Morning Report 10/23/12

Posted on October 23, 2012 by Brent Nyitray

Vital Statistics: 

  Last Change Percent
S&P Futures  1413.9 -16.2 -1.13%
Eurostoxx Index 2496.3 -34.9 -1.38%
Oil (WTI) 87.39 -1.3 -1.42%
LIBOR 0.315 -0.001 -0.16%
US Dollar Index (DXY) 79.85 0.202 0.25%
10 Year Govt Bond Yield 1.77% -0.04%  
RPX Composite Real Estate Index 193.9 -0.1  

Markets are lower this morning on earnings misses.  DuPont is down 5% pre-open after missing estimates badly.  Economic bulls will note that when late cyclicals like Dupont start reporting declines, that is usually an ominous sign for the expansion. UPS noted “uncertainty around the magnitude of the holiday shopping season.” Commodities are weaker as well.  Unsurprisingly, bonds and MBS are benefiting from the “risk off” trade. 

Today is another light day, economics wise, but tomorrow we get the FOMC announcement. The Street is looking for the Fed to broaden QEIII to include Treasuries.  Federal Reserve Bank of New York President William Dudley acknowledged in a recent speech that current policy “could distort asset allocations and lead to renewed financial asset bubbles. To date, there is little evidence of problems or excesses” Okay.  The 10-year is yielding 1.76%, below your stated inflation target of 2%. It makes you wonder where he would consider the 10-year to be in bubble territory.

Ever heard of “flopping?” It is the new scam where an underwater homeowner sabotages the resale value of a house in a short sale, which gets the bank to lower the asking price. The homeowner partners with a speculator who buys the property on the cheap, cleans it up, and flips it. The homeowner supposedly gets a piece of the action.

The Atlantic surveys the carnage of the lending industry from 2006 to the present.  3/4 of the biggest home lenders in 2006 no longer exist. I always thought the Super Bowl ad distribution is a tell – in the 2000 Super Bowl, the ads were dominated by dot coms.  In 2006, it was dominated by lenders. Hubris before the fall. Employment in the mortgage industry is roughly half of what it was at the height of the boom. Of course, now we have the opposite problem, with capacity constraints in the banking industry.  Of course regulatory uncertainty is playing a role, as Douglas Lebda of Lending Tree notes.

Is it really all just about price?  Financial and tech consulting firm Carlisle and Gallagher conducted a survey which revealed 34% of consumers are willing to pay more for a mortgage if it comes with superior customer service.  52% said they were willing to pay more to complete the mortgage process more easily. Note to Washington, only 23% of US consumers believe regulatory changes will have a positive impact on their next mortgage. 

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Why should my vote count more than yours?

Posted on October 23, 2012 by Fairlington Blade

We’re two weeks away from the election, which looks like it’s going to be a nail biter. Most of you, though, needn’t bother to vote. Mark is free to make a statement with his vote, because Texas is deep red. For the time being. A California Republican is useful as an ATM, but not much more. As a resident of Virginia, my vote is being heavily courted.

The electoral college is the appendix of our constitution, prone to getting infected from time to time. As I love irony, I was hoping for Kerry to win Ohio in 2004 so that Bush would lose the presidency while winning the popular vote. Right now, Nate Silver has a 6% chance of Obama winning the election while getting fewer votes than Romney. There’s a 2% chance of the converse result. That puts the total odds at about one in twelve.

My modest suggestion would be to reform, but not eliminate, the electoral college. As every congressional district is electing a representative, one can also tally presidential votes by district. Winner of a state’s popular vote gets the bonus two electoral votes. Nebraska does it this way; I think one other state does as well. Maine, perhaps? DC gets a number of delegates that reflect its population, rounded up to an even number to eliminate the possibility of a tie. We keep the pomp and circumstance of the electoral college, but effectively it’s a popular vote.

The bonus being that certain states don’t get lavish attention. I’m not worried about all the political ads. With Virginia being a deciding state for president and senator, we get a truckload of them. I wouldn’t be surprised to find that Ohio has done very well in terms of federal contracts by being the swingiest of swing states.

As long as I’m proposing a significant change to elections, I would also suggest changing the terms of House members from 2 years to 4 years and having the entire House elected with the president. Or half and half if you’re into mid-terms. It’s interesting that the House has flipped only in mid-terms in my lifetime.

Well, I’m off to my bike. C’ya.

BB

Filed under: 2013 and beyond, democracy, states' rights | Tagged: | 12 Comments »