Morning Blog Post: Obama's opening bid

Vital Statistics:

	Last	Change	Percent
S&P Futures	1375.3	4.4	0.32%
Eurostoxx Index	2484.9	-8.2	-0.33%
Oil (WTI)	85.16	-0.2	-0.26%
LIBOR	0.31	0.000	0.00%
US Dollar Index (DXY)	81.07	-0.017	-0.02%
10 Year Govt Bond Yield	1.62%	0.02%
RPX Composite Real Estate Index	192.4	-0.5

Markets are higher this morning after a good earnings report out of Cisco and a benign reading on wholesale-level inflation.  Shades of the late 90s. Retail sales disappointed, but they were affected by Sandy so the market is dismissing the numbers. Later today, we will get the minutes of the FOMC meeting.

Speaking of Sandy, she may become the excuse du jour for companies that miss their quarter.  Be advised.

Obama has put out his plan for the fiscal cliff.  It raises double the amount of revenue that was proposed during the deal with Boehner two years ago and involves more than simply letting rates go up for those making over $250k - it includes limitations on deductions and a surtax for incomes over $1 million.  Geithner has dismissed the Republican plan to leave rates the same and cap deductions.  So that is the bid / ask spread at the moment.

I have heard recent estimates that if we go over the fiscal cliff completely, the economy will contract 1% in Q1.  If we raise taxes on the rich, we will have GDP around 1%, but that number was based on the going back to the old rates, not the additional stuff.  So it would probably be lower. Sounds like flat GDP in early 2013 is a possibility. The FOMC today may provide further guidance re Treasury purchases.  I would not want to be leaning short Treasuries at the moment.

Blackstone sees a two year window to buy foreclosed properties at a discount. They forecast the median existing home price to increase 6% this year, 5% in 2013 and similar gains in 2014.  If homebuilding does not accelerate, they forecast even bigger gains. I keep coming back to the idea that the remaining shadow inventory is largely picked over, and some of it (foreclosures in Harrisburg, Detroit and Stockton) simply aren't going to sell. Meanwhile, Buffet continues to be positive on housing and has been increasing his exposure. Ara Hovnanian isn't as sanguine.

Freddie Mac reported that 29% of refis in 3Q involved a term shortening as people refi from a 30 year fixed to a 15 year fixed. During the quarter, the 30 year fixed rate averaged 3.55%, while the 15 year averaged 2.84%.

Will investors do the heavy lifting of ending TBTF? (too big to fail)  Trillium and AFSCME have sent a proposal to Citi encouraging them to split up.  While it is easy to dismiss this as based on politics (Trillium is representing the Benedictine Sisters and has a .01% stake, and AFSCME is a union), it is true that Citi (and others) are trading at a discount to their peers and are exhibiting the classic holding company discount. Could we see Citi spin off Salomon Brothers?  Bank of America spin off Merrill?  JPM spin off Chase?