3 December 2010 – This week, I do believe that a little levity is in order. So, without further ado:

A large passenger train was crossing the country. After they had gone some distance, one of the two engines broke down.

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“No problem,” the engineer thought and carried on at half power. Farther on down the line, the other engine broke down and the train came to a standstill.

The engineer decided he should inform the passengers about why the train had stopped, and made the following announcement, “Ladies and gentlemen, I have some good news and some bad news. The bad news is that both engines have failed, and we will be stuck here for some time. The good news is that you’re not in an airplane.”

As you can likely guess, the bond market is the train and the engines driving the low rates have definitely broken down.

This week saw a major whammy to Fannie Mae and Freddie Mac conforming rates with a string of good news economic stories. The possible end of the best mortgage rates does, however, come with a silver lining as the economy may be showing continued signs of recovery. So what happened you may ask?

To begin with, ADP reported that the private sector created 92,000 non-farm jobs. Although we did see an unexpectedly high number of new claims for unemployment and 2 million people lost their unemployment benefits, the market viewed the new job data as more reflective of the coming months. Many economists believe that companies have squeezed as much productivity as they can out of their existing workforce and now have to hire to meet their needs.

Housing saw similar positive data. The report on pending sales of pre-existing homes increased by just under 11%. This was coupled with somewhat negative report that home prices have continued to slide, but, when taken together, this could be interpreted as a sign that buyers are finally acknowledging that there are good deals to be had and acting accordingly.

Finally, and arguably most importantly, consumer confidence posed positive gains and people acted upon these gains with a boost in initial holiday spending. Many retail companies, such as Target and Wal-Mart, validated these indicators with earnings that were in line with or better than expected . These indicators could be the proof that Americans have shifted to a more optimistic view. Since perception is reality, a continued optimistic outlook among the rank and file would undoubtedly provide fuel for a continued recovery and an impetus to emerge from the bunker mentality of the past few years.

The final assessment of this week will hinge upon the official employment numbers released today by the government. If the actual data comes in below the expected number of 145,000, the equities market will likely backslide as housing, consumer confidence and spending all depend heavily on a population that is gainfully employed with money to spend. Weak job creation with the increased claims for unemployment and the impending doom for 2 million currently unemployed workers would send a strong message that we a far from recovery.

I am recommending that my clients closing in 30 days or less LOCK as there is way too much risk and volatility. For those closing in more than 30 days, I would suggest LOCKING unless you have a huge amount of risk tolerance.