Strange Days Indeed....Most Peculiar, Mama! (John Lennon)

Wow, we are in a wicked, wild and weird time!!!!!!

We're in a very strange time, folks. It's almost comical to hear what we're hearing on the radio, in the papers and on the TV. Seriously. Something to think about - The Fed is attempting to be savvy and creative in its ways to help the financial system get back on track. However, there is simply no one who can draw upon past experience to find answers here. We are in uncharted territory due to the complexity of the financial instruments that are unravelling. Not trying to scare anyone - just telling the truth (what an idea?!)

This situation is historic...and we are living through it. It is almost comical to hear the utter stupidity that comes out of the mouths of some of the politicians who are paraded in front of the cameras...I can't help but think that we actually elected these people. There is a lot of panic out there. People are very worried about their life savings. Is money in the bank safe? How about if it is in a life insurance policy? How about in bonds? Unfortunately the answer is no, no, no.

Yesterday, the panic reached a level that caused such a demand on US Treasury instruments, that the total return of some short-term paper went negative. That's right...the premium paid was higher than the return provided by the yield. So keeping your cash under the mattress is better than an investment in some Treasuries, and apparently safer than the financial market!!!

Suddenly, guess what may become the most attractive way to protect your money? Think about it...you can touch it, get a tax break, live in it too. Yes, Real Estate is starting to look pretty good, especially since it has become more reasonably priced.

The Fed has come to the rescue lately, but all these "bailouts" and programs to help faltering companies is hard to sustain. They can't save everybody because money will run out. As mentioned previously, the Fed has been very creative. But eventually, the money and creativity could run out. And the Fed may need to actually print money - this would be highly inflationary....very bad stuff. Let's hope it doesn't get to this, as that would be very bad for rates...which, of course, I (and so should you) care deeply about. We sure are living in interesting times!!!


In this morning's economic news, weekly Initial Jobless Claims increased by 10,000 to 455,000 claims, meeting expectations, as workers were displaced by Hurricane Gustav in Louisiana. The four week moving average of continuing claims rose by 29,750 to 3.46 million to remain near a five year high. All in all, this report suggests continued weakness in the labor market.

In a bid to ease the credit crunch and restore a sense of calm in the financial markets, the Federal Reserve authorized a $180 billion expansion of its swap lines with other world central banks. The funds, which will be provided by the Federal Reserve, can be injected into money markets through overnight and term loans. Stocks are liking this news so far and this is pressuring Bonds.

Leading Economic Indicators were reported at -0.5%, in line with expectations. Philadelphia Fed Index was up 3.8, far better than expectations of -10. Stocks strengthened momentarily on the surprisingly good Philly Fed number.

Mortgage Bond prices are trading sideways in a volatile 100bp range, with overhead resistance at $101.47 and support below at $100.50. Most clients can continue to float, but VERY carefully during these wild times.

I will keep you posted!

Rich Hayden
Mortgage Banker
703.926.4646 - p