Wow... what a wild swing in the stock market this afternoon. Lower earnings guidance from Wal-Mart and Intel along with poor economic news triggered early selling in stocks with the Dow dropping below 8,000 to an intra-day low of 7,969 for a test of technical support. The Dow then underwent a dramatic 900 point reversal when bargain hunters showed up to buy stocks at support to help spark a massive short-covering rally. Large investors didn't want to be 'short' ahead of this coming weekend's G20 meeting in Washington, D.C. The bond market was unable to take much advantage of the early weakness in stocks and then sold off when stocks made their volatile upside 'U-turn.' Our benchmark FNMA 6.0% mortgage bond ended the day 44bp lower to close at $101.00. The day's economic news was weak but no one really expected anything different. Weekly Initial Jobless Claims jumped by 32,000 to reach 516,000 claims, their highest level in seven years and greater than the consensus forecast of 479,000. The 4-week moving average increased by 32,000 to 491,000 claims while Continuing Claims reached 3.89 million, their highest level in 25 years. The claims data provided further evidence of serious problems within the labor market. The Balance of Trade showed a shrinking deficit of -$56.5 billion in September as the global economic recession took hold. Economists were expecting a trade deficit of -$56.8 billion. Imports fell by a record $12.5 billion due to plunging crude oil prices while Exports plunged by a record $9.9 billion. According to RealtyTrac, troubles in the housing sector are showing no signs of letting up as their latest survey indicated about 280,000 homeowners received foreclosure notices during October. This represents a 5% increase over September's foreclosure rate and a 25% increase on a year over year basis. The three-month dollar LIBOR rate took a slight turn for the worse today by rising to 2.15% from yesterday's rate of 2.13%. The rise snaps a 23 consecutive day string of falling dollar-based LIBOR rates and indicated banks would rather hang onto their cash rather than lend it to one another. A $10 billion auction in re-opened 30-year bonds took place this afternoon at 1:00 p.m. ET with mediocre results. The added supply in the long bond may have been a contributing factor to this afternoon's weakness in mortgage bond prices. The Dow ended up 552 points (+6.67%) to close at 8,835. The broader S&P 500 Index jumped 59 points to end at 911 while the NASDAQ Composite Index soared 97 points to finish at 1,596.

Our benchmark FNMA 5.5% mortgage bond finished 16bp higher to close at $101.84 during a holiday shortened session. It was a good week and month for the bond with a 416bp rise during the month and a 131bp gain for the week. There was no economic news to drive the markets but investors worried about the health of retailers with today's 'Black Friday' kick-off to the Christmas holiday shopping season. Today is the most important day for retailers who hope to attract enough buyers to reach their annual sales goals. The holiday shopping season is also important for the economy as consumer purchases account for more than two-thirds of economic activity in the U.S. Stocks ended the week on an up-swing with five consecutive daily gains. The Dow finished the week 9.7% higher after gaining 102 points today to close at $8,829. The broader S&P 500 Index added 8 points to finish at 896 and gained 12% on the week. The NASDAQ Composite Index rose 3 points to end at 1,535 for an 11% weekly gain.

Due to a Thanksgiving holiday-shortened week the calendar served up a veritable smorgasbord of economic news, setting the table for some bond-friendly trading. Our prior benchmark FNMA 6.0% mortgage bond finished 16bp higher to end at $102.31 while our new benchmark FNMA 5.5% bond ended 19bp higher to close at $101.69. The day's news continued to show the economy is a train-wreck with weekly jobless claims at recessionary levels; personal spending falling by 1.0%, the largest drop since the 9/11 terrorist attacks; durable goods orders dropping by 6.2%, the most in two years; and new home sales plunging to their lowest level in 18 years. Core PCE inflation moderated with a flat reading and annual rate of 2.1%. All of this was bond-friendly. Freddie Mac's weekly rate survey was also a sign of better times for the mortgage industry with conventional 30-year fixed-rate mortgages falling back below 6%. The stock market finished higher with the Dow and S&P 500 both moving up for the fourth consecutive session after enough investors went bottom fishing for bargains. Recent market action suggests we may be seeing the beginning of a bear market rally that could extend into the first quarter of 2009. The Dow surged 247 points to close at 8,726 while the broader S&P 500 Index picked up 30 points to finish at 887. The NASDAQ Composite Index bounced back with a 67 point gain to reach 1,532.

