Morning Report - US multinationals flocking to Europe to borrow money

Vital Statistics:

	Last	Change	Percent
S&P Futures	2078.6	-7.2	-0.35%
Eurostoxx Index	3144.9	-40.3	-1.26%
Oil (WTI)	53.28	-0.3	-0.62%
LIBOR	0.257	0.002	0.79%
US Dollar Index (DXY)	89.99	-0.203	-0.23%
10 Year Govt Bond Yield	2.18%	-0.02%
Current Coupon Ginnie Mae TBA	104.8	0.2
Current Coupon Fannie Mae TBA	104.2	0.1
BankRate 30 Year Fixed Rate Mortgage	3.99

Markets are lower this morning on overseas weakness. Bonds and MBS are up.

House prices rose .76% month-over-month in October (up 4.5%) year-over-year according to Case-Shiller. Prices are back to their Autumn 2004 levels.

Americans spent about 5% more on rent last year, driven by a 2% increase in the number of renters and a 3% increase in prices. Zillow is predicting that rents will increase by 3.5% next year, while housing prices will increase by 2.5%. Note that the homeownership rate fell to 64.4% in Q3, the lowest since the mid 1990s. Is this number simply a return to normalcy, or are we going to see the homeownership rate increase? Certainly, policy makes a difference, and the government is back in the business of encouraging home ownership. So don't be surprised to start hearing talk about another secular uptrend in housing...

The prospect of QE has driven risk-free rates lower in Europe, which has lured US companies to issue Euro bonds. The spread between investment grade Euro notes and investment grade dollar notes is currently 211 basis points, an all-time high, and a big increase from 145 bp a year ago. Companies like Apple are issuing billion in euro bonds yielding something like 1.65%. If you wonder why the big S&P 500 companies seem to be doing great, in defiance of what we see around us, here you go. International exposure matters. The local muffler shop cannot borrow at 1.65% while multinationals like Apple can. While the economy is improving, the stock market is painting a non-representative picture of the US economy.

Delinquencies ticked up to 6% in November, according to Black Knight Financial Services. Foreclosure starts ticked down to 73,900. Note Black Knight Financial Services (formerly known as LPS or Lending Processor Services) has filed for an IPO.

Morning Report - the week ahead

Vital Statistics:

	Last	Change	Percent
S&P Futures	2081.6	-2.6	-0.12%
Eurostoxx Index	3147.3	-37.3	-1.17%
Oil (WTI)	55.55	0.8	1.50%
LIBOR	0.257	0.002	0.79%
US Dollar Index (DXY)	89.91	-0.125	-0.14%
10 Year Govt Bond Yield	2.22%	-0.03%
Current Coupon Ginnie Mae TBA	104.8	0.2
Current Coupon Fannie Mae TBA	104	0.1
BankRate 30 Year Fixed Rate Mortgage	3.95

Markets are down small on no real news. Bonds and MBS are up.

This week promises to be relatively quiet with the New Year's holiday in the middle of the week. There might be some volatility in bonds as dealers square up their positions for year's end. 

Greece is back in the news, as political wrangling risks the rescue package they have from the ECB. The 10 year Greek bond yield is up 130 basis points this morning, to 9.8%. At the margin, this will help keep a bid under Treasuries. 

Home Prices are up 4.5% year-over-year, according to Black Knight Financial Services, which puts prices about 10% off of their peak levels in June 2006. We will get Case-Shiller tomorrow. 

Will 2015 herald the return of the first time homebuyer? It is looking like it might happen, as lending loosens up, the job market improves, and supply comes on line. Note the homebuilders like D.R. Horton and KB Home are rolling out more starter homes. 

Holiday spending was strong, according to data released by MasterCard. They saw spending up 5.5%, while the National Retail Federation saw sales up 4.1%. Online sales rose 14%. Pent-up demand is beginning to be satisfied. Low gasoline prices are a big help.

Morning Report - Pre-holiday data dump

Vital Statistics:

	Last	Change	Percent
S&P Futures	2079.9	7.5	0.36%
Eurostoxx Index	3174.3	19.4	0.61%
Oil (WTI)	56.43	1.2	2.12%
LIBOR	0.252	0.005	2.02%
US Dollar Index (DXY)	89.97	0.202	0.23%
10 Year Govt Bond Yield	2.18%	0.02%
Current Coupon Ginnie Mae TBA	104.8	-0.1
Current Coupon Fannie Mae TBA	104.1	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.01

Markets are higher as decent data comes in. Bonds and MBS are down small. Almost all of this week's data is being released today. Today is a full day, Wed will be a half day, and Friday will be a full day (so far). 

