That's it really....

In case you missed it, the much-maligned Lehman brothers lost the bid of it's potential overseas buyer the KDB, not to be confused with cold-war Russian Intelligence. Stocks sold off quicker than a wry 007 double entendre. After a choppier day than a coked-up lumberjack with a homicidal streak, we ended more or less even on the day, especially considering the impact of the "roll" to the october coupon delivery.

SO FAR, it appears our retracement will begin in earnest today at 5.5's are already down 10 ticks to 100-21.

6.0's down 8 to 102-02

and 5.0's down an eye-watering, violin-playing 15 ticks to 98-23.

No News is Bad News today as we're almost entirely absent of sheduled data. The lone wolf today: MBA applications. [sarcasm] Amazingly enough [/sarcasm], applications were better. It's almost as if "something" was motivating application activity. Not sure what that would be though. Whatever the case, the absence of scheduled data always gives headline risk more power than it otherwise would have.

Lehman, a name almost inextricably linked to MBS, is the talk of the town. After shares saw their sharpest one day decrease ever, the street was awash with speculation of what the ensuing 12 hours would hold. MBS devotees were drinking heavily as we knew the Lehman drama would look like a groundhog's shadow to those skittish Asian bond buyers--not safe for them to "come out" yet. Hopefully we don't have to wait another 6 weeks for things to change.

All in all, the inevitable retracement we've been discussing since well before the bailout now seems to be taking shape. Someone asked me why prices would be going down today. Simple! More sellers than buyers! That old joke hits a bit too close to home today. The whole world, sans Asia, bought bought bought on Monday. Yesterday saw a nominally reactive retracement, no big deal, especially considering the roll. But now, October prices are even a bit lower than November prices were yesterday. The lower stack selling is a Godzilla to the higher stack's Geico gecko (down 29 in 4.5's and down only 5 in 6.5's).

True stability likely won't arrive today until/unless interested parties (everyone with a pulse, whether they know it or not) need at least a modicum of closure re: Lehman. Fold of Lehman says: "Massive repositioning for [less risk]." Apparently not good enough. Stocks down, treasuries down, MBS down (but tighter a bit). Apparently MBS's opposing team is not out of "time-outs" yet as, ONCE AGAIN, the home team has been called to the sidelines.

When we are losing concomitantly with treasuries and equities (and oil), it's bit more of a comfort. The only concern here before the Dow open is that after dropping post-lehman-announcement, stock gains back towards (and over) positive seem to be a direct lever for treasury prices. A boomy day for stocks will likely keep us underwater in the absence of some "blessing of stability." Still, I'm comfortable with the current level of retracement. An already well-bought MBS current coupon (compared to itself, not to treasuries), effectively doubled its upward run from the last low at 8/14. So it's OK to see prices drop at these levels. Key positions we need to maintain are still "a ways" below us. Lenders are hedged in the first place, so we may not see as much impact as MBS prices indicate.

Whatever the case, the safest bet in the near term is some nominal retracement, ending some time between later today and Monday. That assertion must be tempered with the headline and event risk disclaimers. The desert-wandering capital markets encounter an oasis of scheduled data tomorrow and Friday. Whether it's potable or brackish, it will taste doubly so to our data-thirsty traveler.

For you uber-short termers that may not have rate sheets yet, but DO have 24 hr lock protection, eh...., tough call, but a lock now at least will lower your pulse. Everyone else in the float club should know how to take a punch. We'll get back up. First scheduled adjournment of float club meetings isn't until 2009. Again, RISK is a caveat to all we do, but of course, you'll know the moment any unforseen risk materializes. So, as always, don't touch that dial