Morning Report "Gs" and "Js" edition.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1420.8	6.4	0.45%
Eurostoxx Index	2603.5	28.2	1.10%
Oil (WTI)	89.54	0.6	0.71%
LIBOR	0.311	0.000	0.00%
US Dollar Index (DXY)	79.87	-0.288	-0.36%
10 Year Govt Bond Yield	1.64%	0.03%
RPX Composite Real Estate Index	191.1	0.0

Markets are higher this morning after a better than expected PMI report out of China and Europeans took steps to solve their crisis there.  We will get the November ISM report and Construction Spending at 10:00 am. Bonds are down a point, while MBS are down a few ticks.

Talks on the fiscal cliff seem to be at a stalemate.  Both sides are digging in their heels and making their respective cases on the Sunday morning talk shows. Given that we have seen this movie before in the debt ceiling and the last time we approached the cliff, the markets are taking a sanguine view.  Two economists sum up the left / right views pretty well this morning:  Sameulson vs Krugman.

Has the G-fee become the new Social Security Trust Fund - in other words, the piggybank government uses to fund items unrelated to housing?  It would appear so.  They were used in the debt ceiling deal a couple of years ago, and are now being used to pay for visas for highly skilled immigrants. Never mind that the G-fee is   more or less an insurance policy payment used to compensate the GSEs for credit risk. Maybe the "G" in G-fee should be changed from "guarantee" to "general"

The Fed is contemplating another round of asset purchases as Operation Twist ends this year. While Minneapolis President Kocherlakota believes "monetary policy if anything is too tight," Philly Fed President Charles Plosser warns that additional stimulus may not have the capability to affect employment rates and risks the possibility that the "US turns into a Japanese experience where we have extremely weak modest growth over a long period of time."  It is refreshing to hear someone invoke the "J" word - Japan - which should be the elephant in the room, both in Washington and at the Fed.

Check out our latest article in the Scotsman Guide:  Where are we going, Where have we been?

Morning Report Paul Krugman mixes Twinkies and Marginal Tax Rates

Vital Statistics:

	Last	Change	Percent
S&P Futures	1368.0	8.2	0.60%
Eurostoxx Index	2461.2	33.8	1.39%
Oil (WTI)	88	1.1	1.24%
LIBOR	0.312	0.000	0.00%
US Dollar Index (DXY)	81.06	-0.193	-0.24%
10 Year Govt Bond Yield	1.61%	0.03%
RPX Composite Real Estate Index	191.4	-0.4

Stocks are higher this morning on optimism the fiscal cliff can be averted.  The new buzzword in Washington is "constructive" The pattern lately has been a strong opening, and then a late-day sell-off. This is a holiday-shortened week, so you can expect lower volumes and not much activity.  We have a sparse economic calendar as well.  Bonds and MBS are down.

Even if we reach a deal with the fiscal cliff, taxes are going up next year.  Hurricane Sandy has been expected to lop a point or so off of 4Q GDP.  Between the two, we are probably looking at a flat-to slight GDP growth in Q113.  To add insult to injury, businesses are halting capital expenditures. While "constructive" is the operative word for Washington, "Uncertainty' is the buzzword for business. While it is certainly possible that a deal in Washington will remove the uncertainty, it feels like the business will simply find something else to fret about. The stock market is telling you that as well.  FWIW, Elmer Fudd is sanguine about the whole thing, saying a recession is a small price to pay to get our fiscal house in order.

HUD has announced some changes to help FHA get through its rough patch - the punch line is that FHA loans are about to get more expensive.  Fun fact:  FHA loans were about 2% of the market pre-boom.  Now they are 40%. The biggest changes involving borrowers will be an increase in the insurance premium, and removing the insurance cancellation program.

Redwood sold another $300 million of high quality jumbos last week, their sixth this year.  Two Harbors apparently is close to a securitization as well.  In the past two years, Redwood has securitized $900 million of jumbo mortgages.  To put that in perspective, in 2005 and 2006, private label issuance was $1.2 trillion. That said, the private label securitization market is coming back, slowly but surely.

Leave it to Paul Krugman to link Twinkies and marginal tax rates.