Collapse and Capitulation

On September 2, see blog entry below, we warned that "we are directly in front of a major financial hurricane". Obviously, this is exactly what has occurred. Today, we are in the front end of the hurricane. This market has the potential for a full-fledged meltdown.


After the government bridge loan of $85 Billion to AIG, a loan the government tried desperately to avoid making, you've really got to ask: "Are we out of money." My guess is, there are no further bailouts coming, simply because the government cannot afford any more bailouts. Heck, I don't think they could afford this AIG bailout. They were damned if they did, and damned if they didn't.


And today's market selloff, the Nasdaq is currently -3.26%, certainly has the potential to continue to accelerate down.


Critical Long Term Support


Below is a chart illustrating an absolutely critical long term support line for the Nasdaq, connecting the October 1990 lows with the October 2002 lows. This critical support line is currently at 2037, roughly 90 points away from the current level of 2122.

Interest Rates
Interest rates for the safest governement bonds are coming down rapidly. The rate on the government 10 Yr. Note hit 3.25% early in the trading session before climbing significantly higher, with a closing high at 3.496%. Tremendous volatility. Yesterday's low at 3.25% actually was below the January low for rates which was at 3.28%.

Today, interest rates are headed lower again, current at 3.368%.

Below is a one year chart of the 10 yr bond index.

Mortgage rates are very grudglingly following Treasury rates lower. For example, at the low in the 10 Yr in January, the 30 yr mortgage rates were actually at 4.875% at par for a brief moment (approx. 4 hours) in January. Today, they sit at 5.50%. Spreads have widened.

I am strongly recommending that those looking to refinance into a 30 year fixed rate, anything at 5.50% or lower looks extremely attractive historically. This is no time to play footsy with interest rates, there is far too much volatility in the interest rate market, and far too much uncertainty in the markets in general.