Morning Report: Possible deal on funding the government

Vital Statistics:

	Last	Change
S&P Futures	2791.8	9.5
Eurostoxx Index	398.3	0.0
Oil (WTI)	63.6	-0.2
US dollar index	84.6	0.0
10 Year Govt Bond Yield	2.55%
Current Coupon Fannie Mae TBA	102.375
Current Coupon Ginnie Mae TBA	103.25
30 Year Fixed Rate Mortgage	4.03

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

Slow news day. 

Builder sentiment fell somewhat last month, but is still strong, according to the NAHB.

Mortgage Applications increased 4% last week as purchases rose 3% and refis rose 4%. This is a bit of a surprise given that bond yields moved up aggressively on stronger economic data and speculation that China would reduce its Treasury purchases. The 30 year fixed rate mortgage rose 10 basis points to 4.33%. 

The deadline to fund the government is fast approaching, and it looks like we will only get another temporary (one-month) deal. The deal won't include anything on immigration, however it will fund the Children's Health Insurance Program for 6 years, and delays some Obamacare taxes. Bond Traders are not so sanguine on a deal, and are selling Treasuries maturing in early March. 

Rising input costs are the biggest challenges to homebuilding. 84% of all builders surveyed said that rising labor costs and rising material costs are going to be a problem this year. High land prices are also an issue. Affordable housing is one of the nation's biggest problems right now, and it is extremely difficult to build at price points that are affordable for the entry-level homebuyer. 

Industrial Production rose 0.9% in December and manufacturing production rose 0.1%. Capacity Utilization jumped to 77.9% from 77.3%. Utilization is still relatively low, and indicates that we still have plenty of unused capacity. High utilization rates (85%-ish+) are usually associated with increasing inflation. 

Bitcoin is now trading below $10,000. Easy come, easy go. 

Morning Report: DC focused on Equifax

Vital Statistics:

	Last	Change
S&P Futures	2491.5	-2.8
Eurostoxx Index	380.8	-1.0
Oil (WTI)	50.0	0.1
US dollar index	85.0	-0.2
10 Year Govt Bond Yield	2.20%
Current Coupon Fannie Mae TBA	103.33
Current Coupon Ginnie Mae TBA	104.21
30 Year Fixed Rate Mortgage	3.83

Stocks are lower this morning as September options and futures expire. Bonds and MBS are flat.

Retail Sales fell 0.2% last month, and prior months were revised downward. The control group which excludes autos, gas, and building materials fell 0.2% as well. August retail sales included some early hurricane effects, but overall it points to a lousy back-to-school shopping season. I wouldn't be surprised to see strategists start to cheat down their Q3 GDP estimates. Separately, business inventories rose 0.2%.

Consumer confidence slipped slightly in August, but is still reasonably robust. Consumer confidence is often an inverse of gasoline prices, so this number should fall going forward as gas prices have been increasing.

Hurricane Harvey affected industrial production and manufacturing production, both of which fell in August. Industrial production fell 0.9%, while manufacturing production fell 0.3%. Utilities and mining (really energy production) drove the decrease. September should also come in depressed as well due to Irma. Capacity Utilization fell 0.8% to 76.1%. The national industrial numbers have been exhibiting a bit of volatility over the past few months. Interestingly, the regional Fed indices (like the Empire State Manufacturing Index, which improved to a strong 24.4 reading this morning) have not been confirming the overall weakness. 

Bond yields have been rising over the past week as Hurricane Irma had less damage than expected. Inflation numbers have come in slightly strong as well, and Goldman has upped its probability of a rate hike to 60% in December. The Fed Funds futures echo that sentiment right now: over the past week or so, we have gone from a 40% chance of a hike to a 53% chance of a hike.

