Stocks are not the reason as we are off 139 points on the big board.  PPI, inflation at the wholesale level, is not the culprit either as the print was up .4% headline and down .6% ex-autos, giving some cover for the Fed’s pressing QE2.  October Industrial production hung an egg (unchanged) and the National Association of Home Builders Index was up slightly yet not very impressive.  Even the Fed buying 5.4 billion in paper can’t plug the dam.

What you have here is a mentality surrounding QE2 that is worried about inflation, economic growth, Federal balance sheets, and was priced in “before” the operation took place.  Now we have fast money accounts (trading accounts, hedge funds, money managers, etc.) pressing the trade, blowing through technical support levels like a tsunami.  Studies are bearish on every time frame.

Given the economic backdrop (high unemployment, etc.) we feel this move is close to a bottom.  Trouble is, picking bottoms are like catching falling knifes, hard to do without some pain.  Best bet for Austin mortgage borrowers is to use the float down option (“option to lower your interest rate one time”) to guard against a reversal (rally).

Markets like this are dangerous and sometime do not follow logic.  If it looks like a bear and walks like a bear, it probably is a bear.

Private sector jobs led the way, adding 154K to post the strongest reading since April.  Manufacturing was on the other side of the ledger, shedding 7K from the payrolls.  Market reaction was close to our call.  Matter of fact, our hats off the JPMorgan for their call at plus 110K.  RBS and PrimeLending came in second but will try harder!

Currently, the 10 year note is off 5/32’s.  Mortgage backs are off 12/32’s on the low note rates but higher rates are only off 5/32’s.  Not bad considering the positive news.  Reason here is the Fed is still the elephant in the room, looking to buy treasuries in the belly of the curve (5’s through 10’s), supporting the market.  Stocks liked the news but soon gave up the trade (currently down 2 points on the big board) as the dollar gained strength.

We see the market and the economy in a transition phase.  One that will continue to hold steady and improve, ever so slightly as time goes on.  The Fed, and their magic checkbook will see to that.  This country needs to see jobs growth of at least 250K per month just to break even.  That will take time allowing Austin mortgage rates to stay low into yearend and beyond.

After yesterday’s FOMC meeting, it became apparent that the Fed would pull out all the stops in an effort to get the economy and employment going again.  “Asset” purchases are all the rage as the government is once again the buyer of choice (treasuries).  Stocks love the idea of free money and a weakening dollars, boosting value in equities across the board.

Gold is up $40.00 as well, pricing in heightened expectations of inflation down the road.  Seems to me that the Chairman and the Prez met by the water cooler and the conversation when something like this.  “Ben, I’m in a tough spot here, my party just got its head handed to it and unemployment is nearly 10%, now I’m not telling you what to do but……… I need a game changer.  What you say we fire up the printing press and go on a buying spree.  Just a thought.”

In the news, Weekly Unemployment Claims jumped 20K to 457K while 3^rd Quarter Productivity rose 1.9%.  No one noticed as traders were too busy trying to buy bonds and stocks.  With the Employment Report for October due out at 7:30 am cst tomorrow, the prudent thing for Austin mortgage borrowers is to lock their Austin mortgage rates now.

Given that we are at the best levels in a month, your timing couldn’t be better in front of such a high profile release.  We’ll preview the Employment Report early this afternoon.

Technically, trading has been a whipsaw affair.  You will notice the downdraft yesterday (post FOMC) and the reversal this morning.  Typically a good indication the market has run its course in the short run, especially in front of the high profile data coming tomorrow.  Just the same, this baby is a bull and will be well supported into year-end given the Fed and their reloaded check book.  Call the market neutral/bullish.  Take advantage as the Employment trade is always volatile.

Election day expectations are huge for the Republicans.  Both the Rothenberg and Cook Political Reports are predicting 50 House seats will be turned over to the Republican party.  39 are needed to take control.  If true, we can expect gridlock in the coming months as the split (House/Senate) will create an environment unable to find common ground on fiscal policy.  This is assuming the Dem’s hold the Senate.

The Fed Open Market Committee (FOMC) started its two day meeting this morning, apparently hashing out what to do to re-inflate the economy and create jobs.  QE2 will most likely be the outcome, with 500 billion expected to be pumped into the system over the next two quarters.  Most expect the Fed to leave the total amount of purchases “open,” allowing for dollar amount changes to be made depending on economic strength.  No doubt the next two days will be high drama and volatile.

We see all of the above “baked into the cake.”  In other words, it’s already priced into the market.  Our bias is for stocks to slip a bit, post election and mortgage backs to hold steady.  Currently, the 10 year is up while mortgage backs are unchanged.  Best bet for Austin mortgage borrowers is to be conservative/cautious with locking your interest rates as the political news will be tomorrow morning’s early trade.

Mortgage backs have slipped into the red. As I mentioned last week, the next few days could be high volatility, market moving affairs with the mid-term elections, FOMC meeting, and a boat load economic data culminating with the Employment Report on Friday.