Third quarter GDP was revised upward to to +5% from +3.9%. Personal Consumption was revised upward from 2.2% to 3.2%. Inflation remained unchanged at +1.4%. 

Durable Goods orders on the other hand came in weaker than expected, down .7%, after the Street was expecting +3%. 

New Home Sales fell to 438k from 458k last month. This is the seasonal slow period, so I wouldn't read too much into it. 

Personal Income rose .4% in November, while Personal Spending rose .5%. The PCE deflator (the preferred inflation measure for the Fed) was down .2% on a month-over-month basis and up 1.2% on a year-over year basis. 

The University of Michigan Consumer Sentiment Index ticked down to 93.6 in December. The Richmond Fed Manufacturing Index rose to 7 from 4. 

The FHFA Home Price Index rose .6% in October after a flat September. On a year over year basis, home prices increased 4.5%. The index is roughly 5% lower than its April 2007 peak. Remember, this index only looks at homes with a conforming mortgage, so it is a narrower sample than Case-Shiller. 

Cool background on yesterday's DDOS attack on North Korea. Is it Anonymous? The CIA? China?

Ocwen stock got slammed yesterday as they announced a settlement with New York State and its founder stepped down. Ocwen will not be able to purchase any more MSRs without New York State approval. They also were fined $150 million. The stock got rocked for 27% yesterday, and is down 70% for the year.The stock is down another 3 bucks (19%) this morning.. This one may be a value trap, folks. 

Rick Santelli from CNBC spells out the yield curve flattening scenarios. The yield curve has been flattening (the spread between long term rates and short term rates has been narrowing), and many traders continue to have "flattening" trades on. Essentially, this is what i was talking about yesterday with the Fed - the Fed could raise short term rates yet the 10 year (and mortgage rates) might not move all that much because of global demand for long-term sovereign debt. He also points out the big caveat to this: that ECB President Mario Draghi pursues a less aggressive policy than the market is already pricing in. This would put pressure on Euro sovereigns with microscopic yields (like the German Bund at 59 basis points), and could cause world sovereign bond markets to sell off in a co-ordinated fashion. Remember the economic backdrop in the US: A 5% GDP growth rate and a 2.2% 10 year bond yield are strange bedfellows. Note that a sell off in bonds might not guarantee a rally in the stock market either...

Finally, the MR will be on hiatus for the holidays. Wishing you and yours all the best.

Morning Report - Home Price Appreciation may stall a bit until wage growth returns

Vital Statistics:

	Last	Change	Percent
S&P Futures	2070.3	3.2	0.15%
Eurostoxx Index	3161.8	20.5	0.65%
Oil (WTI)	56.17	-1.0	-1.68%
LIBOR	0.252	0.005	2.02%
US Dollar Index (DXY)	89.54	-0.058	-0.06%
10 Year Govt Bond Yield	2.18%	0.02%
Current Coupon Ginnie Mae TBA	104.9	0.1
Current Coupon Fannie Mae TBA	104.1	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.12

This week is for all intents and purposes a two day week. Markets will close early on Christmas Eve and many will take off Friday. 

The big deluge of data is tomorrow, with GDP, personal income, personal spending and a host of other indicators. 

The risk-on trade continues this morning, with stocks up small and bonds down a tad. Oil continues to fall.

Existing Home Sales fell 6.1% to a seasonally adjusted annual rate of 4.93 million, according to NAR. Housing inventory was tight and bad weather didn't help things either. The median existing home price was 205,300, which is 5% above November 2013. According to Sentier Research, the median income in the US was $53,700 as of the end of October. This makes the median home price to median income ratio just over 3.8, which is above its historical range of 3.15x - 3.55x. This means home price appreciation is probably going to be hard to come by until wage inflation begins to pick up. 

The Chicago Fed National Activity Index hit +.73 in November, which is a very strong reading. Production and employment drove the increase. Housing and Consumption remained small headwinds. 

The strength in the US bond market is likely to continue into 2015 as global bond investors see (relatively) high yields underpinned by a strong dollar. The punch line is that even if the Fed starts hiking rates, global demand for the 10 year bond means that mortgage rates could pretty much stay where they are for the time being. In other words, the Fed could hike rates and we could simply see the yield curve flatten. That is good news for the real estate industry, obviously. 

One other thing to keep in mind: a flattening yield curve is a classic "tell" that the economy is slowing down, and by all accounts, it looks like the economy is accelerating. This will be another situation where the classic investing playbook isn't going to help you all that much. In other words, if the Fed starts hiking rates and mortgage rates stay where they are, don't all of a sudden dump your portfolio and pile into defensives like Proctor and Gamble or General Mills. 

