Morning Report - Principal mods on the horizon? Maybe

Vital Statistics:

	Last	Change	Percent
S&P Futures	2045.8	15.7	0.77%
Eurostoxx Index	3404.6	-10.9	-0.32%
Oil (WTI)	49.61	1.2	2.39%
LIBOR	0.255	0.003	1.19%
US Dollar Index (DXY)	93.78	-0.211	-0.22%
10 Year Govt Bond Yield	1.81%	0.06%
Current Coupon Ginnie Mae TBA	103.1	-0.3
Current Coupon Fannie Mae TBA	102.8	-0.2
BankRate 30 Year Fixed Rate Mortgage	3.85

Markets are higher this morning as Greece and Germany spar over bailouts for the Greek banking system. Bonds and MBS are down.

In economic data, initial jobless claims rose to 278k, higher than expected, but still good. Productivity fell 1.8% while unit labor costs rose 2.7%. Finally the trade deficit increased by $8 billion, dashing hopes for a big upward revision in Q4 GDP. 

Uber-dove Boston Fed President Eric Rosengren says they Fed can remain "patient" in terms of raising interest rates, given the deflationary winds from overseas. Rosengren is a non-voting member. Janet Yellen in the Dec FOMC press conference characterized "patient" as "more than two FOMC meetings away). So, if the Fed intends to move at the June meeting, that word will probably be gone in the March statement. Listen to the language of the different Fed heads going forward - if it starts disappearing from prepared statements, etc that fact is telling you something..

Grexit (the name for Greece leaving the Euro) will get a lot of discussion in the press, but it probably won't happen. Voters in Germany and Greece both support Greece staying in the Euro. Exporters like Germany benefit from the drag Greece (and the rest of the PIIGS) put on the Euro. The issue is that Germany, Finland etc don't trust the Greek government to make the necessary structural changes without the risk of being booted. In other words, much of what you will hear over the next few months will be posturing ahead of another bailout. 

Mel Watt is considering principal mods for underwater borrowers with loans held by FHFA. However, any plan will be "narrow" and will have to be done without incurring costs to the taxpayer. Interestingly, by cutting MI premium and G-fees, he is effectively increasing costs to taxpayers by increasing the chance they have to bail out the fund. Given that we are within 5% of peak levels, according to the FHFA Home Price Index, Mel can probably make this problem disappear by running out the clock. Note that Mel says mass principal forgiveness would cost the government billions. The Congressional Budget Office disagrees that a mass principal forgiveness program would cost anything. Looks like not even the Administration buys that argument...

Standard and Poors agreed to pay $1.5 billion in fines, without admitting wrongdoing. They have been forced to stop saying the suit was in retaliation for their downgrade of US Treasuries. Moody's - you're next. Hopefully Mark Zandi said enough nice things about the Administration that you'll get off easier...