Dear Clients,

Well they did it (or I should say we did it, or perhaps I should say – they did it with our money), the U.S. Government has seized control of the two mortgage giants Fannie Mae and Freddie Mac. Whether this bail out ultimately turns out to be a good thing, in my opinion, is not worth discussing here. It’s a done deal and any comments I may have on the plusses or minuses at this point would be purely rhetorical. Unlike my recent comments regarding the ludicrous notion of a win fall profits tax on oil companies – which hasn’t happened yet, thank goodness!

The significance of the Freddie/Fannie issue that’s worth noting is the simple fact that these drastic measures “needed” to be taken at all. This is important in that, if indeed the bail out averted a looming crisis, it tells us that we may finally be getting to the inevitable “darkest before the dawn”. As I’ve suggested for the past few weeks, bear markets tend to end with a big, stock-slide inducing, bang. While the bailout may have, in effect, helped the market sidestep capitulation (big sell off on high volume) for now – it no doubt would have occurred had Freddie and Fannie been allowed to fail.

This shows us, conclusively, that it is indeed really bad out there for the mortgage/real estate market (as if we had any doubt). And it proves that the stock market has been doing its job quite well these past ten months (the market began selling off last October in anticipation of this bad, if not worse, case scenario). You see the market serves as a discounting mechanism that, through the predominate directional trend in share prices, anticipates the direction of the economy going forward. And it generally begins to discount the economic future long before the economy itself signals a change in trend. Who would have thought that last October, when the euphoria of Dow 14,000 hit the market that just ten months later it would be flirting with 10,000?

At some point in the future, you’ll likely read a commentary where I’ll say; “who would have thought that the Dow would be setting a new record, when just X months ago it was flirting with 10,000”. And we will find that the market began discounting the move out of the current recession months before the economic indicators gave us anything positive to hang our hats on.

So in the end, an unwinding of all the bad stuff out there is a good thing. Think of it like we’ve been teetering on the edge of a cliff, wondering whether or not a strong wind is going to come along and blow us off – which just perpetuates the uncertainty. Once we finally “fall” and hit bottom (this fall won