The FTC announced an investigation into Equifax's security breach. This is pretty unusual for the agency to comment on ongoing investigations, which demonstrates how seriously the government is taking it. Elizabeth Warren introduced a bill to require credit reporting agencies to freeze a person's credit for free and would restrict their ability to profitably use that data during the freeze. Chuck Schumer called the security breach "one of the most egregious cases of corporate malfeasance since Enron." He further said that "the company's chief executive and board of directors should step down unless they take five steps to correct their mishandling: notify affected consumers; provide free credit monitoring to them for at least 10 years, offer to freeze their credit for up to 10 years; remove forced arbitration clauses from their terms of use; and comply with fines or new standards that come out of investigations." Here are some tips if you were affected. 

North Korea fired a missile last night that flew over Japan before crashing in the Pacific. The missile had a long enough range to hit Guam. US Secretary of State Rex Tillerson called on China and Russia to do more to contain NK. China supplies most of North Korea's oil and Russia is the biggest employer of their forced labor. Both Russia and China have veto power for any UN sanctions. 

Morning Report: FOMC minutes slightly dovish

Vital Statistics:

	Last	Change
S&P Futures	2460.8	-6.5
Eurostoxx Index	378.5	-0.6
Oil (WTI)	46.6	-0.2
US dollar index	86.5	0.2
10 Year Govt Bond Yield	2.24%
Current Coupon Fannie Mae TBA	103.09
Current Coupon Ginnie Mae TBA	103.97
30 Year Fixed Rate Mortgage	3.88

Stocks are lower this morning after WalMart missed earnings. Bonds and MBS are up.

The FOMC minutes from the July meeting showed that some member are still worried about inflation being too low, while some are worried about overshooting the inflation target. "Many participants, however, saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside. Participants agreed that a fall in longer-term inflation expectations would be undesirable, but they differed in their assessments of whether inflation expectations were well anchored. One participant pointed to the stability of a number of measures of inflation expectations in recent months, but a few others suggested that continuing low inflation expectations may have been a factor putting downward pressure on inflation or that inflation expectations might need to be bolstered in order to ensure their consistency with the Committee’s longer-term inflation objective." This statement was taken as dovish and bonds rallied a few basis points on it. The rest of the minutes were uneventful as nothing much had changed economically from the June meeting. There were a few members who wanted to announce the change in balance sheet policy at this meeting but most wanted to wait. That probably means that we will get no hike and an announcement on balance sheet reduction at the September meeting. We didn't see any reaction in the Fed Funds futures either, with December still a toss-up. 

Initial Jobless Claims fell to 232k last week, which remains near historical lows. The last time we were at similar levels, the population was much smaller and there was a military draft going on. 

Industrial Production rose 0.2% last month, while manufacturing production fell 0.1% Lower auto production drove the decline. Capacity Utilization was unchanged at 76.7%. There is still a lot of slack in manufacturing, which is why capital expenditures have been so low. Separately, the Philly Fed Manufacturing Survey increased. 

Average home sizes grew in the aftermath of the housing boom, as only the luxury end of the sector was working. With Millennials not in a position to buy, aging boomers were the only game in town. From the bottom, average square footage increased from 2388 square feet to 2,622 square feet. However we are seeing this reverse as builders pivot to selling more starter homes. Average and median home size is still above the 2006 peak however. 

Household debt increased in the second quarter to $12.84 trillion, which is up about 15% from the post-bubble trough. Mortgage balances increased, however new origination fell as higher interest rates took a bite out of refis. Auto loans increased, as incredibly easy financing is being used to sell cars these days, and credit card balances increased as well. 90 day delinquencies declined to 1.5% of all mortgage loans outstanding. 

Morning Report: Retail sales disappoint

Vital Statistics:

	Last	Change
S&P Futures	2457.0	2.0
Eurostoxx Index	387.2	0.4
Oil (WTI)	46.5	0.0
US dollar index	87.3	-0.1
10 Year Govt Bond Yield	2.30%
Current Coupon Fannie Mae TBA	102.625
Current Coupon Ginnie Mae TBA	103.59
30 Year Fixed Rate Mortgage	3.96

Stocks are higher this morning after a strong GDP report out of China. Bonds and MBS are up.

