Morning Report: Corporate tax reform

Vital Statistics:

	Last	Change
S&P Futures	2250.0	2.0
Eurostoxx Index	354.2	2.0
Oil (WTI)	51.3	0.4
US dollar index	91.8	0.4
10 Year Govt Bond Yield	2.41%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.08

Stocks are higher this morning on no real news. Bonds and MBS are flat.

Slow news day.

Consumer sentiment jumped in November from 94 to 98.

Negative equity fell 0.8% from Q2 to Q3, according to CoreLogic. Currently, 8.4% of all mortgaged homes have negative equity, and another 1.6% are near negative equity. In total, 14.6% of all mortgaged homes in the US have less than 20% equity. Home price appreciation has been one driver of this, as well as borrowers who have been switching to 15 year mortgages which pay down principal faster. Over the past year, the average homeowner has picked up $12,500 in home equity. 

One of the best chances for bipartisanship next year is corporate tax reform. While Republicans and Democrats disagree on how much revenue corporate taxes should bring in, most everyone agrees that our current system isn't working. Over the past 16 years, virtually all of our competitors cut corporate taxes, however the US has maintained its 35% rate. You can see how much the market has shifted over the past 16 years in the chart below. The new plan would eliminate the incentives that companies use to shift revenues and costs to various jurisdictions in order to minimize taxes. Rates would fall, however interest would no longer be deductible. 

A notable bond bear believes the tipping point in the bond market is 3% yields on the 10-year. At yields above that, he believes the stock market and the bond market would suffer a vicious sell-off.