The news this morning is not news by now; President Obama announced he will re-appoint Ben Bernanke to another four year term as head of the Fed. His appointment will have to go through the Senate, and there may be some venting but in the end he will get a second term. It would have been a huge mis-step to not re-appoint him and break the continuity the Fed currently has internally and with other central bankers around the world as the world continues to battle out of this historic recession. Obama could not afford to switch in the middle of the recovery; he has the cover that Bush appointed Bernanke initially, that should restrain the conservative element that fights most of the Obama initiatives. Now is not the time for more rancor.

The stock market is liking the re-appointment and the 9:00 release of the June Case/Shiller home price index that was better than estimates; -15.1% yr/yr against -16.4% expected. At 9:00 the 10 yr note -10/32 at 3.51% +3 BP and mortgage prices -7/32. The DJIA futures index at 9:00 +51 points. At 9:30 the DJIA opened +30, the 10 yr note -2/32 and mortgage prices at 9:30 -2/32. Later today Treasury will auction $42B of 2 yr notes, markets are not overly concerned that demand will be weak, recent Treasury auctions over the past couple of months have met will very strong demand and that is the thinking now. Not much pressure on rate markets going into the three auctions this week.

Consumers still not spending; the Johnson Redbook chain store sales for the week ending 8/22 were down 4.4% frm the same week last year; compared to July chain store sales are -0.7% for the month so far. Markets continue to ignore consumer spending and consumer confidence data as if consumers are not much of an economic factor. Markets know better but there is a movement upward for equity markets and anything that stands in the way is swept aside.

At 10:00 the Conference Board released its consumer confidence index; expected at 48.0 frm 46.6, it hit at 54.1 frm a revised July read to 47.7. All components in the data were better than expected; current conditions and expectations were up from July. The reaction was as one would expect, the 10 yr and mortgage prices declined and the DJIA jumped higher.

At 1:00 Treasury will borrow $42B of 2 yr notes; expected to meet with strong demand the rate markets are not setting up for any problems this week from the $109B Treasury will borrow. Recent demand for treasuries both domestically and from foreign central banks (indirect bidders) has been much better than markets had thought given the massive increase in the US budget deficit this year and for the next 10 yrs based on CBO recent calculations.

Treasuries and mortgage rates are presently stuck in a very narrow range; the 10 yr stuck and unable to sustain under 3.50% and mortgage rates stuck in a 10 basis point range. Mortgage prices are trading above their key moving averages while the 10 yr note still holds its key averages. We expect a nice move lower in the rate markets in Sept; the timing based on when we get that long awaited equity market pullback----and we will see it. The higher up the ladder, the bigger the fall. To finally trigger the start will take a market wake up call, so far that hasn't happened, many professional traders are being hammered trying to short the stock market.