Our benchmark FNMA 6.0% mortgage bond finished 85bp higher to close at $102.16 after reaching an intraday high of $102.78 following an announcement from the Fed that it will 'initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae.' Traders took some of their profits off the table near the end of the session on the day's exaggerated move. In other news, the Treasury Department in conjunction with the Fed announced the creation of a new term asset-backed securities lending facility collateralized by student loans, credit cards, and auto loans. The Treasury will fund the new lending facility with $25 to $100 billion from the TARP program. Preliminary 3rd Qtr. GDP matched the consensus estimate of -0.5%, up from the Advanced GDP estimate of -0.3%. The downward revision was due to a fall in consumer spending, the worst in 28 years. The inflation measuring Chain Deflator also matched the consensus estimate of 4.2% while the Core PCE price index increased by 2.6% vs. the prior estimate of 2.9%. The S&P/Case-Shiller Home Price Index for September showed home prices in the 20 largest U.S. cities falling by more than 17% year-over-year. Consumer Confidence in November rose to a higher than forecast 44.9 vs. expectations of 39.5 and was higher than October's level of 38.0. A Treasury auction of $26 billion in 5-year notes went reasonably well with foreign participation of 37.2%. The stock market finished 'mixed' after a two-day monster rally with the Dow gaining 36 points to close at 8,479. The broader S&P 500 Index gained 5 points to end at 857 while the NASDAQ Composite Index gave up 7 points to finish at 1,464.

The mortgage industry just received a nice boost! The Fed is going to buy Mortgage Bonds. The Federal Reserve just announced that it would purchase $600B of Mortgage-Backed Securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. This brilliant move by the Fed is designed to help increase the availability of credit, while lowering fixed mortgage rates. And this move is already lowering mortgage rates so far today as Mortgage Bonds are up a whopping 128bp and appear destined to retest the price highs of 2008.

In addition to purchasing debt backed by Fannie and Freddie, the Fed will set up a $200B program to support consumer and small-business loans. The Fed looks for the plan to create liquidity in the auto, student and small business loan market.

Taking a backseat this morning was preliminary 3rd Qtr. GDP, which matched expectations of -0.5%. In light of this morning's Fed announcement, this report had no effect on the market.

Consumer Confidence is due out shortly and will likely be a very weak number.

At 1pm ET, the Treasury will auction off $26B of 5 Year Notes. Again in the wake of this morning's news, there may not be much of a reaction to the results.

Mortgage Bonds have powered above the Falling Resistance Trendline, which has kept a lid on pricing for months. And pricing has gotten a lot better.

Our benchmark FNMA 6.0% mortgage bond continued its recent 'sideways' move along the 200-day MA with a 6bp loss to close at $101.25. The bond wasn't able to take much advantage of the day's bond-friendly news that showed lower inflation and a worsening economy. Inflation as measured by the Consumer Price Index (CPI) fell a record 1% during October due to a record 8.6% drop in energy prices. The surprisingly large price drop was the greatest in 61 years. After stripping out volatile food and energy prices, the Core CPI fell for the first time since 1982 with a decline of -0.1%. Economists had forecast a -0.8% drop in the CPI and a 0.1% gain in the Core CPI. The lower inflation numbers will pave the way for the Fed to continue to cut short-term interest rates, perhaps down to zero before they are done. The Housing Sector continued to weaken with Housing Starts falling to an annual rate of 791,000 in October. Starts have dropped 38% over the past year and have fallen 70% from their peak in 2006. Building Permits didn't fare much better with a 12% decline to 708,000, 40% lower over the past year. Economists were looking for 780,000 Starts and 772,000 Permits. The Starts number was a little better than expected but the Permits number was worse. Both numbers were revised higher for September. Starts were raised to 828,000 from 817,000 while Permits were raised to 805,000 from 786,000. Executives from the 'Big 3' auto makers continued their plea for government assistance, this time before the House Financial Services Committee. With the Congress in 'Lame Duck' mode, the timing for an auto bailout is less than ideal and it looks like no aid package for the 'Big 3' will be voted on any time soon. The uncertainty over the fate of the big automakers creates more worries for investors who fear a crippled auto industry will have a severe, negative impact on U.S. manufacturing. In the credit markets, the three-month dollar LIBOR rate edged lower from 2.22% yesterday to 2.17% today but other areas of the credit market showed signs of freezing up once more and this had a negative impact on financial sector stocks. The Fed's FOMC Minutes from their Oct. 29 meeting projected a larger than previously forecast drop in GDP for 2009 with Fed policy members expecting the economic decline to continue for at least a year, if not longer. The stock market accelerated its losses following the downbeat economic forecast outlined in the Minutes, particularly during the last 30 minutes of trading. The Dow shed 5% and 427 points to close at 7,997 while the broader S&P 500 Index broke below a key support level, losing 6% or 52 points, to end at 806. The NASDAQ Composite Index also lost 6%, or 96 points, to finish at 1,386.

