Morning Report

Posted on January 20, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1308.1 -2.3 -0.18%
Eurostoxx Index 2427.4 -7.670 -0.31%
Oil (WTI) 99.96 -0.430 -0.43%
LIBOR 0.5611 0.000 -0.02%
US Dollar Index (DXY) 80.3 0.244 0.30%
10 Year Govt Bond Yield 1.99% 0.02%
Futures are down slightly this morning on weakness in Europe and a lackluster earnings report from GE and Google. GE’s Earnings were a penny better (surprise, surprise) but revenues came in light due to weakness in Europe and the finance business. Google stunk up the joint with a miss on the top line and the bottom line. It is down 8% pre-market.
Sorry I wasn’t around yesterday, though I see some people filled in for me.  I was at the CSFB Securitized Products conference yesterday in the city. Congressman David Schweikert (Vice Chairman of te House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises) spoke regarding the regulatory environment. A few takeways from the conference:
1) CSFB expects housing to decline 5%-7% this year and that *should* mark the bottom.
2) The government wants to introduce private capital into the mortgage market, but at the same time is trying to drive it away. The SEC is looking at changing the treatment of mortgage REITs which would drain, not add, private capital.
3) To get Fannie Mae capitalized to a reasonable level that would allow it to re-float would take a quarter of a trillion dollars. Nobody has a clue where that much money can be raised in the private sector. Which means Fannie and Fred will continue to be wards of the state.
4) The government is really interested in REOs to rentals. The problem is scalability.
5) 60% of underwater homeowners are current on their mortgages. Any sort of mass refinancing / mass principal cramdown for delinquent borrowers will also contain a massive moral hazard problem. Also, different treatment – the homeowner with a FHA loan gets relief, while the guy who’s mortgage went the private label route gets nothing.
6) There are a few leaders in Washington who get it, but most don’t. The appetite is still for slowing the foreclosure pipeline (in spite of volumes of evidence that it doesn’t do a thing to slow price depreciation – in fact it makes it worse).
7) Democrats want mass principal cramdowns and refis in spite of the fact that it would be an economic drag. It is simply a 1:1 transfer of wealth from investors to borrowers, so there is no multiplier effect, and the additional regulatory risk would drive mortgage rates higher. CSFB has conducted studies showing it is the affordability of the mortgage payment that matters, not the borrower’s equity position.
8) Question of the day: “Congressman, has anyone in Washington thought about just letting the markets clear?”  (The only thing that brought out laughter from the audience all day)
One observation I would make is that we want first time homebuyers, not necessarily hedge funds, to be buying up the excess supply. Yet closing times and down payment requirements for short sales drive many first time homebuyers away. I don’t know if it is because of regulatory reasons. If it is, Washington and the states should figure out a way to streamline the process.
In economic data, existing home sales comes out at 10:00.

Filed under: Earnings Announcements, Economic data, Economy, free markets, housing, politics | 35 Comments »

Sunday Morning Political Post

Posted on January 15, 2012 by Michigoose

Because, after all, we are a political blog!

“The State”, South Carolina’s biggest newspaper, has endorsed Jon Huntsman this morning. As they say,

Mr. Huntsman is a true conservative, with a record and platform of bold economic reform straight out of the free-market bible, but he’s a realist, whose goal is likewise to get things done. Under his leadership, Utah led the nation in job creation, and the Pew Center on the States ranked it the best-managed state in the nation.

He also is head and shoulders above the field on foreign policy. He served as President George H.W. Bush’s U.S. ambassador to Singapore and President George W. Bush’s deputy U.S. trade representative and U.S. trade ambassador, and the next entry on that resume is even more impressive: He was a popular and successful governor in an extremely conservative state, well positioned to become a leading 2012 presidential contender, when Mr. Obama asked him to serve in arguably our nation’s most important diplomatic post, U.S. ambassador to China. It could be political suicide, but he didn’t hesitate. As he told our editorial board: “When the president asks you to serve, you serve.”

I would like to test embedded blockquotes, said Kevin Willis, editing this post. This should be removed later.

We don’t agree with all of Mr. Huntsman’s positions; for but one example, he championed one of the nation’s biggest private-school voucher programs. And with George Will calling him the most conservative candidate and The Wall Street Journal editorial page endorsing his tax plan, independent voters might find less to like about his positions than, say, Mr. Romney’s or Newt Gingrich’s.
What makes him attractive are the essential values that drive his candidacy: honor and old-fashioned decency and pragmatism. As he made clear Wednesday to a room packed full of USC students on the first stop of his “Country First” tour, his goal is to rebuild trust in government, and that means abandoning the invective and reestablishing the political center.

As a Utahn, and a liberal who wishes the Republicans would put up a realistic candidate, I’d love to see Jon Huntsman get the nomination. I still don’t think he’ll make it past South Carolina because I don’t the the Republican primary voters are in any mood for anything realistic, but there’s always hope for 2016.

Now the Dems just need to start thinking about 2016!

Filed under: 2012, politics | 91 Comments »

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