Morning Report: Janet soothes the markets again

Vital Statistics:

	Last	Change	Percent
S&P Futures	2059.7	12.2	0.60%
Eurostoxx Index	3054.2	49.3	1.64%
Oil (WTI)	39.31	1.0	2.69%
LIBOR	0.629	-0.002	-0.24%
US Dollar Index (DXY)	94.98	-0.179	-0.19%
10 Year Govt Bond Yield	1.84%	0.04%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Markets are higher following dovish comments from Janet Yellen yesterday. Bonds and MBS are down. 

Janet Yellen spoke yesterday in NY and reiterated the dovish statements from the last FOMC meeting. Stocks and bonds rallied on the announcement, with both going out on their highs, although bonds have given back their gains this morning. Fed Funds futures now assign a 0% probability of an April hike. It is very much a Goldilocks moment for stocks, not so much for the economy. For the time being, economic weakness is good news for stocks because it keeps the Fed on the sidelines. As if on cue, Boeing announces it is cutting 4.500 jobs. 

Overseas yields are still heading lower, with the German Bund trading at 16 basis points. As long as bond yields throughout the world trade at such low levels, the 10 year will have relative-value trading support. This means that as rates in Europe fall and go negative, investors will swap out of Bunds, which really have nowhere to go but down and buy Treasuries. The world is trading as if inflation is never, ever, ever coming back. There are a lot of "this time is different" stories going around about technology and inflation. It may turn out that the best possible trade is borrowing money for 30 years at 3.375%. 

Mortgage Applications fell 1% last week as purchases rose 2.1% and refis fell 3.3%. Refis fell to 52.4% of total loans, compared to 58.6% a month ago.

Payrolls increased by 200,000 according to outplacement firm ADP. The Street is looking for an increase of 210,000 on Friday. 

In the Webster's dictionary under real estate bubble, people should place China. Here is an example of the sort of stuff that is getting built these days. It reminds me of the height of the US property bubble when a thief supposedly broke into a McMansion with a boxcutter. Builders were cutting every corner just to make houses big. I have said this before: China is going to be an epic battle between Mr. Market and Big Communist Government. Compare property prices to stock prices.