As far as civilization is concerned the Mayans appear to be wrong;

we are still here. As far as the fiscal Cliff is concerned the Mayans may have
got it right.Last night the Republican controlled House couldn't even get
enough Republicans to pass the Boehner Plan B that would have increased taxes
on those making over a million a year. The Tea Party reigns. The Plan B was
supposed to move Republicans closer to Boehner's original proposal to the
President on revenue increase and spending cuts. Even after House Majority
Leader Eric Cantor said yesterday that the measure had sufficient support, last
night the bill was pulled as there wasn't enough votes to pass it. Even had the
bill passed it would have died a quick death in the Senate; but it is a blow to
Republicans and possibly will take the country over the Cliff.

Now there won't be any votes on anything until after Christmas.Until
now the Senate was supposed to end today and not re-convene until next
Thursday; whether the turn of events will keep legislators at work will be an
issue. The clock is ticking down, unless there is a big change in sentiment on
both sides falling over the Cliff, at least at this moment looks likely. At
10:00 this morning Boehner is scheduled to make a statement. Can the President
and Republicans come together? Based on the number of republicans that would
not vote for Plan B it is going to take a number of Democrats in the House to
join with Republicans to agree on something that is likely to be closer to what
the President is seeking.

The reaction to last night's failure is hitting US and European
stockshard this morning and improving US interest rate markets. At 9:00
the DJIA was down 182 points; the 10 yr note yield at 1.76% down 4 bp, 30 yr
MBS prices up 18 bp frm yesterday's close.

New factory orders for durables in November rose 0.7% in November,
following a 1.1% gain in October. Analysts expected a 0.5% gain.
Excluding transportation, orders increased 1.6%, following a boost of 1.9% in
October. Market expectations were for a 0.2% rise in orders excluding
transportation. Obviously a much better outcome than forecasts, but it is a Nov
report. It was ignored in the markets, as is most economic data these days with
the Cliff fiasco dominating everything these days. Nov personal income was
expected to be up 0.3%, as reported income increased 0.6%. Personal
spending in Nov was expected +0.4%, as reported it was right on at +0.4%.
Income got some lift in November as businesses in the Northeast re-opened and
employees returned to work after Sandy.

The two 8:30 reports on durables and personal income would under
normal circumstances been met with enthusiasm in the stock market and likely
bothered the bond market.These however are not normal times; it is all
about the Cliff, economic data is filed away for later after there is something
from Washington. Given the circumstances in Dec personal spending and durable
goods orders will likely slow.

The 10 yr held support at 1.85% on Tuesday,since
then a little improvement in the bond and mortgage markets. This morning the 10
yr is back below its 200 day average on the yield but is still bearish I our
opinion. There is the potential for more improvement as the fiscal Cliff looms
and since the Plan B couldn't muster enough votes last night there is an
increase in the view that we may actually go over it. Not a certain thing
however, there are a few more days to pull the mess out of the fire. If that
were to occur the bond and mortgage markets will be pressured again. Take
advantage of this rally; it's all about the Cliff as to how low interest rates
will decline.