Market: Flat. We’re down 16 bps, which doesn’t signify.  It’s been this way since Monday.  Rates holding 5.25%-5.5%, depending on about 84 things.

Analysis: The Fed is meeting, and should release something in about an hour.  The fun part is predicting a) what they will say and b) what will happen to the markets when they do.  Consensus is that nobody knows anything.  The Fed will almost certainly do nothing with rates, but if they did, they would have to raise.  Would that be good or bad?  Nobody knows.

One thing to bear in mind is the huge number of Alt-A mortgage resets coming in the next 24 months from Option ARM and other exotic mortgages.  Right now, those resets are not all that bad, just as most subprime resets weren’t that bad – despite what you hear on the news – because everything is indexed to the Fed and LIBOR rates, and those rates are lower than a 3-year-old with a lump of coal at Christmas.  If the Fed raises, which many are urging, to protect the value of the dollar, that may help curb inflation, which we’re not seeing any of yet, but it will also make those resets hurt more, which will crush what’s left of the banking system.

Don’t you wish you were Ben Bernanke?  Gee, I do.

Cj

Chris Jones