Morning Report - Quits lead raises

Vital Statistics:

	Last	Change	Percent
S&P Futures	2061.2	1.3	0.06%
Eurostoxx Index	3113.1	-40.7	-1.29%
Oil (WTI)	55.46	1.4	2.49%
LIBOR	0.245	0.003	1.13%
US Dollar Index (DXY)	89.2	-0.040	-0.04%
10 Year Govt Bond Yield	2.19%	-0.01%
Current Coupon Ginnie Mae TBA	104.7	-0.1
Current Coupon Fannie Mae TBA	104.2	0.1
BankRate 30 Year Fixed Rate Mortgage	4.12

Markets are flattish this morning after a torrid 2 day run courtesy of Santa Yellen. Bonds and MBS are up small.

Fannie Mae is forecasting that wage growth is just around the corner and focuses on an interesting indicator out of the JOLTS job report - the quit rate. The quit rate is a leading indicator for job growth, and it has has been moving up for quite some time while wages have been flat. Another reason to be somewhat optimistic about 2015.

Are the high premiums for FHA loans creating an adverse-selection problem? The MBA thinks so. Creditworthy borrowers are going for the cheaper Fannie and Freddie loans, leaving only the borrowers with poor credit in the FHA risk pool. The new 3.5% down Fannie Mae loans will undoubtedly exacerbate this trend. 

The drop in oil prices is causing pain in economies that rely on oil revenues, particularly Russia and Venezuela. It looks like Russian banks are going to need some sort of bailout. This could have impacts on the US real estate market, particularly at the high end. On one hand, Russian billionaires will want to move assets out of Russia ahead of the capital controls that are probably coming, On the other hand, in a crisis, you sell what you can, not necessarily what you want to. Not sure how this will shake out, but it bears watching. It will probably be a preview of what happens when China's real estate bubble bursts as well. The Asian Crisis of the late 90s did have some reverberations in US credit markets, so we may feel a bit of credit tightening as banks back away from each other. 

Morning Report - FOMC data dump

Vital Statistics:

	Last	Change	Percent
S&P Futures	2034.6	26.4	1.31%
Eurostoxx Index	3127.7	75.7	2.48%
Oil (WTI)	57.32	0.9	1.51%
LIBOR	0.243	0.000	0.00%
US Dollar Index (DXY)	89.38	0.243	0.27%
10 Year Govt Bond Yield	2.20%	0.07%
Current Coupon Ginnie Mae TBA	104.8	-0.1
Current Coupon Fannie Mae TBA	104	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.07

Stocks are continuing yesterday's Fed-driven melt-up. Bonds and MBS are down hard. That window where rates were around 2.05% did not last long.

As advertised, the FOMC statement basically substituted "patience" for "a considerable time." That said, it still contained the "considerable time" language, but referred to it in the past tense. Probably the biggest surprise was their downward forecast for 2015 inflation to a range of 1% - 1.6%. Their September forecast was 1.6% to 1.9%. They also took down their 2015 unemployment forecast to 5.25% from 5.5% in September. The Street seems comfortable that rates are going up in the second half of 2015.

Initial Jobless Claims fell to 289k last week, and we have been solidly below 300k for quite some time. The leading indicators have been strong for a while, however we have not been seeing the wage growth. That said, I am seeing anecdotal evidence that wage inflation might be be around the corner. At lunch I noticed the "help wanted" placard had taped over the starting salaries and increased them by a buck an hour. Sample size of 1, of course, but still...

The Markit US PMI came in weaker than expectations. The Bloomberg Consumer Comfort Index ticked up to 41.7 from 41.3 last week. The Philly Fed Index fell from 40.8 to 24.5 and the Index of Leading Economic Indicators was flat at .6%.

Obama moved to normalize relations with Cuba yesterday. Lifting the trade sanctions requires Congressional approval, so I don't know how this impacts your humidor quite yet. 

The feds are going after Ocwen again, this time for dragging their feet in short sales. 

Mortgage lenders are worrying more about lackluster demand impacting margins, according to the latest Fannie Mae Lender Sentiment Survey. The biggest headache remains regulatory, of course. Lenders anticipate a modest housing expansion in 2015. It seems like the homebuilders agree. It is all going to hinge on the return of the first time homebuyer. 

Morning Report - Awaiting the FOMC....

Vital Statistics:

	Last	Change	Percent
S&P Futures	1970.6	5.5	0.28%
Eurostoxx Index	3017.4	-32.6	-1.07%
Oil (WTI)	54.7	-1.2	-2.20%
LIBOR	0.243	0.000	-0.10%
US Dollar Index (DXY)	88.19	0.065	0.07%
10 Year Govt Bond Yield	2.08%	0.02%
Current Coupon Ginnie Mae TBA	104.8	0.0
Current Coupon Fannie Mae TBA	104.3	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.04

Markets are higher this morning on no real news. Bonds and MBS are down.

