Mortgage rates dropped quickly today near the range we had at the beginning of the month, and near the bottom of what we had seen in the past five months. Once again, weak economic data is at the scene of a strong move lower for mortgage rates. This time around it was a doubleheader, with both Retail Sales and Producer Prices missing the mark. Retail Sales of course, speaks to consumer demand for goods and services. Lower numbers suggest lower growth. Indeed many market-watchers downgraded GDP estimates after the data. Lower economic growth potential tends to coincide with lower interest rates.

The other quintessential consideration for interest rates is inflation. The producer price data speaks to that. It was WAY under the median forecast - low inflation is good for interest rates. These two key considerations for interest rate movement both suggested a move lower today. It also did not hurt that stocks fell. Stock prices and interest rates have been tracking fairly well lately as financial markets consider a big picture shift in the global economic outlook.

In the morning report I stated that its earnings season and earnings and profits for the quarter will likely disappoint investors. This morning Wall-Mart said it does not expect sales will increase next year and profits will be less. The reaction took its stock down 10% and began a low decline in the DJIA and the other indexes. The driver for MBS prices, the bellwether 10yr note yield dipped to 1.98% moving below the 2.00% resistance level.

When will the bubble break? Stocks are blowing up in a frenzy that totally ignores reality. So far the equity markets have successfully bounced off the recent lows and the bulls are running in the streets goring anyone that defies them. Soon the bulls will be slaughtered and interest rates will drop in a panic reaction. The difficulty is defining the word soon, like transitory. The Fed is drifting, losing credibility.

Tomorrow weekly jobless claims are announced, but this number is not as important as they have been for weeks now. We also get September CPI, October NY Empire State manufacturing index, and the October Philadelphia Fed Business index.

In summary, mortgage rates continue to improve and any time we break below 2% on the 10 year treasury, as we have here. There is still nothing wrong with locking on the short term basis, as I have continued on suggesting such for the past several weeks. However, I am now inclined to just say cautiously float as one of these tests is going to be more than a test and the sign of a continued move lower. Just maybe the risks might favor the rewards here.