There isn't much in the way of market-moving events this week with a sparse economic calendar and the Fed is in the quiet period ahead of their FOMC meeting next week.

Inflation at the consumer level remains below the Fed's target as the consumer price index was flat MOM and up 1.6% YOY. Ex-food and energy, it was up 0.1% MOM and 1.7% YOY. 

Retail sales disappointed, falling 0.2% MOM. The prior month was revised upward however from a drop of 0.3% to a drop of 0.1%. The Street was looking for 0.1% gain. The control group fell 0.1% versus expectations of a 0.4% gain. 

Industrial production rose 0.4% MOM while manufacturing production rose 0.2% and capacity utilization ticked up to 76.6%. Improvements in the mining sector accounted for the rise. 

Business inventories rose 0.3% as autos increased. Inventory will amount to a slight positive in the Q2 GDP report. The inventory-to-sales ratio is at 1.38, which is elevated compared to historical norms and would ordinarily be associated with a downturn in the economy. 

The Empire State Manufacturing Survey fell to 9.8 last month, but is still reasonably strong. 

Earnings season gets into full gear this week, with a lot of the big banks reporting. 

Wells Fargo reported better-than-expected earnings last week. The stock was down about 2% on the news, despite the earnings beat as improvements in credit quality were offset by high expenses. Mortgage origination was down 11% YOY to $56 billion, while applications fell 13% and the size of their pipeline fell 28%. Nonconforming loans rose by $7.3 billion, while second mortgages fell. Mortgage banking revenues fell 19%, however which indicates margin compression. 

Mortgage banking revenues at JP Morgan and Citi also fell by 26% and 52% respectively. 

Defaults are soaring for subprime auto loans, as the sector has hit new post-crisis highs. While subprime auto loans are not going to have the impact on the economy that subprime mortgages did, this is a tell that all is not necessarily well in consumer-lending land. Despite the aggressive underwriting in auto loans, mortgage credit remains tight as a drum. The auto loan issue is yet another one of the unintended consequences of Fed policy: many of the biggest investors in this sort of paper are pension funds, insurance companies, etc, who have to hit a return bogey and cannot earn enough in government and investment grade paper to meet their actuarial obligations. Many of the state pension funds are solvent only if you squint at the asset return assumptions. 

Mortgage credit eased a touch in June, according the the MBA Mortgage Credit Availability Index. Conforming and non-conforming credit eased while government credit tightened. 

Morning Report: Housing starts miss

Vital Statistics:

	Last	Change
S&P Futures	2339.5	-5.5
Eurostoxx Index	377.0	-3.6
Oil (WTI)	52.3	0.4
US dollar index	89.8
10 Year Govt Bond Yield	2.22%
Current Coupon Fannie Mae TBA	103.09
Current Coupon Ginnie Mae TBA	104.31
30 Year Fixed Rate Mortgage	3.97

Stocks are lower this morning after housing starts disappoint. Bonds and MBS are higher.

Housing starts fell 9% MOM to 1.215 million in March. This was below the 1.26 million estimate. Building Permits rose 1.26 million, which exceeded the 1.25 million estimate. A big drop in single family starts in the Midwest drove the decrease, which may have been weather-related. Multi-fam continues to be volatile, while SFR is slowly creeping upward. 

Industrial Production rose 0.1% in March, however manufacturing production fell 0.4%, which was a big miss from the 0.3% increase that was expected. Capacity Utilization bumped up to 76%. This is another example of the disconnect between the soft data (sentiment surveys) and hard data (actual spending patterns etc) that has been a hallmark of the post-election landscape. 

We had a nice rally in the 10 year bond last week, with the yield falling about 15 basis points to 2.23%. The mortgage rate has lagged the move, falling about 10 basis points. Generally speaking this is typical, as the mortgage rate is less volatile than the 10 year. If the 10 year stabilizes here, we could see a move lower in mortgage rates. 