Oil continues to fall, with a barrel of West Texas Intermediate now down below $55 a barrel. This is putting pressure on prices. The Consumer Price Index fell .3% in November. Ex food and energy, it rose .1%. Will be interesting to see how the Fed addresses (if at all) falling energy prices in the FOMC statement. 

Mortgage Applications fell 3.3% last week. Purchases were down 6.9% while refis were flat. 

The FOMC will announce their decision at 2:00 pm. Expect volatility around that time and after as the press conference starts. 

"A considerable time." Sounds like a novel. Anyway, that is the phrase that will be the focus of the Fed statement. Will the Fed drop the language that states that rates will remain near zero for a "considerable time?" The new expected buzzword? Patience. Given how far bonds have moved to the upside already I don't know how much a dovish statement will move them further. If anything the risks are on the downside.

Things for an investor to worry about in 2015...

Morning Report - Housing Starts dip

Vital Statistics:

	Last	Change	Percent
S&P Futures	1973.9	-9.3	-0.47%
Eurostoxx Index	2951.0	-31.9	-1.07%
Oil (WTI)	54.29	-1.6	-2.90%
LIBOR	0.243	0.002	0.94%
US Dollar Index (DXY)	87.81	-0.647	-0.73%
10 Year Govt Bond Yield	2.06%	-0.06%
Current Coupon Ginnie Mae TBA	104.9	0.0
Current Coupon Fannie Mae TBA	104.4	0.2
BankRate 30 Year Fixed Rate Mortgage	3.98

Stocks are lower as oil continues to fall. Bonds and MBS are rallying hard.

Euro yields are continuing to move lower. The German Bund is currently trading at 57.6 basis points. It began the year at close to 2%. Think about that for a moment. FWIW, the trader in me is starting to think about a capitulation low in rates. Which means we are ripe for a snap-back in yields. LOs, I know this is a dead period of the year, but there might be some refis to be had with the us 10 year yield falling towards 2%. I don't know how long this gift lasts.

Another observation is that we are getting close (40 basis points or so) to the lows set before the the Fed hinted that QE was ending. If we are getting this sort of movement in rates without QE, it does beg the question of whether QE was effective in the first place.

The Russian Ruble fell to a record low as the Russian Central Bank raised interest rates to 17%. The ruble has been slammed by a combination of low oil prices and international sanctions over Ukraine. The last stop is capital controls. The swoon in oil prices has hit Russia and Venezuela particularly hard. 

Housing starts fell to 1028k in November from an upward revised 1045k. Building Permits fell from 1092k to 1035k. For once it was single fam that accounted for most of the decline - multi-fam actually rose. Note that weather may have affected the numbers as winter storms arrived early this year for the upper Midwest and New England. 

The FOMC meeting begins today. The decision will be released tomorrow at 2:00 pm. 

The Buildfax remodeling rate came in at just under 4 million, which is 4% below September and is 10% higher than a year ago. Activity continues to be strongest in the South and West, with the Midwest and Northeast lagging. 

Morning Report - More bubblicious behavior in the bond market

Vital Statistics:

	Last	Change	Percent
S&P Futures	1997.2	19.7	1.01%
Eurostoxx Index	3069.9	2.6	0.09%
Oil (WTI)	57.95	0.1	0.24%
LIBOR	0.243	0.002	0.94%
US Dollar Index (DXY)	88.46	0.100	0.11%
10 Year Govt Bond Yield	2.11%	0.02%
Current Coupon Ginnie Mae TBA	104.9	-0.3
Current Coupon Fannie Mae TBA	104.3	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.03

Markets are higher this morning after stocks got slammed in Asia last night. Bonds and MBS are down.

Wall Street is betting that inflation will remain dead for a long time. Treasury Strips are back (which basically slices and dices a long term Treasury into a bunch of zero coupon bullet bonds). This strategy has been a winner this year, rallying almost 50%. Foreign bond investors have had a great year with the the currency and bond markets posting big gains. The thing to remember is that US investors aren't the only ones who play the Treasury market - and foreign bond investors are often looking at their domestic bond markets and finding more value in the US. To put this in perspective - the US 10 year yields 2.12%. The German Bund (10 year) yields 64 basis points. The Japanese JGB (another 10 year) yields under 38 basis points. The Spanish 10 year yields 1.79%. There is a global relative value trade happening here.

