| Last | Change | Percent | |
| S&P Futures | 1381.7 | -0.8 | -0.06% |
| Eurostoxx Index | 2487.6 | -7.6 | -0.30% |
| Oil (WTI) | 88.79 | -0.5 | -0.55% |
| LIBOR | 0.311 | -0.001 | -0.32% |
| US Dollar Index (DXY) | 80.92 | 0.050 | 0.06% |
| 10 Year Govt Bond Yield | 1.62% | 0.01% | |
| RPX Composite Real Estate Index | 191.4 | 0.0 |
Futures are lower this morning after Hewlett Packard announced accounting problems at its Autonomy unit. The company has taken an $8.8 billion charge on the Autonomy unit, which is shocking when you consider it only paid $7 billion for the company in the first place. Best Buy also missed. Bonds are down slightly, while MBS are flat.
Housing starts rose to an annualized pace of 894k, well ahead of the 840k estimate. Sep through July numbers were revised downward. While the rest of the economy seems to be turning down, housing is turning into a bright spot. That said, 894k is still far away from "normalcy," which is 1.5 million units per year. Yesterday's builder confidence index from the NAHB posted another gain, although it is still reflects "unfavorable" conditions, but just barely.
Chart: Housing Starts
Chart: NAHB Sentiment Index:
The Bernank is speaking at the Economic Club of NY this afternoon. The market will be looking for clues regarding life after Operation Twist. Expect Bernake to warn Washington that it won't be able to offset the damage to the economy if we go over the fiscal cliff.
Hostess and the Baker's union have been asked to enter mediation. This is a last-ditch attempt to see if the company can continue as a going concern. One of the biggest issues is the defined benefit pension plan. In an environment of zero percent interest rates, most, if not all, pension plans will be insolvent as there is no way to earn enough on the assets of the plan to cover healthcare inflation costs. Of course many companies choose to assume unrealistic rates of return on plan assets or unrealistic cost inflation assumptions to make the plans solvent. By the way, this phenomenon affects insurance companies as well. One of the (many) unintended consequences of ZIRP.
The recent downturn in the markets has brought out the perma-bears. Marc Faber and Nouriel Roubini are warning about a tough 2013. Morgan Stanley is also warning of a recession in 2013 if we go over the fiscal cliff. Even if we don't they are forecasting flat GDP growth next year. That said, after this sell-off, I would be aware of the potential for a face-melting rally if we get a deal on the fiscal cliff. For those who focus on technicals, the S&P 500 is right at the 200 day moving average.
One possible piece of a deal would be a cap on deductions - one current number being bandied about is $35,000. Needless to say, this will have a negative effect on the high end of the housing market, especially in high cost areas like Coastal California and the NYC area. Moody's estimates that this could cut national home price growth from 4% to 3.5% from 2015 to 2019.
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