Our benchmark FNMA 6.0% mortgage bond continues to wind up within a sideways pattern of consolidation while attempting to break above long-term resistance at the 200-day MA. The longer this sideways trading action takes, the more volatile the next price breakout will be. The bond traded in a little wider 40bp range before ending with a 16bp gain to close at $101.31, a tick higher than the 200-day MA located at $101.27. The bond traded as high as $101.53 before a late-day spurt by the stock market helped reign in bond prices. The day's overall economic news was mostly dreadful while inflation at the wholesale level was 'mixed.' The Producer Price Index (PPI) fell by a record -2.8% vs. a consensus of -1.9% in October, the largest monthly decline in 61 years. Plunging gasoline prices were a major factor, falling by a record 25%. However, after excluding volatile energy and food prices, the Core PPI increased by a hotter than forecast 0.4% vs. expectations for only a 0.2% rise. The International Council of Shopping Centers/Goldman Store Sales Index measuring same-store sales at major retail chains showed a week-over-week increase of 0.3%, up from the prior week of -1.0%. Year-over-year sales however, slipped to -0.1% from 0.4%. The Treasury International Capital report showed Net Foreign Purchases of U.S. securities of $66.2 billion in September. The strong level of foreign buying included a net $15.8 billion in longer-term bonds and $11.5 billion in stocks. The National Association of Home Builders reported its November Housing Market Index at a record low of 9, surpassing the previous historical low of 14 in October. The news gave bond prices a temporary boost following the release. On the credit front, the three-month dollar LIBOR rate edged lower to 2.22% from yesterday's rate of 2.24%. Chief executives of Chrysler, Ford, GM, and the UAW made their pitch for a government bailout at a U.S. Senate Banking Committee hearing and Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson were grilled by members of the House Financial Services Committee about the sudden change in strategy of the $700 billion TARP financial bailout program. The strategy was suddenly changed last week from buying bad mortgage assets to buying direct equity stakes in banks. Hewlett-Packard was a beacon of light for the stock market after announcing it would beat earnings estimates for the 4th Qtr. and fiscal year. The Dow benefited with a 151 point gain to close at 8,424. The broader S&P 500 Index added 8 points to finish at 859 while the NASDAQ Composite Index edged 1 point higher to end at 1,483.

Our benchmark FNMA 6.0% mortgage bond showed less volatility today but ended 3bp lower at $99.78. Better than forecast economic news and surging global stock markets pressed bond prices lower. Central banks around the globe celebrated yesterday's Fed rate cut with one of their own. Hong Kong's central bank cut its key lending rate by 50bp while Taiwan cut by 25bp. There is also a rumor circulating that the Bank of Japan will cut its already low rate of 0.5%. The European Central Bank and the Bank of England are widely expected to cut their key lending rates next week. The three-month dollar LIBOR fell to 3.1925% today from Wednesday's rate of 3.42% following the Fed's actions. However, the three-month dollar LIBOR still remains well above its pre-credit crunch average of 50bp above the Fed funds rate. In economic news, the Advanced GDP for the 3rd Qtr. fell by a less than expected -0.3% vs. the consensus forecast of -0.5%. Consumers slashed their spending by 3.1%, the fastest spending drop in 28 years and first drop in spending in 17 years. Disposable income for consumers plunged at an annual rate of 8.7%, the largest quarterly drop since records began to be kept in 1947. Business spending fell by 1%. The inflation measuring Chain Deflator jumped to 4.2% from the second quarter's level of 1.1%, largely stoked by record high fuel costs when oil reached a peak of $147/barrel in the third quarter. Initial Weekly Jobless Claims held steady at 479,000 vs. expectations for 473,000 new claims. The prior week claims number was revised higher by 16,000. The more widely watched four-week moving average for new claims fell by 5,000 to 475,500 while the four-week moving average of continuing claims increased by 28,000 to 3.71 million, the highest level in five years. An auction of $24 billion in 5-year Treasury notes hit the bond market with mediocre results. Foreign participation was only 28.3% and bond prices edged lower on the news. San Francisco Fed President Janet Yellen said in a speech this afternoon that the economic data is 'deeply worrisome' and the economy 'is likely to contract significantly in the 4th quarter.' Comments of this nature would ordinarily be bond-friendly but traders shrugged off the news. Meanwhile, the stock market basked in the glory of yesterday's rate cut and in today's better than expected economic news. The Dow rose by 189 points to close at 9,180. The broader S&P 500 Index added 24 points to end at 954 and the NASDAQ Composite Index gained 41 points to finish at 1,698.