Part of the post-election rally was due to the Trump reflation trade, which assumed tax cuts and infrastructure spending. Tax cuts really mean tax reform, as the plan is to increase the size of the standard deduction and reduce itemized deductions. While the mortgage interest deduction is too popular to eliminate, the state and local tax deduction is being targeted. This will hit taxpayers in high tax areas like CA and the Northeast the hardest. Democrats are opposing this however, even though the people most likely to be affected are the very rich (90% of the increase will fall on the wealthy), and will raise something like $1.3 trillion over 10 years. 

The Trump Administration has said that health care reform will take precedence over tax reform this year. Note that we are coming up on the period where health insurers will announce whether they are staying on the Obamacare exchanges or not for 2018. That will most likely color the debate. As hard as it is to get anything through Congress right now, it will only get harder in 2018 as midterms loom on the horizon. 

The punch line is that bonds and stocks are telling you different things, and when that happens the bond market is usually correct. If the Trump reflation trade is indeed dead, and we don't see a big increase in growth, we should start thinking about the possibility of the 10 year trading below 2%. The pre-election yield on the 10 year was 1.78%. 

Note that the IMF may be catching on as well. They are taking up their global GDP growth numbers, probably on the bet that protectionist policies in the US aren't going to happen. 

Both the Atlanta Fed and the NY Fed took down their Q1 GDP estimates after the lousy retail sales numbers last week. A CNBC survey of economists is pegging Q1 GDP at about 90 basis points. The Fed Funds futures are now pricing in an under-50% probability of a rate hike in June. You can see that the Fed Funds futures have been cheating down their estimates for hikes over the past month or so:

Treasury Secretary Steve Mnuchin said that the Administration prefers a strong dollar "over time." There had been some confusion in the markets over the Administration's exact policy on the dollar, since Trump had said early on it was too strong, in reference to China. Note that there is some horsetrading going on between the US and China over currencies, trade, and North Korea. Trump is willing to tone down his comments on Chinese currency manipulation in exchange for action from China in reining in NK. A strong dollar policy out of the Admin will generally make for lower interest rates. 

The CFPB is soliciting input for possible changes the Home Mortgage Disclosure Act. 

Morning Report: strong economic numbers

Vital Statistics:

	Last	Change
S&P Futures	2379.3	0.3
Eurostoxx Index	378.1	0.4
Oil (WTI)	49.0	0.2
US dollar index	90.6
10 Year Govt Bond Yield	2.52%
Current Coupon Fannie Mae TBA	101.53
Current Coupon Ginnie Mae TBA	102.87
30 Year Fixed Rate Mortgage	4.27

Markets are flat this morning on no real news. Bonds and MBS are flat as well.

Industrial production was flat in February, while manufacturing production increased 0.5%. Capacity Utilization fell to 75.4%. The low industrial production number was largely driven by weather and lower-than-expected utility expenditures. The manufacturing production number was actually strong and the Jan-Feb numbers were the strongest back-to-back reading in 3 years. Capacity Utilization is still relatively low compared to historical numbers, and is one reason why inflation remains under control.

Consumer sentiment increased to 97.6 from 97.2 in February, while the Index of Leading Economic Indicators ticked up to 0.6%.

Trump's new budget involves cuts to HUD. Here is a list of the specific cuts. Initially it appears that rental support and mortgage origination are untouched, and other areas like community development block grants will take the hit. Community Development Block Grants are known primarily for Meals on Wheels, but that is not really what they do. CDBGs are mainly Federal grants to local governments to build parks or other nice-to-haves. Unsurprisingly, the biggest beneficiaries are the counties surrounding DC.

