The Veridian Blog

Without any significant economic data released last week, the price of bonds was largely dependent on the wild fluctuations in the stock market.  Since stocks were in selling mode all last week (again), the jump in bond yields made them more attractive to investors, thereby reducing mortgage rates.  That is, in theory at least.  Overall, rates actually jumped last week because of continued concerns with a global recession borne out of the U.S. liquidity crisis.  In short, no one is buying anything these days - not stocks, bonds, not even gold.  Maybe it's time to invest in home furniture manufacturers due to all the mattresses that are now being stuffed!

You can expect more volatility this week.  Today, new home sales unexpectedly increased while the median home price fell to a 4-year low, declining by 9.1% from a year ago.   Tomorrow, consumer confidence reports and Wednesday marks the end of the Federal Reserve meeting at which time we will see how far they will cut the Fed Funds Rate and the impact of the accompanying policy statement.  To top things off, everyone will see whether we are officially in a period of economic contraction on Thursday when 3^rd quarter Gross Domestic Product is released. 

There is no doubt, we are in the midst of a recession.  The only question is how deep we are falling and how well we can brace the fall.  Is there any glimmer of hope or silver lining?  I'm sorry to say, but not really.  My only thought at this time is that we will probably only have to go through something like this "Credit Tsunami" once in our lifetime.  So if we can get through it, we can get through anything, right?

The primary catalyst right now is fear.  The fundamentals do not justify the large drops we are seeing day after day.  But even after there is a defined bottom, we all have our work cut out for us.  At this point, it's hard to deny that we will face difficult times in the next few years as we rebuild our economic vitality. 

As Lieutenant Lockhart said in "Full Metal Jacket"...

"...we're in the middle of a big shit sandwich and we all gotta take a bite out of it"