Weekly info 12/21/12

All optimistic outlooks have housing as the primary ingredient, which is true as far as obvious thinking goes. We have all-time low rates and affordability, and the pig of distressed resales is departing the python in tidy bacon slices, not a mass, and slowly. However, in simple math, to get to a higher level of sales and prices will require growth in aggregate mortgage balances. Instead they are shrinking, the Fannie-Freddie conservator standing on that hose. And now the FHA faces an existential battle, to be punished for lending when no one else would, and suffering losses now. When we see the mortgage supply rising, then housing will be able to lead. Then we have the Fed's epic new promise to buy $1 trillion-worth of Treasurys and MBS next year. Some worry that a flood of cash will trigger inflation, or new bubble-buying of stocks, or pigs, or some other damned thing. However, in a recurrent theme looking forward, Fed cash cannot enter the real economy until the financial system uses it to make loans. Not. Until then the best the Fed can do is to hold down rates.

Weekly Info 12/14/2012

The Fed has embarked on QE4, or open-ended, or without end. Whatever. Next year the Fed will buy $1 trillion in Treasurys and MBS, and continue to buy until enough people are back at work, and stop short only if inflation becomes a problem. The buying is designed to keep long-term rates of all kinds low, and thereby revive the economy. Naturally, rates rose since the announcement. Not a lot, the 10-year T-note above 1.70% from lows near 1.58%, and mortgages pushing 3.50%. There is a logic to the rise. Several logics. First the crowd who from the onset of Fed efforts to save us in 2007 have been certain -- certain -- that inflation would follow, and been totally mistaken. Then the mob which believes QE opens the free-money door to "risk assets" -- stocks, gold, and commodities. This time stocks fell, but more because of Cliff crumbling than loss of QE faith. Last a sensible group: if the Fed is trying this hard to revive the economy, it may work. All roads from that thought lead to the same place: for the moment, sell bonds, sell more than the Fed is buying. Thus rates rose.

Weekly Info 12/7/2012

Markets are very quiet despite the usual first-week-of-month flood of new data. In the last week the 10-year T-note has not traded above 1.63% nor below 1.58%, and mortgages are holding just below 3.50% depending on borrower and property. Intermission for Fiscal Cliff. The election has brought order to Republicans, most of whom understand they could have had a better deal in 2011. Speaker Boehner fired two unruly Tea Pots from their committee posts, and Senator Jim DeMint resigned altogether, headed for the Heritage Foundation, where he can screech in its phone booth undisturbed. Mr. Obama has less feel for his tax base and the economy than Mitt Romney for the people, but this time might not overreach his way out of a deal in plain sight. I think chances have reversed two bad weeks and improved now.