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.