The volatility of our benchmark FNMA 6.0% mortgage bond eased somewhat as the bond traded in 'only' a 44bp intra-day range. Bond prices fought their way above resistance at $100.59 in choppy trading to close 22bp higher at $100.69. Mortgage bonds received a boost early in the session following another gloomy housing report. Housing Starts fell in September by 6% to a worse than forecast level of 817,000, a 17-year low. Economists were expecting 870,000 new Starts. Building Permits fared even worse with an 8% drop to 786,000, a 27 year low. Economists were looking for 840,000 Permits in September. The data suggests the inventory of new homes overhanging the housing market will gradually be worked off. Consumers are feeling more pessimistic about the economy. The preliminary Consumer Sentiment Index from the Univ. of Michigan for October fell to a lower than forecast 57.5 vs. expectations of 65.0 and well below September's level of 70.3. Frozen credit markets continue to slowly thaw. The LIBOR/OIS spread, the spread between the dollar LIBOR and overnight index swap rates, is a popular indicator for the willingness of banks to lend to each other and is being used to monitor the state of the credit market. The higher the spread, the less likely banks will lend to one another. Before the credit crunch hit beginning in August 2007, the average LIBOR/OIS spread was 11bp. This week it eased to 331bp from 341bp, but still remains extremely high historically. Meanwhile, LIBOR inter-bank lending rates continued to slip today with three month U.S. dollar LIBOR loans falling to 4.41% from yesterday's 4.50%. The stock market resumed its rollercoaster journey today as hedge funds continue to deleverage while some mutual funds sell stock to meet an increase in redemptions. Their actions in the stock market are causing record volatility and huge intraday price swings as they are forced to liquidate positions. We look for this trend to continue as hedge funds in particular are experiencing large redemptions from their wealthy clients. The Dow Industrials were volatile once again and traded within a 563 point range before falling 127 points lower to close at 8,852. The broader S&P 500 Index fell by 5 points to end at 940 while the NASDAQ Composite Index lost 6 points to finish at 1,711.