Morning Report - the wages of ZIRP...

Vital Statistics:

	Last	Change	Percent
S&P Futures	2100.9	9.9	0.47%
Eurostoxx Index	3728.5	10.5	0.28%
Oil (WTI)	56.3	-0.1	-0.14%
LIBOR	0.276	0.001	0.24%
US Dollar Index (DXY)	98.09	0.152	0.16%
10 Year Govt Bond Yield	1.88%	-0.01%
Current Coupon Ginnie Mae TBA	103.4	0.0
Current Coupon Fannie Mae TBA	102.6	0.1
BankRate 30 Year Fixed Rate Mortgage	3.73

Stocks are higher this morning as earnings come in better than expected. Bonds and MBS are up.

Housing advocates are urging the government to investigate and intervene in communications between MBS holders and servicers. They claim that MBS investors (read Wall Street Sharpies) are urging servicers to forego modifications and to pursue "unnecessary foreclosures." Surprisingly, they hold up Ocwen as pillar of servicing virtue. Of course Ocwen is fighting for its life and will do anything it possibly can to make the government happy. 

New simpler mortgage disclosure forms are coming August 1, and they could slow closings as professionals learn to navigate the new system. 

M&A activity is picking up, with an interesting situation in the pharma sector. Mylan, who last week launched a hostile bid for Perrigo, now faces an unsolicited bid from Teva. A combination of low interest rates and high stock prices make growth by acquisition an attractive strategy. Teva's biggest drug faces generic competition so they need to replace that revenue. Mylan / Teva is going to face antitrust scrutiny. This situation looks like a fun one for the arbs. 

While ZIRP is helping to drive M&A activity, the unintended consequence is that insurers and pension funds are getting hammered as they cannot earn enough on their assets to cover their estimated liabilities. There are two ways out of the box: either assume it away with rosy estimates of asset return and liability inflation, or take a lot more risk. This is part of the reason why the Fed wants to get rates up to a more normal level. I suspect they fear we are going to have to bail out the state pension funds and / or insurance companies.

High end real estate has replaced gold as the go-to asset for storing wealth. Real Estate and contemporary art are the new store of value of choice for foreign investors. Gold, which used to have that role, cannot get out of its own way. Why? Blame the financial crisis, where gold sold off just like every other asset in a situation tailor-made for it. If gold was unable to rally in that sort of crisis, what good is it? Note that high end real estate in places like London, New York, and Vancouver are owned largely by Chinese investors, and China has its own issues, as even state-owned companies are now defaulting on their debt. As their real estate bubble bursts, it will be interesting to see if they liquidate overseas property. Generally in a crisis, you sell what you can, not necessarily what you want to.