As described in the Weekly Forecast, stocks and the dollar made a sharp and sudden reversal yesterday afternoon, as Wall Street rethought their initial bullish reaction to the FOMC announcement. After climbing 88.12 points to a fresh 2009 high, the Dow reversed, closing down 81.32 points to 9.748.55. And after hitting a new 2009 low, the dollar reversed.

What was "profound" is that the Fed has unequivocally telegraphed that long term interest rates are on a gradual trend up and short term interest rates are being protected at near zero for at least the next several months. This indicates a gradual unwinding of the Fed's balance sheet and the transition of the finance industry from direct Federal Reserve support through the purchase of their securities.

In addition to what I wrote about Saturn challenging Pluto forcing the Fed to contract its purchase of mortgage securities, Saturn/Pluto represents the need for the Fed to slowly (Saturn) unwind the lending (Pluto) programs the Fed created to expand the type of collateral and duration of its discount window lending. This morning the Fed released a schedule that gradually scales back the Term Auction Facility (TAF) and the Term Securities Lending Facility (TSLF). The Fed will reduce the maturity dates "by early next year to a single cycle of 28-day funds offered every 28 days." The Fed will also "assess whether to maintain a TAF on a permanent basis."

Today the stock market reversed its early gains at 10:00 AM after the Fed released the new TAF and TSLF schedules, the same time data on August existing home sales was released that showed a decline instead of an anticipated increase in sales. The fact that slightly over one third of existing home sales continue to be for "distressed homes" and that 70% of homes sold were priced below $200,000, says that even with the Fed supporting low mortgage rates combined with the government's homebuyer tax credit,* most homes for sale in most sections of the country are still not properly priced.

According to mortgage data tracker HSH Associates quoted in the WSJ Ahead of the Tape column, without the Fed's support the national average conventional fixed rate mortgage would be about 5.9% vs.