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The bond and mortgage markets opened stronger this morning with weaker stock indexes in the US and weaker global markets. We have warned for months that the global and US economic outlook had become too optimistic, over the last three weeks markets have swung almost 180 degrees from the "don't worry be happy" view to one of increasing concerns the world is not in good shape economically. The result has been a rush to safety in longer term treasuries and in turn pushing mortgage rate lower, but not nearly as much as the decline in rate on the 10 yr note. The 10 yr note at 9:00 this morning at 2.61%, headed to 2.50% for the next psychological test. At 9:00 this morning mortgage prices traded up .25 bp from Friday's close; the DJIA futures index traded -16 at 9:00 pointing to a lower open at 9:30. The DJIA opened -80, 10 yr at 9:30 +25/32 2.58% -10 basis points and mortgage prices at 9:30 +10/32 (.31 bp) frm Friday's close.

At 8:30 this morning the August NY Empire State manufacturing data hit; the overall index increased to an anemic 7.0 frm a more anemic 5.08 in July. The new orders component took a hit and went negative for the first time in months, to -2.71 frm +10.13, employment component better at 14.29 frm 7.94 and prices pd for materials declined to 20.0 frm 25.4 mostly on commodity price declines driven by slower economic growth ahead.

The NAHB housing index at 10:00 hit at 13, down from 14 in July. The decline continues and might imply that housing starts that are expected to be up 1.2% may actually come lower tomorrow. We simply cannot stress strongly enough that until the housing sector begins to bottom and shows any sign of recovery the US economy is destined to struggle. We note today that the heads on CNBC may finally be getting it as most of the chatter so far this morning was about housing.

This Week' Economic Calendar:
Tuesday;
8:30 am July housing starts and permits (+1.2% and -2.3% respectively)
July Producer Price Index (+0.2%, ex food and energy +0.1%)
9:15 am July Industrial Production (+0.6%, +0.1% in June)
July Capital Utilization (74.5% frm 74.1% in June)
Wednesday;
7:00 am MBA weekly mortgage applications
Thursday;
8:30 am Weekly Jobless Claims ( -9K to 475K)
10:00 am July Leading Economic Indicators (+0.2%)
Aug Philadelphia Fed Business Index (+7.5 frm +5.10)

The Fed last week at its FOMC meeting came as close as it likely can in assessing the near future for the US economy as declining; "The pace of economic recovery is likely to be more modest in the near term than had been anticipated". The Fed can't outwardly get much more negative without a self-fulfilling prophesy; the statement ratified what was becoming increasingly obvious even to the bulls that staunchly resisted reality. At the meeting the Fed, increasingly concerned that the economy is teetering, initiated another quantative easing move when the FOMC said the Fed would continue buying treasuries, using pay downs on the $1.25T of MBSs it holds from last year. A clear sign the Fed "hopes" lower rates will help----pushing on a string however, low rates alone will not stop the economic slide. The wake-up call should be obvious; until consumers are confident their jobs are secure and the housing sector improves lower rates won't do the job.

A double dip? NO. The recent economic improvement wasn't built on strong foundations but on inventory builds and job and cost cutting by businesses that painted a tainted picture. That phase is likely over now with all global markets showing signs of softening. The 10 month economic bounce was just a facet of an otherwise economic recession that is likely to last longer than thought by most just three months ago.

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