Strategists have gotten the bond market wrong all year. This is a case where the textbook response - sell Treasuries as the economy improves - has been dead wrong, overwhelmed by events overseas. Keep this in mind when thinking about rates in the US - strong data might not be enough to push bonds lower and originators might be getting a gift here. It won't last, and the snap-back could be vicious. Second, anyone buying a 30 year zero at 43 which yields 2.86% should have their head examined. This is bubble behavior, and is the bond market equivalent of buying Cisco Systems at 70 (or 132x earnings) in 2000. Bonds will crack at some point, but keep in mind that bond market cycles are long.

Speaking of strong economic data, Industrial Production rose 1.3% in November and capacity utilization topped 80% for the first time since March of 2008. This production number was the highest since 2010. On the other side of the coin, the December Empire Manufacturing Index fell in December.

The FOMC meets this week, and the decision will be released Wednesday at 2:00 pm EST. This one should have a press conference, along with updated economic projections and a press conference. The focus is on the timing of rate hikes, and investors will key in on language regarding the labor market. 

In the budget deal last week, some regulations were relaxed for the big Wall Street banks, particularly the provision requiring derivatives to be housed in an entity without recourse to the parent FDIC - insured bank. This sparked a big rebellion on the left, but it ended up going nowhere. FDIC insured banks may now use credit default swaps as hedging instruments for their own books. To hear the left tell the story, this basically returns us back to the bad old days of 2005. To the industry, this is a common-sense relaxation of a rule that went too far in the first place. That said, banks were always allowed to use these products, but had to post more collateral than they wanted to. This is a knotty question, as many "hedges" are really speculative bets when you delve into the details. I suspect JP Morgan's 2012 London Whale trading loss was intended to act as a hedge in the first place.

Morning Report - Oil continues to fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2030.9	-7	-0.32%
Eurostoxx Index	3117.0	-42.1	-1.33%
Oil (WTI)	58.48	-1.5	-2.45%
LIBOR	0.24	0.001	0.44%
US Dollar Index (DXY)	88.27	-0.395	-0.45%
10 Year Govt Bond Yield	2.12%	-0.04%
Current Coupon Ginnie Mae TBA	105	0.1
Current Coupon Fannie Mae TBA	104.2	0.1
BankRate 30 Year Fixed Rate Mortgage	4

Markets are lower this morning as oil continues to fall. Bonds and MBS are up, with the 10 year hitting lows not seen since June of 2013. 

Lower energy prices means that inflation at the wholesale level is pretty much non-existent. The producer price index fell .2% in November. Ex food and energy, it was flat. 

Declining gas prices pushed the University of Michigan Consumer Confidence level to 93.8 from 88.8 last month. We appear to be back to normalcy. 

The left is still up in arms over the language in the CROmnibus (continuing resolution + omnibus spending bill) that allows banks to trade derivatives in their FDIC insured entity. I haven't seen the specific language, but I think it allows the banks to use derivatives for hedging purposes. But there is so much posturing going on here that it is hard to tell exactly what it does. The spending bill did make it through the House, and it looks like a done deal in the Senate. 

Net Worth fell by $140 billion in the third quarter, according to the Federal Reserve. Real estate was the bright spot of the report as it rose $167.8 billion.

Morning Report - looks like we have a budget deal

Vital Statistics:

	Last	Change	Percent
S&P Futures	2035.7	9.3	0.46%
Eurostoxx Index	3145.5	-5.5	-0.17%
Oil (WTI)	60.23	-0.7	-1.17%
LIBOR	0.239	0.001	0.53%
US Dollar Index (DXY)	88.4	0.130	0.15%
10 Year Govt Bond Yield	2.18%	0.02%
Current Coupon Ginnie Mae TBA	104.9	0.1
Current Coupon Fannie Mae TBA	104	0.0
BankRate 30 Year Fixed Rate Mortgage	4.07

Stocks are higher this morning after initial jobless claims and retail sales surprised tot he upside. Bonds and MBS are flat.

Initial Jobless Claims fell slightly to 294k last week. We have been consistently hitting under 300k for a while, which is a very bullish sign. Companies may not be raising wages yet, but they are holding on to the people they have. 

Retail Sales increased .7% in November, well above the .4% Street estimate. October was revised upward Ex autos and gas, sales rose .7%. Lower gasoline prices are providing a bit of an economic dividend. 

