (DXY)	79.74	-0.226	-0.28%
10 Year Govt Bond Yield	1.64%	0.03%
RPX Composite Real Estate Index	194.4	0.2

Markets are higher this morning after the ECB held rates steady. Generally speaking, the path of least resistance has been up in the equity markets since QEIII.  Bonds and MBS are down small.

Initial Jobless claims came in at 367k, better than expected, but higher from last week's revised 363k.  Later this afternoon, we will get the minutes of the FOMC meeting which should make interesting reading.

Lender Processing Services Mortgage Monitor showed delinquencies have dropped almost 50% from peak, while foreclosures remain at their highs.  Which means foreclosures should start dropping in the future. The states with the highest remaining foreclosures are NY, NJ, and HI.

Challenger and Gray reported that planned layoffs are the lowest in 12 years as government downsizing appears to be at an end. While this is a good sign, it doesn't necessarily mean hiring is about to pick up as headwinds from Europe and Asia, as well as political uncertainty in the US are keeping companies from making any major expansion or hiring moves. They cite a Business Roundtable survey which found that only 30% of CEOs expected to increase capital spending or add more workers.  Those numbers are down from the mid 40s in Q1.  So while layoffs are back at pre-recession levels, hiring is not.

The debate last night was not market moving, but Romney's performance should put an end to the pundits declaring the race over already.  At the margin, a Romney win would be bond bearish, and possibly stock market bearish since Ben Bernake would not be re-appointed.  I was happy to hear Romney mention the lack of guidance as to what constitutes a qualified mortgage.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1442.2	1.3	0.09%
Eurostoxx Index	2491.1	-2.5	-0.10%
Oil (WTI)	91.06	-0.8	-0.90%
LIBOR	0.353	-0.002	-0.42%
US Dollar Index (DXY)	79.89	0.143	0.18%
10 Year Govt Bond Yield	1.62%	0.00%
RPX Composite Real Estate Index	194.4	0.2

Markets are flattish after ADP says US companies added 162,000 jobs in September.  This was better than expectations.  August was revised downward from 201k to 189k.  Mortgage applications rose 16.6% as rates fell.  Bonds and MBS are down small.

Corelogic reported home prices increased 4.6% in August 2012 compared to August 2011.  This was the biggest percentage increase in prices since 2006. All but 6 states reported price gains. They are forecasting a 5% increase for Sep.

While we fret about Europe, the other problem lies across the Pacific - the bursting of the Chinese real estate bubble. The Chinese appear to be at the final phase of the bubble, where the government is hoping that prices simply stagnate for a decade while economic growth and incomes catch up. Unfortunately, experience tells us once bubbles become inflated they take on a life of their own.  That said, the Chinese are savers, and have a cushion that US and European households do not.

The Washington Post tries to game the election for the markets.  Bottom line:  the evidence is mixed, so don't try and trade it.  Of course pundits from each political persuasion will try and claim that they are better for the markets. The article ignores the most important consideration (IMO) - An Obama win means the Fed will continue its policy of aggressive quantitative easing.  A Romney win means a new Federal Reserve Chairman, and presumably less aggressive measures.  So at the margin, an Obama win is bond bullish (or neutral), while a Romney win is bond bearish.  I would say that would apply to the stock market as well, at least in the short term.  Longer term, the economy will benefit more from less manipulation of interest rates than more.  ZIRP is creating imbalances that will create problems down the road.

Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1444.8	7.9	0.55%
Eurostoxx Index	2513.6	14.8	0.59%
Oil (WTI)	92.8	0.3	0.35%
LIBOR	0.354	-0.001	-0.35%
US Dollar Index (DXY)	79.67	-0.159	-0.20%
10 Year Govt Bond Yield	1.65%	0.02%
RPX Composite Real Estate Index	194.5	0.3

Markets are higher this morning on speculation Spain is preparing to ask the ECB to purchase its debt. The stock market definitely feels like the path of least resistance is up, though it could be the calm before the storm - Alcoa kicks off earnings season next week. Notable earnings warnings so far include Caterpillar and FedEx.  Bonds and MBS are down / flat.

Yesterday's ISM Purchasing Managers Report was reasonably constructive.  The headline number of 51.1 means that the economy should expand at roughly 3% or so, at least according to historical trends.  Production and backlog were the weak spot, while employment and prices were areas of strength.

The Washington Post has an article which shows what the Fed is up against: Even though interest rates are at rock bottom levels, savings deposits continue to increase. Risk aversion and the desire to replenish lost savings are behind the phenomenon.  Even though the stock market has rallied, the lack of volume indicates that retail investors are not putting money to work there.  Aside from the risk appetite considerations, it also demonstrates why consumption remains weak.

You know who loves this situation?  Corporate America.  As if on cue, I just received an email saying WellPoint is issuing $1.5 billion of senior unsecured 30 year convertible bonds tomorrow with a price talk of 2.5% - 3% coupon, 20% - 25% premium.  To put that in perspective, the 30 year government bond is at 2.8% and WLP pays a 1.9% dividend. Old time convertible arbs are shaking their collective heads at that one.

Finally, Bill Gross on budgetary crystal meth and the ring of fire.