Morning Report - Merry Christmas.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1421.8	-4.1	-0.3%
Eurostoxx Index	2648.3	-3.0	-0.15%
Oil (WTI)	88.38	-0.28	-0.31%
LIBOR	0.31	0.000	0.00%
US Dollar Index (DXY)	79.46	0.156	0.15%
10 Year Govt Bond Yield	1.77%	+0.04%
RPX Composite Real Estate Index	191.8	-0.1

Markets are quiet this morning as most shops have skeleton crews on the desk.  Stock and Bond markets will be open until 1:00 pm.  There is no economic data this morning. Bonds are down while MBS are flat.

The fact that bonds have not rallied in the face of the machinations of the fiscal cliff has me scratching my head. Mohammed El Arian of PIMCO believes a recession is now more likely. If we enter a recession, we could be looking at a 1.25% 10-year.  We broke 1.4% in late July. Yet here we sit at 1.77%.  Liquidity is typically low this time of year, so you can't read too much into it, but unless we get a deal on the cliff soon, we could be looking at a big rally in Treasuries come January.

With the collapse of Boehner's Plan B, all attention turns to the Senate which hopes to devise some sort of band aid to prevent the worst of the fiscal cliff. In particular, Mitch McConnell has been more of an observer than a participant as negotiations have centered on the WH and House. Apparently Joe Biden has better luck dealing with the Minority Leader than Obama, and has earned the reputation as the "McConnell Whisperer." Democrats are urging Boehner to re-enter negotiations with a bipartisan bill. Ironically, by rejecting Boehner's Plan B, Tea Party Republicans in the House have lost their seat at the table.

Lender Processing Services is out with their first look at November delinquency numbers. Delinquencies are up sequentially, while foreclosures are down.

The Fed is disappointed that mortgage rates are not responding to the Fed's MBS purchase program. At least the story mentions the reason - increases in guarantee fees. Most stories about this (The Washington Post is absolutely terrible on this) don't mention the fee increase. Even the WSJ does it, by mentioning "higher fees charged by Fan and Fred" in a generic fashion, as is they are inconsequential.  People don't understand how much G-fees matter. There is the perception in Washington that lenders are simply pocketing the difference when in reality their costs have increased. The media has glommed onto the idea that the financial industry is inherently crooked and there is no disabusing them of that.

Merry Christmas to all.