Congress looks like they have circled around a spending bill to keep the government open for the near term. The left (led by Elizabeth Warren) is complaining about the bill. The Department of Homeland Security is funded only through February, which will give Republicans a chance to wrangle with Obama on the issue of his immigration executive order. There are also some relaxations to Dodd-Frank, and the left is apopleptic about that. The changes would allow FDIC institutions to use derivatives to hedge their own currency and f/x risk and would relax margin requirements for non-banks that use derivatives to hedge (like airlines hedging their fuel costs, for example). That said, it looks like the left will lose this battle. 

And this guy seems perfectly cut out to work at the CFPB

Morning Report - Toll Brothers reports home price appreciation is moderating

Vital Statistics:

	Last	Change	Percent
S&P Futures	2053.4	-4.1	-0.20%
Eurostoxx Index	3175.8	13.1	0.41%
Oil (WTI)	62.33	-1.5	-2.33%
LIBOR	0.238	0.002	0.85%
US Dollar Index (DXY)	88.57	-0.116	-0.13%
10 Year Govt Bond Yield	2.21%	0.00%
Current Coupon Ginnie Mae TBA	104.7	-0.1
Current Coupon Fannie Mae TBA	103.9	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.13

Markets are weaker this morning as oil (and oil stocks) continue to fall. WTI is trading at $62.20 after OPEC revised its 2015 forecast. Bonds and MBS are flat.

Mortgage Applications rose 7.3% last week. Purchases were up 1.3% while refis were up 13.2%. Don't bust out the champagne quite yet, we are still basically bumping along the bottom. 

Luxury builder Toll Brothers reported 4th quarter and full year results this morning. Deliveries rose 29% in dollars and 22% in units, but it looks like the torrid increase in average selling prices has passed and they are beginning to moderate. ASPs rose 6% YOY to $747k. Price appreciation for signed contracts was even less - around 3.6%. Backlog was up 3% in dollars and flat in units.

Robert Toll, CEO of Toll Brothers made a point I have been making for a long time - housing starts are still way below historical averages: "We believe the housing recovery has many years to run. Housing starts, through ups and downs from 1970-2007, have averaged about 1.6 million annually. According to Harvard University's Joint Center for Housing Studies, 'Despite the rebound in the last two years, home sales and starts are still nowhere near normal levels. This was the sixth consecutive year that starts failed to hit the one million mark, [which was] unprecedented before 2008 in records dating back to 1959." 

Obviously the recovery to normalcy depends on the first time homebuyer. Consistent rental inflation is pushing them to consider home ownership as an alternative. The NAHB is praising Fannie and Freddie for re-introducing the 3% downpayment loans. 

Transunion forecasts mortgage delinquency rates to hit pre-recession levels in 2015. 

Morning Report - Job Openings highest since 2001

Vital Statistics:

	Last	Change	Percent
S&P Futures	2040.9	-18.5	-0.90%
Eurostoxx Index	3190.7	-57.3	-1.76%
Oil (WTI)	62.9	-0.1	-0.24%
LIBOR	0.236	0.000	0.11%
US Dollar Index (DXY)	88.62	-0.425	-0.48%
10 Year Govt Bond Yield	2.21%	-0.05%
Current Coupon Ginnie Mae TBA	104.7	0.3
Current Coupon Fannie Mae TBA	104.3	0.2
BankRate 30 Year Fixed Rate Mortgage	4.12

Markets are lower worldwide after a big sell-off in China. Bonds and MBS are rallying. 

The Chinese government instituted new regulations for local debt last night, which sent the markets reeling. Chinese stocks have been on a tear recently (up something like 30% since Nov 1) so the news was an excuse for some major profit-taking, which sent the indices down something like 5%. 

Small business optimism picked up a bit in December, as the NFIB Small Business Optimism approached the historical average before the Great Recession began. A big increase in economic optimism drove the increase. Earnings trends are heading higher, and some are planning to increase employment, which is good news for the economy.

Another good data point for the market: Job openings rose to 4.834MM in October from 4.685MM in September. This almost matches August's number, which was the highest since early 2001. Combine that with a steady diet of sub 300k initial jobless claims prints and the leading indicators of the labor market are looking strong. Now about that wage growth...

New 3% down loans are expected to have only a marginal effect on increasing credit availability. Separately, This is all part of an attempt to get the first time homebuyer back into the market, which has been the Achilles Heel of this housing recovery. The problem is that while a 3% downpayment isn't necessarily daunting, the credit score the banks require is - something like 755. For young adults with student loan debt, that sort of score probably just isn't in the cards. Here are the FAQs for the 3% down loans from Freddie Mac.

