Morning Report: Hotel California Monetary Policy

Vital Statistics:

	Last	Change	Percent
S&P Futures	1412.1	0.1	0.01%
Eurostoxx Index	2628.7	1.1	0.04%
Oil (WTI)	86.4	0.5	0.59%
LIBOR	0.308	0.000	0.00%
US Dollar Index (DXY)	79.91	-0.023	-0.03%
10 Year Govt Bond Yield	1.71%	-0.02%
RPX Composite Real Estate Index	191.6	0.4

Stock index futures are flat after a benign CPI report.  Of course the Fed explicitly told us that until unemployment drops below 6.5%, they do not care what inflation does. Industrial Production rebounded in November, and Capacity Utilization rose. Bonds and MBS are up small.

Markit's flash Purchasing Manager's Index is generally upbeat and shows US manufacturing rebounding in December after reaching post-crisis lows in Aug and Sep. There has been some concern that Q4's GDP numbers have been goosed by an inventory build, which means we are borrowing growth from next quarter.  FWIW, the report does not bear that out as it shows inventories are falling. The report notes employment is picking up in the manufacturing sector as well.

CoreLogic's December Market Pulse is reasonably optimistic on housing.  Punch Line:  Residential Real Estate is finally contributing to economic growth instead of being a drag. While residential real estate is not a massive driver of the economy, it usually is the first to recover after a recession and makes its largest contributions early in the economic cycle. It is the piece of the puzzle that allows us to shift from first to second gear.

The Man With A Tan - Angelo Mozilo has no regrets about how he ran Countrywide and only agreed to a $67.5 million settlement to protect his children.  (BTW, it looks like Bank of America paid the lion's share of that) You can read his entire deposition here.

Great perspective on the history of banking from my favorite financial author, Jim Grant. "You can have the fear of God or the socialization of risk, but you cannot have both."

Interview with Dallas Fed President Richard Fisher on the Fed's "Hotel California" monetary policy.  He lays out the argument that the problem with the economy is not monetary policy, it is regulatory uncertainty out of Washington. He also notes that we are reaching the point of diminishing returns.