Money continued to make an exit out of stocks but mostly moved to the sidelines ahead of tomorrow's big Jobs Report as bond traders wanted to keep their 'powder dry.' Our benchmark FNMA 6.0% mortgage bond ended with a loss of only 3bp to close at $101.62 after trading as much as 53bp lower on profit-taking. A 0.9% plunge in same-store sales by the large retail chain stores in October weighed on stock market investors as did a warning of lower sales in the current quarter by technology bellwether Cisco Systems and weak economic news. Initial Jobless Claims fell by 4,000 claims to 481,000 last week from an upwardly revised level of 485,000 claims from the prior week. The four-week moving average for claims increased to 477,000 from the prior week's average of 475,500. Preliminary Productivity rose in the 3rd Qtr. by 1.1% vs. the consensus of 1.0% as employers cut back on employees' working hours by 2.7%. This was the quickest cut in hours worked in six years leading to a greater than expected growth in productivity. Unit labor costs, a key measure of labor market generated inflation, rose by 3.6%, substantially greater than the -0.1% drop in the 2nd Qtr. The bond market didn't like the gain in Unit Labor costs. The Monster Employment Index measuring online job demand fell 10 points to 150 from 160 in October signaling further job losses. Online recruiting was sharply lower for retail, real estate, leisure and hospitality jobs. Inter-bank lending continues to improve with the three month dollar LIBOR falling to 2.51% from 2.71% yesterday. In response to the global economic and financial melt down, the Bank of England surprised everyone with a staggering 1.5% rate cut to drop their cash lending rate to 3.0%. The European Central Bank chipped in with a more modest 0.50% cut to lower its rate to 3.25% while the Swiss National Bank also cut its cash rate by 0.50% to 2%. The Czech Republic's central bank joined the rate cut party with a 0.75% cut to drop its key lending rate to 2.75%. These rate cuts should allow the U.S. dollar to at least temporarily gain some strength against these other country's currencies and should help lower oil prices. In fact, a report by the International Monetary Fund that it expects lower global economic growth of just 2.2% and oil prices of $68/barrel helped to weigh on oil prices today as crude fell $4.30/barrel to $61.00. The stock market fell sharply lower for the second consecutive day with the Dow dropping 443 points to close at 8,695 while the broader S&P 500 Index lost 47 points to finish at 904. The NASDAQ Composite Index fell 72 points to end at 1,608.

It didn't take long for investors to get over their euphoria of electing a new president to take a hard look at what a new Administration will soon face - a sea of red ink and a faltering economy. Money flowed out of stocks after yesterday's election day rally and today's poor economic data and moved back into bonds. Our benchmark FNMA 6.0% mortgage bond benefited with a gain of 41bp to close at $101.66. The bond has reversed its recent downward plunge to shoot 191bp higher over the past four sessions. Inter-bank lending continues to improve with the three month dollar LIBOR falling to 2.51% from 2.71% yesterday. However, the rate is still 151bp above the current 1.0% Fed funds rate for overnight bank loans compared to an average of 22bp above the Fed funds rate during the 5 years prior to the beginning of the global credit crisis. Today's economic news soured stock market sentiment with the latest Challenger Job-Cut Report indicating employers laid off 112,884 workers in October, the highest number in five years. Announced job cuts in October were 79% higher than the year ago period. The ADP Employment Report also indicated rising unemployment as private sector companies reported a cut of 157,000 jobs in October. The current consensus estimate for the Labor Department's official Jobs Report set for release this Friday is for a loss of 200,000 jobs with a rising unemployment rate of 6.3% from September's level of 6.1%. The ISM Services Index was reported at 44.4 for October vs. a consensus forecast of 47.0. According to the Commerce Dept., the services sector share of the economy has risen to about 80%. Today's reading below 50 indicates economic contraction in the largest segment of our economy. The U.S. Treasury announced its 4th quarter refunding needs and will auction $55 billion in mostly long term debt next week. There will be $25 billion in 3-year notes, $20 billion in 10-year Treasuries and $10 billion in re-opened 30-year bonds. The stock market retreated with the Dow losing 486 points to close at 9,139 while the broader S&P 500 Index gave back 52 points to end at 952. The NASDAQ Composite Index fell 98 points to finish at 1,681.