Obamacare Architect Jonathon Gruber heads to Capitol Hill today to discuss the obfuscation and white lies involved in the selling of Obamacare. In an unfortunate (for him and Obama) minute of candor, he discussed how the the plan relied on the "stupidity of the American voters" to get it through, and how the "Cadillac Tax" was a brilliant piece of wordsmithing that set in motion the eventual taxability of employer-provided health care benefits. Don't expect much out of Gruber - he will probably apologize for the language he used and spend the rest of the time lawyered up and will simply relay previously prepared talking points. Note that the Medicaid subsidy issue is going to be taken up by the Supreme Court as well, which could throw the whole thing in peril. 

Morning Report - Judicial vs. non-judicial home price appreciation

Vital Statistics:

	Last	Change	Percent
S&P Futures	2068.9	-7.2	-0.35%
Eurostoxx Index	3254.3	-23.1	-0.70%
Oil (WTI)	64.6	-1.2	-1.88%
LIBOR	0.236	0.000	0.11%
US Dollar Index (DXY)	89.37	0.039	0.04%
10 Year Govt Bond Yield	2.29%	-0.01%
Current Coupon Ginnie Mae TBA	104.5	0.0
Current Coupon Fannie Mae TBA	103.8	0.0
BankRate 30 Year Fixed Rate Mortgage	4.14

Markets are lower this morning on no real news. Bonds and MBS are up.

The week after the jobs report is typically data-light, and this week is no exception. The highlights from a bond market perspective will probably be the JOLTS job openings on Tuesday and retail sales on Thursday. We will also hear from luxury home builder Toll Brothers on Wed morning. 

The latest Black Knight Mortgage Monitor is out. Foreclosure starts dropped by 10.5% to 81,400 and the foreclosure inventory dropped to 3.6MM homes, which is down 18% year-over-year. They have a cool chart that illustrates the difference between the judicial and non-judicial states in terms of home price appreciation, both in terms of decline and rebound. You can see how the judicial states have experienced much lower rebounds off the bottom than the non-judicial states. It would be interesting to see compare the peak to trough price declines of judicial vs. non-judicial states. I suspect we would find that having tougher foreclosure requirements did not help support house prices. 

S&P lowered the ratings on Italy's sovereign debt to BBB- from BBB, which is one level above junk status. Yet, Italian sovereigns are trading at 1.97%, 33 basis points lower than AA+ rated US Treasuries. This is all about the ECB and QE, but it shows again that all of this central bank manipulation of global sovereign bond markets has created some major dislocations. Of the 5 PIIGS, only Portugal and Greece have higher yields than the US 10-year. Strange times.

There were no changes in the federal limits on conforming loans for 2015.

San Francisco is looking at using eminent domain to steal from bondholders help people in who are in foreclosure keep their homes. The city is also trying to issue about $400 million in GO munis, and something like this cannot help. 

Morning Report - Not too shabby jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2073.1	1.2	0.06%
Eurostoxx Index	3257.6	66.4	2.08%
Oil (WTI)	66.62	-0.2	-0.28%
LIBOR	0.235	0.000	0.11%
US Dollar Index (DXY)	89.28	0.578	0.65%
10 Year Govt Bond Yield	2.30%	0.07%
Current Coupon Ginnie Mae TBA	104.7	-0.1
Current Coupon Fannie Mae TBA	103.7	-0.4
BankRate 30 Year Fixed Rate Mortgage	4.08

Markets are higher after a good jobs report. Bonds and MBS are getting slammed.

A not-too-shabby jobs report today. Payrolls increased by 321k, much better than the 230k estimate and the 208k ADP number. The two month revision was +44k. The unemployment rate held steady at 5.8% as did the labor force participation rate at 62.8%. We had a nice month-over-month increase in wages: up 0.4%, however on an annual basis, it was steady at 2.1%. 

One strange anomaly: the household survey and the establishment survey differed in a big way - the household survey (which is conducted by sending questionnaires to individual houses) showed no employment growth, while the establishment survey (which is conducted by sending questionnaires to businesses) showed strong payroll growth. The market is clearly choosing to focus on the establishment data. 

We could finally be hitting the point where the lagging employment indicators are catching up with the leading indicators. Recoveries after asset bubbles tend to be bathtub-shaped. We could finally be at the inflection point. Lower energy prices are going to be a big help as well. 

Of course lower energy prices are not great for everyone - especially those companies in the energy patch. The big new distressed trade is energy debt as many over-leveraged and now cannot borrow. Shades of the mid / late 1980s.

Of course with lower energy prices, Washington is chomping at the bit to raise the gas tax. 

Why can Apple borrow money more cheaply than the US government? Believe it or not, the 2.29% 10 year can't get any respect. 

It is an old cliche that all real estate is local. When I talk to people in San Diego, they describe a completely different housing market than the one I see up here in the Northeast. Interestingly, on the way to work today, I saw the first single family home being built since probably 2007. So maybe the Northeast is getting better at long last..

