Pending Home Sales hit the tape up 1.0% to 96.6, stabilizing after last month’s record 16% decline.  Contract signings rose in every region of the country except for the West which declined 3.8%.  The Midwest did the best, up 5.2% after getting punished last month for a loss of 25.7%.  The leveling off in this index points to the continuation of the 8K tax credit for first time buyers as move up buyers are still on the sidelines.

The Street also took note of the rise in the U.S Home Vacancy rate which rose 2.7%.  While we see the data as “less worse”, the pressure continue on our housing market.  For the most part, most market are relatively calm.  Stocks are up 60 something on the Dow, 10 year notes are up 2/32’s (yield 3.65%), and mortgage backs are plus 2/32’s as well.  Overall, both stocks and bonds seem to be worried about Regulatory Policies and the removal of stimulus as we move into the new year.  The political rush for bank and financial reform is at best in chaos, being thrown from one side of Capitol Hill to the other, right along with the Federal Reserve Chairman.

As we mentioned earlier, the removal of stimulus is the political hot potato.  Without it, we need more Americans employed to keep the housing industry moving.  Without the consumer back in the game, a double dip recession, led by housing is a real possibility.  Politicians and the populous movement are angry about continuing anything associated with growing the government and adding to the deficit.  We believe in a phase out, not going cold turkey with respect to the 8K credit.  In the short run, it’s tough to find a political or regulatory rabbit to pull out of the hat.

Going into Friday’s Employment data, our bias is for a neutral/defensive fixed income trade.  Most time frames on the chart has gone neutral with little sponsorship from either bulls or bears.  We do like the fact that some oscillators suggest that further upside (rally) is plausible but needs a catalyst.  That probably comes Friday morning.  Trouble is, what will the data be?