Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1503.0	-3.7	-0.25%
Eurostoxx Index	2679.2	-30.9	-1.14%
Oil (WTI)	96.79	-1.0	-1.00%
LIBOR	0.296	0.000	0.00%
US Dollar Index (DXY)	79.45	0.325	0.41%
10 Year Govt Bond Yield	2.03%	0.01%
RPX Composite Real Estate Index	193.1	0.0

Markets are weaker on the back of big declines in the Italian and Spanish bourses. Euro sovereign yields are starting to tick back up. There doesn't seem to be a story out there driving it.

As the bond market has backed up, there is a lot of talk about whether this is the big rotation out of bonds and into stocks. Within the bond market, there is a rotation out of Treasuries and into high yield. Overall, the "risk on" trade seems to be gaining steam, which means we have seen the low point for mortgage rates. It also means that the private label market might come back.

Obama wants more revenue, specifically through reducing loopholes and deductions. I don't know if this is posturing for the sequestration cuts or something else. Liberals are using the negative Q4 GDP report to argue that we can't cut spending. That is simplistic - Q3 government spending was higher than normal due to the government's "use it or lose it" budgeting. The government's fiscal year ends in September, and there is always a push to spend your budget, even if you don't really need it, to ensure your budget doesn't get cut. Which means that Q4's government spending was borrowed in Q3. Obama is being a little disingenuous when he says things like "The big problem was defense spending was cut 22 percent, the biggest drop in 40 years." which implies we are already cutting to the bone. He is in favor of "smart spending reductions," whatever that means, to bring down the deficit.  I suspect the only smart spending reductions he favors are the Orwellian-named "tax expenditures" and oil subsidies.  And don't forget, the definition of what is considered a spending cut depends greatly on what the baseline is when you start counting. Many in Washington prefer to use the baseline from when spending was the highest (late 2010) as the baseline, project spending out 10 years from there, and count any difference between the old projection and the new projection as a "spending cut."