Refinances dropped to 43% of all originations in February, according to Ellie Mae. Refis have been falling due to the change in VA IRRL securitization treatment and rising rates. The refis that still make sense however, are refinancing old ARMs into 30 year fixed rate mortgages, as LIBOR (which is what the interest rates is pegged to) is definitely going up, while longer term rates may or may not increase. The other trade is refinancing out of FHA loans from a few years ago, where the borrower has enough equity to qualify for a conforming loan with no MI. Time to close dropped to 46 days, which was down 5 days from January, but flat YOY.

UBS is out with a call saying the bond market sell-off is almost over. They are making the argument that the yield curve typically flattens in a tightening cycle, and the the long end adjusts first then stagnates. I made a similar argument here.

Morning Report: Freddie thinks 2016 could see $2 trillion in origination

Vital Statistics:

	Last	Change
S&P Futures	2182.0	-4.0
Eurostoxx Index	343.7	-2.0
Oil (WTI)	45.9	0.2
US dollar index	85.6	-0.6
10 Year Govt Bond Yield	1.54%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.45

Stocks are lower this morning on no real news. Bonds and MBS are mixed

Inflation at the consumer level continues to be well-contained. The consumer price index was flat month-over-month and is up 0.8% year-over year. Ex-food and energy it was up 0.1% MOM and 2.2% YOY. The biggest contributors to inflation were health care costs (up 4% YOY) and housing (up 2.4% YOY).

Housing starts were 1.211 million annualized in July, coming in higher than expected. The driver was multi-fam, which can be extremely volatile. Single fam continues to plug along. Building permits were more subdued, coming in at 1.15 million. Same situation in permits: multi-fam permits rose while single fam declined. 

Industrial production increased 0.7% in July versus expectations of a 0.3% increase. Manufacturing production increased 0.5%. Capacity utilization increased to 75.9%. So some signs of life in the manufacturing sector after a dismal Spring and early summer.

An idea that is percolating at the Federal Reserve is the idea that this low productivity / low growth economy is a new normal, which implies a lower neutral interest rate. This in part explains why the Fed has been so reluctant to raise rates despite unemployment being at levels historically associated with full employment. One idea is that the Fed should either raise its inflation target or begin targeting nominal GDP. The big question is whether the PhD standard, which has pushed interest rates to the floor, is part of the reason why productivity and growth are so low. By creating a bubble in sovereign debt, you have a misallocation of resources (by definition - that is what bubbles are) and that could account for our disappointing growth and productivity. Certainly business capital expenditures remain low and focused on saving labor costs. 

Meanwhile, William Dudley thinks the market may be too complacent about a September rate hike. The market has been calling the Fed's bluff for over a year now.

Freddie Mac thinks 2016 could be the best year for mortgage origination since 2012, with total origination topping $2 trillion. The unexpected gift of lower rates is the reason why. For 2017, they are forecasting a drop back to $1.7 trillion as home price appreciation falters and interest rates rise, although rising rates shouldn't be too bad given they are forecasting 2017 GDP growth to be below 2%. They anticipate the mortgage rate to increase 10 basis points to 3.7%. 

Morning Report: Neel Kashkari wants to get tougher on the banks

Vital Statistics:

	Last	Change	Percent
S&P Futures	1906.7	17.9	0.95%
Eurostoxx Index	2885.9	64.6	2.29%
Oil (WTI)	30.17	1.1	3.89%
LIBOR	0.618	0.000	0.00%
US Dollar Index (DXY)	96.97	0.105	0.11%
10 Year Govt Bond Yield	1.82%	0.04%
Current Coupon Ginnie Mae TBA	105.2
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.65

Stocks are higher this morning as yesterday's rally has follow-through on overseas markets. Bonds and MBS are down.

Mortgage Applications rose 8.2% last week as purchases fell 3.7% and refis rose 16%.

Housing starts came in 1.1 million, missing the 1.17 million estimate. Building Permits were flat at 1.2 million. 

The Producer Price Index rose 0.1% in January. The core index (ex food and energy) rose 0.4%. The headline number was up 0.6% YOY and the core number was up 0.8%. 

