The wheels started coming off yesterday on what was lauded as a big step forward in Europe to get a grip on Greece and other EU countries that are similarly facing potential defaults on their sovereign debt; this morning the wheels have fallen off completely-----at least at the moment. What is happening today is no assurance the same will be the case tomorrow based on the last two years out of the region. A huge shocker to financial markets in Europe and here in the US; in a surprising move no one saw coming, Greek Prime Minister announced he would not continue to fight the issues in the country and let citizens decide whether or not to go along with the austerity programs set out by EU officials. He is calling for a voter referendum and let citizens decide whether they want austerity or default that will eventually end Greece's membership in the EU. Greece's proposed referendum poses a threat to the region's financial stability, Fitch Ratings said. Group of 20 leaders gather Nov. 3-4 for a summit in Cannes, France, to discuss the debt crisis. No one saw this coming; letting voters decide, but the voting isn't likely until early next year.

Yesterday there were signs that the "plan" worked out last week was not as solid as what had been the wide belief last week. Yesterday re-started a run into safety in US treasuries, this morning its a stampede after the Greek news. At 9:00 the 10 yr note was at 1.97% down another 15 basis points from yesterday and down 44 basis points from last Thursday's high that sent rates up on the optimism of a Europe plan that was seen as a huge step forward. Mortgage rates tumbling with the 10 and the rest of the yield curve. Technically, last week the treasury and mortgage markets were breaking supports, most all of our models had become bearish. Not the case now, the 10 yield is well below its key 20 and 40 day averages, the RSI is now in bullish territory.

MF Global filed for bankruptcy yesterday, the NY Fed revoked its primary dealer status, overnight there has been talk that custodial funds (money in accounts of customers) possibly $100 mil that is not accounted for. Another minor motivation for money to migrate to treasuries.

The DJIA opened -250, NASDAQ -68, S&P -32; at 9:30 the 10 yr note at 2.00% and mortgage prices +15/32 (.47 bp). Most all Euro equity markets trading down 5% to 6% on the Greek referendum decision.

At 10:00 Oct ISM manufacturing index, expected at 52.1 frm 51.6 in Sept, fell to 50.8. The headline not do good, but components held up; new orders at 52.4 frm 49.6, prices pd at 41.0 from 56.0 and employment at 53.5 frm 53.8. No reaction to the report.

Also at 10:00 Sept construction spending was thought to be up 0.3%, as reported up 0.2%, in Aug construction spending revised from _1.4% to +1.6%.

Today the FOMC meeting gets underway; we won't have anything to look to until tomorrow at its end, at 12:30 tomorrow the policy statement will be released then at 2:15 Bernanke will hold his press conference. The economic outlook, what the Fed may be thinking and the Euro issues will dominate.

Mortgage rates now back to some of the best levels, volatility is back with a vengeance and will continue to be the case with markets swinging in big moves. The Fed is in play on what it may do, if anything, to keep rates from increasing, the stock market is going to track how Europe's markets perform, and the US economic outlook remains cloudy. Expect markets to swing in wide ranges. Suggest taking advantage of the current decline in mortgage rates.