Just a note to recap this week's crazy market. Those that were in Africa in the bush this week and returned today would think it was just another week at the office. A little selling in treasuries and slightly more on mortgages, but nothing special. Wednesday however, was a watershed day and should not be dismissed because treasuries and mortgages found support yesterday and today. Nothing happens in the markets that can be thought of as a mistake. The blow-up in the treasury and mortgage markets was a clear signal that interest rates are increasingly more vulnerable to higher rates with Treasury borrowing $2T this year, about the same next year, and the Obama administration's desire to spend on every social program he can find. Congress? They are puppets of re-elections and hand outs; no fiscal discipline for years and none in the present outlook as far as can be seen. How to stop it? Can't take back what the Fed has promised, and likely Bernanke is going to buckle under the pressure at the FOMC meeting and toss more buying into MBSs and treasuries. A short term fix that if done the benefits of lower interest rates may be wasted in a very short time period. The next two weeks will lessen the pressure on rates a little, but in two weeks its back to the well with 3s, 10s and a 30s up for sale by Treasury. Bond investors watching the equity markets do their lemming thing, following the leaders into stocks; as long as the belief that the economy is about to turn up there is little rationale to the idea interest rates will stay low. That was one of the messages sent Wednesday, another one was that US politicians ignoring the deficits better get serious. No economic recovery ahead as long as mortgage rates increase as foreclosures mount. We may have a chance this summer or fall to see interest rates fall; once the equity markets wake up to reality. Not wanting to look a gift in the face, but the rebound in treasuries was the driver for mortgage market recovery. Treasuries are on a bearish technical pattern, have been for months; got very oversold on a near term basis so a bounce in the 10 yr from 3.75% on Wednesdays to 3.50% this afternoon. Looking for that elusive no points 4.50% mortgage is like betting on a winning lottery ticket. The Fed can try to help but its money printing is killing the dollar, adding to the concern that China and other central banks that fund our budget deficits may balk as the value of US investments in dollars falls. Interest rates have to remain on the path of higher rates to attract foreign demand. Mortgage delinquency rates are exploding, not flattening, even prime mortgages are seeing delinquency rates heretofore unimaginable. Foreclosures are going to ramp up significantly over the next six months, keeping home prices from bottoming as banks dump foreclosed properties at below bargain basement prices; no good comps, no price stability. Banks are choking on bad debts, not lending as they say they are, credit is out there for only the best, unemployment is increasing (yes, in the past it has been a lagging indicator, not so sure about that today), what's more half of the jobs lost won't return. Curious that markets and media pundits look at 623K new weekly filings for unemployment as a leveling off and a good thing; that's 2.4 mil a month still going on unemployment, how is that good? 6.78 mil on unemployment and climbing a 100K a week and we haven't gotten to the auto industry job losses yet. Most recent economic data has been soft, seeing many downward revisions from previous months. With all that, the equity markets are moving higher on hope and a prayer, and comments from the Fed chief. HUD issued guidance that opens the door for FHA-approved lenders to provide short-term loans — with restrictions — to borrowers who are eligible for the $8,000 first-time home buyer tax credit. Borrowers must still come up with the required minimum 3.5% down payment using their own funds. But after that, they can use the short-term liens to increase their down payments, cover their closing costs or buy-down their mortgage rate. Next week no supply to worry about, the May employment report on Friday would normally be critical but in these days when bad news is ignored it won't likely matter how many NFP jobs are lost or how high the unemployment rate goes. Stupid is as stupid was. Two reports from the ISM, manufacturing on Monday and service sector on Wednesday. On the week: the 10 yr note unch at 3.45%. Mortgage prices, 30 yr FNMA -28/32, 15s -16/32, FHA 30s -30/32. Crude up $4.70, gold up $18.50. $3.00 gas just around the corner; crude oil up again today to over $66.00, this month had the largest increase in oil since 1999. Gold up to about $980.00. All commodities on fire as hedge funds gang up on sellers. Going to be very volatile next week; hold only rate locks that have gains in them, lock those that were locked with clients on the final re-price today. Too volatile now to press the market. Hindsight is clear, the immediate future is not.