Morning Report: Existing Home Sales fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2087.8	-0.9	-0.04%
Eurostoxx Index	3442.2	-10.3	-0.30%
Oil (WTI)	41.45	-0.4	-1.07%
LIBOR	0.382	0.005	1.19%
US Dollar Index (DXY)	99.82	0.255	0.26%
10 Year Govt Bond Yield	2.28%	0.02%
Current Coupon Ginnie Mae TBA	103.9
Current Coupon Fannie Mae TBA	103.2
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are flattish on no real news. Bonds and MBS are down.

Existing Home Sales fell to 5.36 million in October, according to the NAR. The median home price increased to 219,600. Inventories remain tight, with the number of homes for sale dropping to 2.14 million, which is about 4.8 month's worth of inventory. 6 - 6.5 months is considered a balanced market. It doesn't appear that TRID had much of an effect on home sales, at least so far. 

The Chicago Fed National Activity Index increased to -.04 in October. This is the third negative reading in a row, and the 8th  negative month this year. Note we will get the second revision to Q3 GDP this week. 

We have another big merger today, with Pfizer buying Allergan in a $160 billion inversion trade. Pfizer will become an Irish corporation for tax purposes, although the headquarters will remain in New York. 

The S&P 500 is approaching its highs yet corporate profits have fallen in the second and third quarters. Blame low oil prices and the strong dollar. Of course stocks are forward-looking instruments and investors may be focusing on 2016 and beyond. Still, it is one more reason to be cautious about stocks as the Fed begins a tightening cycle. I would venture to say the majority of the traders on the Street have never witnessed one. Goldman is forecasting a 100 basis point hike in rates in 2016. 

The back-to-school shopping season was somewhat disappointing for retailers as consumers remain cautious. Retailers continue to be promotional (retail-speak for "cutting prices") and WalMart will begin its Cyber Monday sales prices on Sunday night. 

Part of the issue with consumption is that homeowners are not tapping their home equity, at least the way they did before. Home equity loans are about 25% of what they were in 2007. While mortgage lenders are being more conservative, auto loans are now the new credit bubble. When you can get an 8 year car loan for about the same prices as a 30 year fixed rate mortgage, you know this has the potential to end very badly.