S&P 500 day trading and Economy - labor-unemployment-

The economy declined in the third quarter the most since 2001. New home sales expectedly rose 2.7 percent in September(fast inovators getting in before the final drop) , before credit markets froze, up from a drop of 12.6 percent in August, according to Commerce Department reports.

It is estimated that a Labor Department report on Nov. 7 will show payrolls shrank by 200,000 workers last month. The unemployment rate may jump to its highest level in more than five years.

And in case you are wondering why mortgage yields are higher again, here is a little background provided by our President(can you believe it) that will help you answer any questions you may have. Here are the main drivers:


1) International selling. A variety of factors - including some recent confusion over the semantics of whether the GSEs are "explicitly" or "effectively" guaranteed by the government - have created a new wave of MBS selling around the world. The general "flight-to-quality" has become so intense that investors are now carefully differentiating between degrees of government support and the fact that the GSE backing is considered "effective" but not "explicit" is actually very meaningful to investors in agency corporate debt as well as agency MBS.

2) Unintended consequences of the FDIC guaranteeing more forms of senior bank debt. As more and more investment alternatives become explicitly guaranteed by the government, the new abundance of risk-free investment choices has caused FNMA/FHLMC corporate debt costs to increase. As the GSEs' cost to finance MBS increases, holding MBS in their portfolios becomes less economical and the market expects them to be less involved in purchasing MBS.

3) Similar to #2 above, as sovereign debt issuers around the world issue debt at increasing yields, these investment alternatives also siphon-off potential demand for FNMA/FHLMC corporate debt and force the agency's funding costs higher making additional portfolio growth uneconomical to the GSEs.

4) De-leveraging continues across the investment community and is made worse at the moment since some dealers have year-ends in Nov and are not anxious to dramatically increase positions at this time.

5) Some investors are reallocating money back to stocks and out of MBS. This back-and-forth will obviously continue as the economic story plays-out.