Bonds bounce... Remember the concept of bounce? This is when a severe drop in the market causes investors to come back in and start buying up "good deals." That happened for much of the session today after such severe pricing deterioration Friday. Investors kept the FNMA 4.5% bond up over its starting price by close to 50 bps for much of the day before sell off this afternoon put us up just 25 basis points on the day. (Closed at $101.16) GOLD! Wow...gold settled at 1065 dollars an ounce. Investors are turning to gold and for 10 sessions it has closed it's sessions at pricing over $1000/oz. Remember: investors are looking for investments that will be safe from further deterioration and safe from inflation in the US dollar. GOLD readily converts into any currency and on the surface is not subject to the domestic policy of one currency or another. So: if the dollar tanked...or the Yen tanked...or any other currency: theory is that "gold" would stand strong as the true "standard." Remember the 3 dimensional currency model I made-up the other day though? Value= traditional perception of stable value + current perception of stable value + perception that the stability of the "value" is going to continue. Gold has all three right now. (Though gold hasn't really been stable in the past...the perception is there.) Note though: Gold is really only worth something if someone out there thinks it is. WAAAAY back...gold was "worth" something because people could make something "pretty" to wear out of it. When they were dressed "fancy" that made them feel better than other people in the village who could not "afford" to dress this way. This desire to feel better than others led to a thirst for the confidence that came from that. Naturally...there is much more to the story but again, the bottom line is: ya can't eat it. Have a great day!
Chad
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