Morning Report – A political shot across the bow 6/12/14

Vital Statistics:

Last Change Percent
S&P Futures 1942.8 -1.1 -0.06%
Eurostoxx Index 3289.7 0.6 0.02%
Oil (WTI) 106.3 1.9 1.78%
LIBOR 0.231 0.001 0.35%
US Dollar Index (DXY) 80.73 -0.055 -0.07%
10 Year Govt Bond Yield 2.63% -0.01%
Current Coupon Ginnie Mae TBA 106.2 -0.1
Current Coupon Fannie Mae TBA 105.1 0.0
BankRate 30 Year Fixed Rate Mortgage 4.22


Stocks are down small after some disappointing economic data. Bonds and MBS are up.
Retail Sales came in lower than expected at + .3% versus Street expectations of +.6%. April numbers were revised upward substantially, however. Ex autos and gas, retail sales were flat in May.
Initial Jobless Claims came in at 317k, a little higher than expected, but still a decent number.
Elizabeth Warren’s bill to refinance student loans died yesterday in the Senate. The bill would have allowed students with private student loan debt to refinance at the current government – set rate of 3.86%. It would have been funded with a new tax on the rich, which meant it was going nowhere. Of course this is naked politicking – the 2% surtax on the rich was a poison pill, and the point of it was to give Democrats an issue to demagogue on in November. I have said it a million times, but if we subsidize college education, and universities capture that subsidy by raising tuition, what have we accomplished? Do these people not realize this? Or do they just not care?
That said, student debt IS a big issue. Until the first time homebuyer manages to get in a decent financial position to buy, the housing market (and the economy) will be sluggish. Of course the way to fix the student loan problem is to have a robust economy and we can’t have a robust economy without a strong housing construction market. So we have a Catch-22. I was hoping that this year would be the breakout year for housing construction, but it is looking like a 2015 event now.
Eric Cantor (the heir apparent to John Boehner’s Speaker of the House position) lost his primary to a relative nobody. The result shocked everyone. What are the takeaways? First, money doesn’t buy you love. Cantor outspent Brat 25:1 and still lost. Second, Brat ran as an anti-Wall Street populist. In an overwhelmingly Republican district. This means that supporting the financial industry politically can be toxic. In other words, the shelling from Washington may not only continue, but it could get worse.
The IMF is warning about housing bubbles all over the world. Where are houses cheapest relative to long-term trends? Japan, S Korea, Germany, and the U.S. Where are they the highest? New Zealand, Australia, Canada, and Belgium. All of this global central bank stimulus has to go somewhere, and housing seems to be the place. If there is one thing Europe needs like another hole in the head, it is to see its housing bubbles in France, Belgium, Norway, the UK and the Netherlands collapse.
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