Industrial Production jumped in January by 0.9%, however the preior month was revised lower from -0.4% to -0.7%. Manufacturing Production rose 0.5%. Capacity Utilization improved markedly from 76.4% to 77.1%. 

At 2:00 pm, we will get the FOMC minutes. Given the uncertainty around the Fed's future plans, we could see the market more sensitive to these than usual. 

Neel Kashkari of the Minneapolis Fed gave a speech to Brookings yesterday, calling for even more regulation for the banks and to turn them into public utilities. Of course any examination over whether the Fed had a hand in creating the real estate bubble in the first place is nowhere to be found. 

The new enemy for consumer direct is not the government - it is a new robot designed to waste a telemarketer's time.  

Morning Report: Exporters are cutting jobs

Vital Statistics:

	Last	Change	Percent
S&P Futures	2020.5	1.5	0.07%
Eurostoxx Index	3256.1	17.3	0.53%
Oil (WTI)	47.35	1.0	2.09%
LIBOR	0.317	-0.003	-1.08%
US Dollar Index (DXY)	94.56	0.184	0.19%
10 Year Govt Bond Yield	2.01%	-0.01%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.8

Markets are flattish this morning as earnings come in. Bonds and MBS are flat.

Consumer sentiment increased in October, according to the University of Michigan.

Job openings fell in August to 5.37 million from 5.67 million the month before. 

Industrial production fell by 0.2% in September, and manufacturing production fell by 0.1%. The strong dollar and overseas weakness is obviously having an impact on exporters. Capacity Utilization fell to 77.5%. Capacity utilization hit a post-crisis high about a hear ago at 79% but has been falling ever since. This is going to concern the Fed, but keep in mind that manufacturing isn't the dominant economic force that it was 20 or 30 years ago. 

Needless to say, when exporters are facing headwinds like a strong dollar and weak overseas economies, they start cutting jobs. The biggest industries affected: transportation equipment, machinery, computer and electronic products, and primary metals. You can see below the trend in export employment versus employment overall. 

Inflation remains tough to find. Social Security recipients will get no cost of living adjustment this year. Yet another excuse for the Fed to stand pat in December. 

The Federal government now backs 50% of all mortgage loans made in the US. To put that number in perspective, in 1981, the Federal government backed about 7% of mortgages in 1981. Banks are reluctant to portfolio as many mortgages as they used to, which makes sense - anyone with grey hair knows how the banks got absolutely annihilated by their mortgage portfolios in the 1970s when rates went up dramatically to combat inflation. 

Morning Report: The pro and con case for raising rates this week.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1945.1	1.1	0.06%
Eurostoxx Index	3183.9	8.3	0.26%
Oil (WTI)	44.46	0.5	1.05%
LIBOR	0.337	0.001	0.36%
US Dollar Index (DXY)	95.3	-0.010	-0.01%
10 Year Govt Bond Yield	2.19%	0.01%
Current Coupon Ginnie Mae TBA	104.2	-0.1
Current Coupon Fannie Mae TBA	103.6	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.82

Stocks are up this morning as we await the big day Thursday. Bonds and MBS are down.

Retail Sales rose 0.2% in August, just missing the 0.3% Street estimate. The control group (which excludes volatile and price-sensitive goods like autos, gasoline and building supplies) rose 0.4%, which was better than the 0.3% Street estimate. August is the back-to-school month, so overall decent numbers, which bodes well for the holiday shopping season. Big retailers like Amazon.com and Wal Mart are up pre-open. 

Industrial Production fell in August by 0.4%, which was lower than the -0.2% estimate. Capacity Utilization fell to 77.6% from 77.8%. Separately, the Empire Manufacturing Survey (which measures manufacturing activity in New York State) was highly negative at -14.7. The strong dollar is taking a bite out of manufacturing activity. 