Morning Report - foreclosures continue to fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2069.2	-3.4	-0.16%
Eurostoxx Index	3261.1	13.4	0.41%
Oil (WTI)	67.01	-0.4	-0.55%
LIBOR	0.235	0.000	0.00%
US Dollar Index (DXY)	88.8	-0.159	-0.18%
10 Year Govt Bond Yield	2.26%	-0.02%
Current Coupon Ginnie Mae TBA	104.6	-0.1
Current Coupon Fannie Mae TBA	103.9	0.1
BankRate 30 Year Fixed Rate Mortgage	3.94

Markets are lower as ECB President Mario Draghi addresses further action the ECB might take to boost growth. Bonds and MBS are flat.

It looks like Mario Draghi is kicking the QE can down the road a little more, and will address further stimulus measures in the first quarter. The Euro is rallying.

Initial Jobless Claims came in at 297k during the holiday shortened week. Announced job cuts fell 21% in November, according to outplacement firm Challenger, Gray and Christmas.

 

The ISM Non-Manufacturing Index rose to 59.9% in November as business activity and new orders surged. The employment index decreased however. 

Completed Foreclosures fell to 41,000 in October, according to CoreLogic. This is a 26.4% decline from a year ago, and a 34% drop from September. The 12 month sum of foreclosures is at its lowest point since October 2000. Approximately 605,000 homes are in some stage of foreclosure compared to 875,000 a year ago. This represents about 1.6% of all homes with a mortgage. Unsurprisingly, the judicial states contain the highest inventory, with New Jersey at 5.5%, and New York and Florida at 4.1%. 

The latest Beige Book shows that conditions improved overall during the months of October and November. The only disappointing news was that wage inflation remains "subdued." Separately, Obama met with the Business Roundtable yesterday to push for wage increases. The Administration is also pushing for businesses to consider hiring the long-term unemployed. This is pretty much going to be an "either / or" type of situation. 

Morning Report - ADP forecasting a weaker jobs report this Friday

Vital Statistics:

	Last	Change	Percent
S&P Futures	2066.2	0.3	0.01%
Eurostoxx Index	3244.8	6.5	0.20%
Oil (WTI)	67.6	0.7	1.08%
LIBOR	0.235	0.001	0.43%
US Dollar Index (DXY)	88.85	0.205	0.23%
10 Year Govt Bond Yield	2.29%	-0.01%
Current Coupon Ginnie Mae TBA	104.6	-0.1
Current Coupon Fannie Mae TBA	103.8	0.0
BankRate 30 Year Fixed Rate Mortgage	4.08

Markets are flattish on no real news. Bonds and MBS are flat as well.

Mortgage Applications fell 7.3% last week, which isn't a surprise given the holidays. Purchases rose 2.5% while refis fell 13.4%. 

ADP is forecasting the payroll number will come in at 208k this Friday. The Street is forecasting 230k. 

Productivity rose 2.3% in the third quarter, while unit labor costs fell 1%. Output increased 4.9% and hours worked increased 2.5%. Compensation rose 1.3% while productivity rose 2.3%, which means unit labor costs are -1%. These numbers do not suggest inflation is any sort of immediate or medium-term threat at all, which is bond bullish. 

Speaking of bond bullish, Amazon.com just did a $6 billion (!) bond issue, which contained a $1.5 billion tranche of 30 year bonds yielding 4.95%. The funds will be used for general corporate purposes. If you look at their balance sheet, they already have $7 billion in cash vs. $3 billion in debt outstanding, so it isn't like they need the money. 30 years at under 5%. 7 years ago, the 30 year yielded more than that. 

The latest kerfuffle in Washington doesn't involve immigration - it involves a bunch of expiring tax breaks. Many of them are for individuals - tax breaks for teachers, tuition, mortgage debt forgiveness, mortgage PMI, and mortgage forgiveness. There are a number of business breaks in there as well. The Senate came up with a two year extension, but Obama promised to veto it because it doesn't address the earned income tax credit and child tax credits that expire in 2017. He wants them to be made permanent. It looks like a 1 year extension bill is in the works. If this doesn't get resolved, it could make for an interesting start to the tax year. 

From the polar vortex making November the coldest in decades to El Nino ushering in a mild December, natural gas investors have been taken for a ride over the past six weeks or so. Fun fact - on the NYSE, they have Bloomberg or CNBC on the big TV monitors. In the commodity pits, they have on the Weather Channel. This is why. Look at the volatility of nat gas over the past month. roughly $3.50 to $4.50 and back to $3.80. Pretty amazing.