All Things in Moderation

Vital Statistics:

Markets are flat this morning after a better than expected durable goods report. The Commerce Department said no companies reported disruption from Hurricane Sandy, although I wonder how much of the orders were caused by Sandy (generators, for example).  Bonds and MBS are flat

The Case-Schiller index rose 3.6% YOY, and is now sitting where prices were in Autumn of 2003. We will get the FHFA Home Price Index later today. 

Mary Schapiro has stepped down from the head of the SEC. Elise Walter, one of the Democratic Commissioners has stepped in to take her place.  The criticism of her performance largely centered around the view that she was too lenient with Wall Street. The Walter appointment has the feeling of an interim appointment.  In the meantime, the panel will be evenly split between Democrats and Republicans, which means that enacting controversial new regulations will be almost impossible, especially those regarding prop trading and money-market funds.  That said, my gut tells me that a more aggressive SEC is on the way.  Batten down the hatches.

Brown Forman, the liquor manufacturer, has announced a special dividend, as a way to return capital to shareholders prior to an expected hike in dividend taxes. Expect to see more of this. The stock is up 5%.

CNN discusses the political realities of the mortgage interest deduction.

Fannie Mae discusses the fact that many borrowers don’t get competing rates when shopping for a mortgage.

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Markets are lower after last week’s furious rally. Friday’s rally took the S&P 500.  Friday was a shortened low-volume day, so take the result with a grain of salt. Today feels a bit like a “risk off” day with bonds and MBS rallying.

The Chicago Fed National Activity Index slowed in October, and has been consistently saying the economy is running at below-trend for 8 months in a row. Put an asterisk next to this one, though – Lower industrial production was the main driver of the index and that was affected by Hurricane Sandy.

The initial read on holiday sales looks promising – weekend and Black Friday sales were up 13% over last year.  The National Retail Federation is forecasting a 4.1% rise in holiday sales this year, with the caveat that the fiscal cliff is the wildcard. The consumer confidence numbers lately have been reasonably strong. Of course, even if you have a benign resolution to the fiscal cliff, the posturing and finger-pointing prior to the deal may depress consumer spending anyway, especially if we have a similar dynamic to the debt ceiling crisis of 2011.  

One reason for the increased consumer spending? HELOCs are back. The Mortgage Bankers Association is estimating house prices will gain 8% this year and increased equity means more spending.  Of course the banks still have yet to write off all of their worthless 2nd liens from the first go around.

The status of the fiscal cliff seems to be increase rates vs limit deductions.  Susan Collins is proposing some sort of carve-out for small businesses.  Raising the eligibility age for Medicare seems to have some bipartisan support as well.  Perhaps an increase in the top rate to something less than 39.6% and some limits on deductions will carry the day.  

As part of the backdrop for Euro debt fears, watch closely what is happening in Argentina. Dissident investors from the last debt restructuring (including my old firm Elliott Management) sued to block Argentina from paying anyone until their claims are satisfied. The case is going through the appeals process.  Unlike the Greek situation, Argentina has the money to pay their creditors – they just don’t want to. High commodity prices are helping their economy. If Argentina chooses to simply default and not pay anyone, the risk-off trade could come back in a hurry.  

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Markets are flattish this morning after a earning miss from Deere and Greek debt negotiation efforts hit a snag.  Expect low volume today as investors pack up and head to Grandma’s. Bonds are and MBS are down small.

Initial Jobless Claims came in at 410k.  Like last week, this is a Sandy-affected number and should be viewed accordingly. Mortgage applications fell 2.2%. University of Michigan Consumer Confidence dropped, and the index of leading economic indicators increased .2%.  Rising real estate prices are the driver of this.

Here are the highlights of the HUD report to Congress.  Aside from telling us what we already know (FHA is in deep trouble), there are also changes to the mortgage insurance program.  Insurance rates on FHA loans are going up, and borrowers will soon be charged mortgage insurance for the entire life of the loan, not just they typical 10-year period  L.Os take note – here is a good argument to get those borrowers off the fence – start the process now and get in under with wire.

Looks like the Feds are closing in on Stevie Cohen.  His healthcare PM allegedly made a quarter of a billion shorting Elan and Wyeth.  SAC Capital pays the highest commissions on the Street, by far.  They aren’t doing it out of the kindness of their hearts. Of course his investors don’t care – they know he is trading on inside information, but they are protected because they are limited partners. 

Two arguments about the proper size of government and its effect on prosperity.

The negotiation between the baker’s union and Hostess didn’t last long.  Hostess is headed for liquidation.

Have a happy Thanksgiving.

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Chart:  NAHB Sentiment Index:

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