Smooth line four week moving average is at 453K but is moving lower week by week.  Key for today will be the outcome of 29 billion in 7 year notes which will cross the auction block at high noon cst.  Technically, the 10 year candlestick chart has the makings of a bullish real body engulfing pattern which would limit further weakness.  On the other hand, Elliot Wave Theory points to an A wave which will take the market to targets I mentioned yesterday (2.78% on the 10 year note) before a B wave correction occurs.  “Real men and women” who use bar charts see shorter time frames (60 minute chart) oversold and due a small bounce.  That is what is happening now.  Longer term charts (daily) are still bearish and project a move to 2.78%.

As you can see, when multiple trading tools are not in harmony, nobody is happy.  Uncertainty leads to volatility and in this case, give the bears the edge.  Stocks will also be key, currently down a dozen on the big board.  Speaking of stocks, we feel that next week’s mid-term elections are priced in, reflecting a win for Republicans in the House (taking majority) but not in the Senate.  The political outcome would be gridlock, limiting spending/taxing/etc. as we move into 2011.  Outlier events would be a takeover of the Senate (very bullish for stocks/bearish for bonds) or not taking control of the House (bearish for stocks/bullish for bonds).

With the elections and the Fed meeting next week to hopefully clarify QE2, things could get wild.  We also have the Employment report for October a week from tomorrow.  Austin mortgage borrowers are advised to take advantage of any rate improvement we see as the skies have yet to clear.

Nevertheless, stocks are off 200 and treasuries/mortgage backs have been goosed higher.  Currently, the 10 year note is up 5/32’s while mortgage backs are plus 6/32’s. Shaping up to be a nice day.

Stocks have been in the driver’s seat today, slipping by over 100 points as Big Blue (IBM) and Apple disappointed the market with weak results. China, raising its lending rate by .25%, helped the dollar but put additional pressure on stocks. You would think that note and mortgage back pricing would have gotten a boost from all this equity punishment. Not to be. Currently, the 10 year note is off 8/32’s. Good news is that mortgage backed securities have tightened to treasuries.

Overall, trading today has been a range-bound affair with prices above yesterday’s lows and below yesterday’s highs. Traders call this an “inside day” which is simply a neutral pattern. Expecting mortgage pricing to hold steady is a pretty good bet.

The New York Fed (Empire State) Manufacturing report was also released, jumping 12 points to 15.7.  Both new shipments and orders improved at the fastest pace since June.  Overall, the factory sector in NY seems to be on the mend.

Last but not least, we got a look at the University of Michigan Sentiment Survey which declined from 68.2 to 67.9.  Current conditions did the damage, falling 5.4 points.  Future expectations did a little better, up 4 points for the month.  Big Ben, printing press supervisor for the Federal Reserve was speaking in bean town this morning.  He all but assured the market of QE2 coming with details most likely presented at their November 2^nd/3^rd meeting.

The 10 year note, 30 year bond, and mortgage backs have been taking a beating.  The note is currently of 18/32’s.  Mortgage backs continue to slide, now off 7/32’s.  Stocks are a mixed bag and no help to bonds.  Dow off 46 points, Naz up 21 points on Google’s earnings.  That stock is up 58 bucks!

From our perspective, the market has fully priced in QE2 and has shifted the focus to a weak dollar and indigestion from 66 billion of auction paper that is now underwater.  Call the market neutral/bearish with good support nearby.  As we have preached all week, defense is your friend, Austin mortgage borrowers, and the exclusive float down option from Max Leaman is a no brainer.  We’ll try to wrap it up later today.

The fear factor today will be the results of 21 billion in 10 year notes crossing the auction block (high noon cst).  After yesterday’s dismal 3 year offering, the street is wondering who will show up to buy the paper.  Notes, bonds, and mortgage backs are respecting the fear of the unknown.  Currently, 10 year notes are off 15/32’s, the 30 year bond is off 40/32’s, and mortgage backs are cheating fate, down only 3/32’s.  Stocks are having a party, up 110 on the big board as corporate America churns and earns.

Technically, there are a couple of things you need to pay attention to.  First is the Elliott Wave count which has probably completed its 5 wave.  This pattern started in June and has been very accurate.  The break of yesterday’s trend line and continuance to trade below it is strong evidence that a new A wave has begun.  If correct, the pattern projects a trade to at least the 38% retracement target of 125 28 (10 year futures) or the yield equivalent of 2.58%.  This type of corrective trade could last for a month, slowly eroding Austin mortgage pricing until a bottom is found.

From our perspective, the market seems to have fully priced in QE2 and now must wait until the next FOMC meeting (11/2) to see if it comes to fruition.  The “wait” is making some nervous.  Continued corporate earnings, with the expectations that most will beat, will add additional pressure to fixed income and Austin mortgage pricing.  Best bet for Austin mortgage borrowers is to take a defensive posture.  With so much bond-friendly news priced in, the risk reward for better mortgage pricing is just not there, folks.