Morning Report: Paging Helicopter Ben

Vital Statistics:

	Last	Change	Percent
S&P Futures	2049.1	-4.2	-0.21%
Eurostoxx Index	3016.5	-45.5	-1.49%
Oil (WTI)	39.01	0.5	1.43%
LIBOR	0.642	0.002	0.38%
US Dollar Index (DXY)	95.03	-0.860	-0.90%
10 Year Govt Bond Yield	1.89%	-0.02%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.70

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

Mortgage Applications fell 3.3% last week as purchases fell 1% and refis fell 4.9%. Despite an 11 basis point drop in the 10 year yield, mortgage rates barely budged, falling only 1 basis point. 

New Home Sales ticked up slightly to an annualized pace of 512,000. The increase was driven entirely by building out West where there is an acute shortage of housing. Note that homebuilder KB Home reports after the close tonight. The median sales price increased 2.6% to $301,400.

Hawkish comments out of St Louis Fed President James Bullard: “You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April,” Bullard, who votes on policy this year, said in a Bloomberg interview in New York Wednesday. “I think we are going to end up overshooting on inflation and the natural rate of unemployment." Perhaps, but the doves are in control of the FOMC at the moment.

Bullard isn't the only dissenter, however. Janet Yellen has a bit of a mini-revolt on her hands (as much as central bankers can "revolt" in the first place)

If negative interest rates in Europe and Japan don't do the trick, then the next step is "helicopter money" which has always been a textbook-only idea but is gaining fans. The government would issue debt directly to the central bank, which would print the cash which the government would immediately spend, bypassing the banking system entirely. The theory is that if there is a liquidity trap (where banks just sit on Treasuries and won't lend them out), this would inject the money directly in the economy. It would probably require legislation to change the way central banks are run in Europe (and certainly the US), and if there isn't the political will to do massive Keynsian spending programs, then there won't be the political will to do this. What are the risks to doing it? Who knows? Weimar Republic-esque inflation is one, but probably the biggest one would be a loss in confidence in central banks globally, which would probably mean a collapse of the banking system worldwide. Anyway, it is just a theory that is gaining some traction, but it probably remains in the textbooks.

And don't forget - ZIRP and NIRP aren't "free." Insurers need to earn a certain rate of return on their money to fund future payouts, and the actuarial tables couldn't care less than rates are 0%. The latest victim is the oldest insurance company in the world, Lloyds of London who reported a big drop in profits due to sub-par investment returns.