<span style="font-size: 10pt; font-family: Arial, sans-serif;">Generally quiet in the bond market early this morning;</span><span style="font-size: 10pt; font-family: Arial, sans-serif;"> US stock indexes weaker on the continued concerns on how the fiscal cliff will be avoided. Yesterday the bond market was closed for Veteran's day while the stock market did stay open, at the end of the day yesterday the key indexes ended unchanged. Congress is back today after the break for the elections; number one on the agenda is how to avoid the fiscal cliff, in the end it will be avoided because the consequences of going over it are too serious to let it happen. The issues to be settled are how much more taxes will increase for the wealthy and whether politicians have the stomach for cutting spending. As usual with Congress it will go down to the wire but in the final analysis whether it is pushed into next year or an actual plan emerges, we won't fall to our economic death. Increasing the dividend tax is being talked about, and cutting some loop hole deductions is on the table. The word 'tax' will be avoided as much as possible, replaced with increased 'revenues'.</span>

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<p class="MsoNormal"><span style="font-size: 10pt; font-family: Arial, sans-serif;">Greece has apparently gotten another reprieve from defaulting on its debt.</span><span style="font-size: 10pt; font-family: Arial, sans-serif;"> In the latest compromise in three years of bailing, creditors including Germany have agreed to keep Greece in the EU by keeping the money flowing. But not all is well; the IMF is taking issue with the decision. There is a meeting scheduled for Nov 20th to ratify the plan. Europe's stock market declined this moring on the disagreement between the IMF and and euro finance ministers' on how Greece will repay its debts. Euro fnance ministers gave Greece another two years to get their debt recuced to 2.0% of GDP, a feat impossible to meet, but the EU does not want to risk Greece leaving the Union. <u1:p></u1:p></span><o:p></o:p></p><p class="MsoNormal"><span style="font-size: 10pt; font-family: Arial, sans-serif;">At 9:30</span><span style="font-size: 10pt; font-family: Arial, sans-serif;"> the DJIA opened -62, NASDAQ -25, S&P -7. The 10 yr at 9:30 +4/32 at 1.58% -2 bp; 30 yr MBS's -12 bp. Trerasuries rallying on safety concerns ahead of the beginning of the fiscal cliff negotiations; Pres. Obama and Congressional leaders are scheduled to meet this week to get the ball rolling. Germany's 10 yr bunds are unchanged at 1.34% after declining to 1.31% earlier. <u1:p></u1:p></span><o:p></o:p></p><p class="MsoNormal"><span style="font-size: 10pt; font-family: Arial, sans-serif;">While the fiscal cliff discussions dominate, there are a number of key economic releases this week;</span><span style="font-size: 10pt; font-family: Arial, sans-serif;"> Oct retail sales, PPI and CPI, Philly Fed business index and the FOMC minutes from the 10/24 meeting. Expect continued high volatility in the financial markets this week. The only data today; the Oct Treasury budget at 2:00 pm, expected -$113B.

<u1:p>The outlook for interest rates remains good;</u1:p> most all of our models remain bullish. How low the rates can go however, is still an issue. Some saying rates will fall below the lows seen in late July (1.40% on the 10 yr note), while an equal number are holding that the lows for treasuries and mortgages will not be breached. Much depends on how Europe's economy performs and the US fiscal cliff is resolved. Small busnesses are obviously opposed to increasing taxes for incomes over $200K to $250K and are concerned about hiring with Obama Care now more a reality after the elections. If the economy stabilizes interest rates will not likely fall much more, conversely more economic weakness will push rates lower. The question is; would you want lower rates or a growing economy and a little higher rates? <u1:p></u1:p><o:p></o:p></span></p></p>