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.