Where are we headed and how are we supposed to get there???

Yesterday was odd....considering that everything happened exactly opposite of how it "should've happened" assuming you used history as your guide. However, yesterday's panic led to more chaos today although things we're brought back to "a little closer to expected." That doesn't mean good, that just means predictable. With a random rally in the stock market late in the day, in spite of The Fed holding steady, and a rush out of bonds, mortgage rates took a spike late in the day. Some lenders repriced twice after 3pm. We were one of them. So when things should've by all accounts moved the other way, there was the Twilight Zone factor involved in trading after The Fed made their announcement. Of course it was 7:30pm last night and all the markets were closed when the US Government let the AIG cat out of the bail out bag. So everyone got a night to sleep on it, although I don't know how much sleep was involved. Of course that leads into today's action.......

The $85 BILLION bailout of AIG failed to restore any level of investor confidence and now all US Citizens have their own little slice of the insurance company.Reserve Primary Fund, the oldest money market fund and one that claims $62 billion in assets, broke the buck. i.e. had its net asset value fall below the $1/share level. This marks the first time that has happened to any money market fund in the last 14 years. The US dollar responded negatively by moving lower while commodities shot through the roof. Especially gold which chalked up it's largest one day gain EVER surging$90/oz in after market trading. Our bonds also recouped some of yesterday's slide by picking up 41bp to close at $101.00 for our 5.5% FNMA mortgage bond. And just as I thought, the mortgage backed securities were a much bigger beneficiary than the 10 yr t-note which only picked 6bp in the flight to safety. The yield is higher on the MBS and after the events of last week with the FNMA/FRMC take over, they are basically just as safe and a much more attractive place for investors amidst the doom and gloom of our recent ill-behaved markets.

Lost amongst all this insanity was a dismal housing report. Housing starts fell 6.2% in August to an annual rate of 895,000 which is a 17 year low. (Estimate was 950,000.) Building permits were off 8.9% to a 26 year low of 854,000 vs the consensus estimate of 925,000. The Dow got CRUSHED, losing 449 point to close at 10,609, the NASDAQ decided it needed to lose a little weight to the tune of 109 points to finish up at 2,098 while the broader S&P 500 did a lovely swan dive down to 1,156, 57 points lower than it opened.

What does all this mean? I have no clue but I do all I can to stay on top of it and be your expert if you need me. It's amazing, even bad news can be comforting for your clients. I had a couple in here today that I gave all the bad news to as we were walking through the financing of their new home. (It's amazing, people still actually buy houses....) and amid the darkness of our financial market storms, they were calm because they know that I stay on top of it. They know I make sure that regardless of where the market goes and what direction things turn, that within the constraints of that market I will work to secure them the best financing that is available. It's nice to watch them leave with a smile and talking about carpet/paint and what to do with the kids the day they move in when everyone else is stuck on ledge somewhere convinced the world has seen it's last days. Makes the job more fun when you know you have put people at ease like that.

More to come, you can be sure of it.