"HAVE THE NERVE TO GO INTO UNEXPLORED TERRITORY" - a little bit about last week...

Taking those words to heart, Bonds and home loan rates did exactly that last week, reaching historic levels.

A few important news items from last week... First, the results are in on the Fed's first run at purchasing Mortgage Backed Securities under their new $500 Billion buying program. Over the last week, the Fed bought $10.2 Billion of Mortgage Backed Securities. Any time there is increased buying demand - for anything - prices will move higher. When Bond prices move higher, home loan rates improve.

Next, Stocks faced selling pressure last week due to a rash of earnings warnings from the nation's retailers, including Macy's, who announced they are closing eleven stores. Because money coming out of Stocks is often parked over into the Bond market, Bonds and home loan rates responded by reaching never-before-seen levels.

Finally, the job market reached a level not seen since 1945. The Labor Department reported on Friday that there were 524,000 jobs lost during the month of December, which you can see in the Jobs Report chart below. Why does the chart look unusual? Because it's measuring a negative number, for something that is normally reported as a positive, as in number of jobs created.

Market Overcast

What do you need a fancy suit for Charlie, you got no job to wear it to". From the 1984 movie, The Pope of Greenwich Village . And there are a lot of fancy suits not being used, due to the massive job losses of late.

The Labor Department reported that 240,000 jobs were lost in October, which was worse than the expected loss of 200,000 jobs. In addition, the Unemployment Rate jumped to 6.5%, up from last month's read of 6.1% and reaching the highest unemployment rate since 1994. And if the current numbers weren't bad enough, there were heavy downward revisions to August and September numbers, which erased an additional 179,000 jobs. So far in 2008, a total of 1.18 million jobs have been lost, with 651,000 job losses coming in just the past three months. Look for things to get worse before they get better, as the unemployment rate will likely top 7% soon.

Friday's Jobs Report was brutal and would typically nudge the Fed to cut their benchmark rates in an effort to spur on the economy. But with the Fed Funds Rate already at 1%, the Fed doesn't have much more room to cut. This means that Stocks, which worsen on poor economic news, will likely continue to struggle as a result.

Speaking of rate cuts, the Bank of England, the European Central Bank and a few other countries central banks all lowered interest rates last week to help their economies. The good news is that these cuts should have a positive effect on the US Dollar - and therefore will also help Dollar denominated oil prices stay near present levels.

With some of the negative economic news, Bonds did manage a huge, three-day 160bp rally in the middle part of last week, and Bonds and home loan rates were able to hang on to much of this improvement on Friday. As a result, Bonds and home loan rates ended the week nearly .25% better than where they began.

THE WEEKEND IS THE PERFECT TIME TO ENJOY SPENDING SOME OF YOUR HARD EARNED MONEY, BUT DID YOU KNOW THAT A SAFE DEPOSIT BOX MAY NOT BE THE BEST PLACE TO STASH YOUR TREASURES AND VALUABLES? CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW TO LEARN MORE.

Mortgage Bond are flat

"Mortgage Bonds are flat after yesterday's rally, but now Traders are looking ahead to tomorrow's important Jobs Report.
Current estimates are for 110,000 new jobs created; however, if the number is much worse than expected, we will probably see bonds improve. But any rally may be tempered, since many Traders may already be factoring in a miss.
If the number comes in stronger than expected--which I don't think will happen, but if it does--Bonds will drop sharply, causing home loan rates to rise.
I feel the prudent play is to be conservative and Lock ahead of the Jobs Report."