All Things in Moderation

Stocks are lower this morning as Japan has fallen back into recession. Bonds and MBS are up.

Some disappointing manufacturing data this morning: Industrial production fell .1% in October, and capacity utilization fell from 79.2% to 78.9%. September’s numbers were all revised lower. The November Empire Manufacturing Index came in light as well, at 10.16.

We have some important data this week, with the manufacturing data just released, housing starts on Wed, and also the FOMC minutes. The minutes have the most potential to affect the bond markets. Those will be released Wed afternoon.

More M&A activity, with Halliburton buying Baker Hughes in a $34 billion deal, and Actavis buying Allergan in a $60 billion deal.

Housing affordability dipped slightly in the third quarter, according to the NAHB. Money quote from NAHB Chief Economist David Crowe: “Even with nationwide home prices reaching their highest level since the end of 2007, affordability still remains fairly high by historical standards, Rising employment and incomes, interest rates that remain near historically low levels, and pent-up demand should contribute to positive momentum heading into next year.”

Freddie Mac is forecasting mid single-digit home price appreciation next year and a 2.9% 10 year bond / 4.6% 30 year mortgage.

Another Gruber video is out, and it explains about how the “Cadillac Tax” was sold as a tax on only the top of the line medical plans, but it is in actuality a scheme to make all employee benefits taxable. John Kerry was given credit for this piece of newspeak genius. The idea is that the cadillac tax line of demarcation will be indexed to CPI, which is much lower than medical inflation. If medical inflation continues to outpace the CPI, eventually everyone will be subject to it. Of course employers are nominally the ones paying, but those taxes will be passed on to employees. The left has always been eager to tax employee benefits, and obamacare basically put that into law. Get used to the idea of paying taxes on your health care plan. The spin out of the Obama administration: “Who is this Gruber guy? Nobody knows him.” As the Supreme Court reviews the subsidy issue, the last thing the Administration needs is some guy from their side connecting the dots on how misdirection and newspeak was used to sell a massive government program that has never been all that popular in the first place.