Today we got the release of the monthly jobs numbers for September and they were disappointing to say the least. Nonfarms payroll, which was expected to come in at a loss of 100,000 actually came in at a loss of 159,000 jobs. The unemployment rate held steady at 6.1% and hourly earnings only rose .2% compared to the .3% rise that was expected. These reports are very mortgage backed security friendly; however, mbs have done the complete opposite and sold off. You would expect that these reports would trigger a flight to quality, meaning investors selling equities and buying fixed income investments. Well, not the case today. One explanation is that investors feel that such a bad report will force the House of Representives to pass the $700 billion rescue plan, so investors are buying equities and currently the Dow is up 130 points. This rise in equities is being paid for by the selling of fixed income.

Today will sure be an interesting day with the rescue plan to be voted on, Wells Fargo and Citigroup appear to be in a spat over acquiring Wachovia bank, and we are having a slight rally in the Dow. The day is still early and as I have been typing this update we are starting to see mbs come off the lows. We will post back if the market turns south in a bad way but it is still our opinion that we are due for a rally in mbs and lower rates ahead.

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