Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1414.9	5.7	0.40%
Eurostoxx Index	2622.9	-7.6	-0.29%
Oil (WTI)	86.67	-0.1	-0.07%
LIBOR	0.309	0.001	0.32%
US Dollar Index (DXY)	79.58	-0.001	0.00%
10 Year Govt Bond Yield	1.72%	0.02%
RPX Composite Real Estate Index	191.6	0.4

Markets are higher this morning after Japan elected Shinzo Abe, who has advocated further fiscal and monetary stimulus.  The Empire Manufacturing Survey showed manufacturing in NY state contracted more than expected. Bonds are down and MBS are down small.

The negotiations on the fiscal cliff continue. The President has tied any discussions on entitlement cuts to increasing taxes on the rich and an increase in the debt ceiling.  Boehner has proposed a millionaire's surtax and an increase in the debt ceiling. Of course, Boehner can strike a deal with the President, but that doesn't mean he can deliver the votes in the House.

Barry Ritholz has MBIA's presentation on Countrywide's fraud.

Samuelson discusses the Fed's targeting of both unemployment and inflation and lays out some of the unintended consequences.

Morning Report: Hotel California Monetary Policy

Vital Statistics:

	Last	Change	Percent
S&P Futures	1412.1	0.1	0.01%
Eurostoxx Index	2628.7	1.1	0.04%
Oil (WTI)	86.4	0.5	0.59%
LIBOR	0.308	0.000	0.00%
US Dollar Index (DXY)	79.91	-0.023	-0.03%
10 Year Govt Bond Yield	1.71%	-0.02%
RPX Composite Real Estate Index	191.6	0.4

Stock index futures are flat after a benign CPI report.  Of course the Fed explicitly told us that until unemployment drops below 6.5%, they do not care what inflation does. Industrial Production rebounded in November, and Capacity Utilization rose. Bonds and MBS are up small.

Markit's flash Purchasing Manager's Index is generally upbeat and shows US manufacturing rebounding in December after reaching post-crisis lows in Aug and Sep. There has been some concern that Q4's GDP numbers have been goosed by an inventory build, which means we are borrowing growth from next quarter.  FWIW, the report does not bear that out as it shows inventories are falling. The report notes employment is picking up in the manufacturing sector as well.

CoreLogic's December Market Pulse is reasonably optimistic on housing.  Punch Line:  Residential Real Estate is finally contributing to economic growth instead of being a drag. While residential real estate is not a massive driver of the economy, it usually is the first to recover after a recession and makes its largest contributions early in the economic cycle. It is the piece of the puzzle that allows us to shift from first to second gear.

The Man With A Tan - Angelo Mozilo has no regrets about how he ran Countrywide and only agreed to a $67.5 million settlement to protect his children.  (BTW, it looks like Bank of America paid the lion's share of that) You can read his entire deposition here.

Great perspective on the history of banking from my favorite financial author, Jim Grant. "You can have the fear of God or the socialization of risk, but you cannot have both."

Interview with Dallas Fed President Richard Fisher on the Fed's "Hotel California" monetary policy.  He lays out the argument that the problem with the economy is not monetary policy, it is regulatory uncertainty out of Washington. He also notes that we are reaching the point of diminishing returns.

Morning Report - No Good Deed Goes Unpunished

Vital Statistics:

	Last	Change	Percent
S&P Futures	1413.5	8.2	0.58%
Eurostoxx Index	2500.1	9.5	0.38%
Oil (WTI)	86.63	0.9	1.05%
LIBOR	0.313	-0.001	-0.32%
US Dollar Index (DXY)	79.82	-0.091	-0.11%
10 Year Govt Bond Yield	1.84%	0.05%
RPX Composite Real Estate Index	194.1	-0.1

Markets are stronger this morning after a strong durable goods report and a good UK GDP number. Initial Jobless Claims came in at 369k and last week was revised upward to 392k.  Capital Goods orders were flat. We had a slew of decent earnings reports this morning, and Apple will report after the close. Bonds are getting clocked on the durable goods number, with the 10 year down a point and mortgages down 10 ticks.

The Chicago Fed National Activity Index came in flat, but the 3 month moving average is still negative, indicating the economy is growing below trend.

The FOMC statement yesterday was more or less a rehash of the prior statement.  Bond Traders who were looking for the Fed to add Treasuries to the QE mix were disappointed. The Fed noted that household spending has been advancing, while growth in fixed business investment has slowed.  Today's durable goods and capital goods reports bear that out.

The global slowdown is causing another round of job cuts.  This time, it is more than just Wall Street as Ford, Dow Chemical, Colgate Palmolive, AMD, and HP are all cutting staff.  The number of announced job cuts in the last 2 months is the highest since 2010.

The government is going after Bank of America for the sins of Countrywide. Needless to say, the consumer groups are delighted.  Lenders warn that credit will become even tighter. Certainly the litigation risk will get passed onto borrowers through higher rates and fees. Barney Frank believes the government should lay off JP Morgan for the sins of Bear, and claims that the government asked BOA to buy Merrill, but not Countrywide.

Whatever happened to the San Bernardino eminent domain idea?  This was the plan that involved the county taking performing underwater mortgages from the banks and forgiving principal. It appears the firestorm of criticism has caused the county to quietly table the idea.

Speaking of foreclosures, ABC News has a depressing photo essay of the foreclosure crisis.