Morning Report 7/11/12

Vital Statistics:

  Last Change Percent
S&P Futures  1337.7 2.2 0.16%
Eurostoxx Index 2246.3 4.4 0.20%
Oil (WTI) 84.94 1.0 1.23%
LIBOR 0.456 -0.002 -0.33%
US Dollar Index (DXY) 83.24 -0.161 -0.19%
10 Year Govt Bond Yield 1.51% 0.01%  
RPX Composite Real Estate Index 183.7 0.1  

Markets are rebounding after yesterday’s bloodbath. Market participants await the minutes of the FOMC meeting later this afternoon and will look for more granularity regarding the economic outlook for 2H and the possibility for further quantitative easing. Bonds are down 1/4 point while MBS are flat. 

On the way into work, Bloomberg had a depressing interview with TCW strategist Komal Sri-Kumar. He is predicting a recession in 2H, driven by Europe, political uncertainty over the election, and fears of taxmageddon. His forecast is a 15% to 20% drop in the S&P 500 and a 10-year bond yield of 1.25%. 

Earnings season has started out as a mixed bag.  Alcoa beat estimates, while Applied Materials, Advanced Micro and Cummins missed. Later this week we have some financials with JPM, Wells, and Citi reporting.  The season gets into full gear next week.

CNBC points out that the overall increase in house prices has been driven by dynamics in the distressed market that make the growth somewhat artificial. The demand has been coming from the most fickle of investors – pros and the first time homebuyer – and one characteristic of these transactions is they are one-sided – investors and first time homebuyers aren’t selling one home to buy another, they are just buying. This effect, along with the fact that the banks are dragging their feet releasing inventory into the market, is driving price increases at the low end which is masking weakness in the non-distressed end. FWIW, I believe housing is fundamentally cheap and pent-up demand is building, however housing cycles are very long and markets can remain fundamentally cheap or expensive for a very long time. 

San Bernardino County (the ones taking an expansive view of eminent domain) has filed for BK.

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