Business inventories and sales rose 0.1%. The inventory-to-sales ratio held steady at 1.36x. The inventory / sales ratio has been ticking up recently, which is a worrisome sign, at least for a cyclical recession. During recessions, it is not uncommon to see a big spike in this ratio. Historically, it has been much higher. You can see on the graph below the latest increase, and also the secular decline in the ratio that began in the mid-80s as manufacturing implemented just in time inventory management. 

Tim Duy, an influential Fed-watcher makes the case for not moving this week. His argument: With rates at the zero bound and market turmoil, the Fed has no margin for error since it is more or less out of ammo. Better to wait until the waters are calmer to make a move. FWIW, I tend to agree with those arguments, and I think the Fed is very wary of a 1937 scenario. Inflation is nowhere to be found and while there is a bubble in credit markets, widening credit spreads are acting as a tightening all by themselves (the Larry Summers argument). 

The argument for raising rates: - we have bubbles in the credit markets, and certainly in the pre-IPO market. Uber, which earns nothing, and has a market cap similar to Dow Chemical, is indicative of a craziness we haven't seen since the skyrocketing IPOs of eToys and Pets.com in the late 90s. Stocks are up 200% from the lows in 2009. His point is that we DO have inflation - but it is "too much money chasing too few assets," not "too much money chasing too few goods." Imagine if the Fed had raised rates in 2003 and the real estate bubble had popped in 2004. We still would have had a recession, but I seriously doubt the banking system would have collapsed the way it did in 2008. And the recession would have certainly been shorter and less severe than 2008 - 2009. His point: it is time to end the addiction to low interest rates. The economy is strong enough to take a Fed Funds rate of 50 basis points. This argument is highly, highly unpopular in policy circles, so it won't get any traction. The consensus in Washington (at least on the left, which runs things at the moment) was that policy had absolutely nothing to do with the bubble - it was 100% Wall Street Sharpies that did it, and "smart regulation" will prevent another one from happening.

Note that the one advocating for standing pat is a professor, and the one advocating moving is a trader. So they will look at the issue from two entirely different points of view. 

As credit spreads have widened, we have seen some jumbo securitizations pile up at the banks. This probably signals less aggressive jumbo pricing ahead. LOs - something to tell your borrowers, especially if they are thinking of floating right now. Even if the 10 year bond goes nowhere, jumbo rates could be heading up. 

Morning Report - The Avon Lady gets a fake suitor

Vital Statistics:

	Last	Change	Percent
S&P Futures	2118.5	0.9	0.04%
Eurostoxx Index	3607.3	5.1	0.14%
Oil (WTI)	59.05	-0.8	-1.39%
LIBOR	0.274	-0.001	-0.40%
US Dollar Index (DXY)	93.96	0.502	0.54%
10 Year Govt Bond Yield	2.19%	-0.04%
Current Coupon Ginnie Mae TBA	102.2	0.2
Current Coupon Fannie Mae TBA	101	0.2
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are flattish after some disappointing industrial data. Bonds and MBS are following European bonds higher.

Industrial Production fell .3% in April, the same as March. This is the fifth consecutive month of negative readings. On a year-over-year basis, industrial production was up 1.9%. While mining and energy extraction were down as expected, other categories like consumer goods, business equipment etc were down as well. Manufacturing Production was flat, and capacity utilization fell. The European QE-driven dollar rally that began about a year ago is probably a big reason for the continued weakness here. Here is an interesting take on the big bond market sell-off.

Consumer confidence slipped in May, according to the University of Michigan Consumer Confidence Survey. Consumers are coming to the realization that we aren't getting the expected V-shaped recovery from the weak first quarter.

The Avon Lady had a fake suitor yesterday, which drove the stock price up 20%. Someone managed to file a fake press release on EDGAR (The SEC's public documents website) saying the company was being bought by an investment company called PTG Capital Partners (which doesn't exist). The fake bid drove the stock from $6.60 a share to $8.00 a share. Amazing someone was able to file a fake document on EDGAR. 

I will be at the MBA Secondary Conference in NYC next week. If anyone is around and wants to meet, please let me know.