Morning Report – Bad housing starts number 7/17/14

Markets are lower this morning after a lousy housing starts numbers. Bonds and MBS are rallying, with the 10 year below 2.5%.

Housing starts came in at 893k, the lowest level in 10 months. Building Permits came in at 963k, a disappointing number as well. Housing continues to punch below its weight, and is the biggest reason why the economy is not experiencing the robust recovery it should be. That said, it looks like all of the decline was in the South – the rest of the geographic areas were flat / up. This is a hard number to reconcile with the NAHB confidence number of 53. It shows that builders are happy to increase the top line through raising prices, not pushing through volume.

In other economic news, initial jobless claims fell to 302k, the Bloomberg Consumer Comfort index fell to 37.5 and the economic expectations index fell to 46. Philly Fed rose to 23.9 from 17.8.

Microsoft is shedding 18,000 jobs. Most of the cuts will be in the Nokia handset area.

Another major merger in the news: Reynolds America is buying Lorillard. Both stocks got whacked on the deal.

The DOJ and Bank of America remain at loggerheads over a settlement over mortgage backed securities. These securities mainly came from Merrill Lynch, who was bought by Bank of America during the crisis. The government pushed these mergers, and is now pleasing the populist peanut gallery by coming after the companies for doing what was requested in the first place.

Treasury Secretary Jack Lew is accusing CEOs and Boards who pursue their fiduciary duty of maximizing shareholder value of lacking “economic patriotism.” Yes, it has come to this. And of course Congress has a plan to limit this. The number that stuck out: $20 billion – the amount of money closing the loophole would raise over 10 years. In budgetary terms, $2 billion a year is rounding error. If the potential revenue is that small, maybe people should think about cutting corporate tax rates so that we are closer to the rest of the world. Certainly not possible before the election, but maybe after.

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