With all the fireworks going on in Washington and on Wall Street, people may have overlooked some of the numbers showing things are not going all that well down on Main Street.? This morning, we got the ISM manufacturing index for September, and it was just plain ugly.? The overall index fell to 43.5 from 49.9 in August.? The index is constructed so that any reading over 50 indicates expansion, and any under 50, contraction.? This is the lowest reading since 2002 -- the last time we were in a recession.?

Looking at some of the components of the index, new orders plunged to 38.8 from 48.3, production fell to 40.8 from 52.1, and employment was down to 41.8 from 49.7.? From a GDP accounting perspective, there was a little bit of good news as the export index is still above the 50 neutral line at 52.0, but that is down from 57.0 in August.? The import index fell to 44.0 from 48.5.? This should help a bit on the net export side of GDP growth, but trade improvement from imports falling faster than exports (well exports still appear to be expanding but less rapidly than before, and rising exports have been just about the only bright spot in the economy lately) is not a healthy development.

Also today, the Mortgage Bankers Association reported that its index of total mortgage applications fell 23% last week, despite overall mortgage rates holding steady.? The refinance index collapsed by 34.7%, while the index for new purchases was down 10.7%.? Clearly we are nowhere close to being out of the woods on the housing front.? The takeover of Fannie FNM and Freddie fre does not seem to have done much to free up mortgage lending yet.? The longer the credit freeze goes on, the greater the damage will be.

I would still avoid the Financials in here.? The idea of abandoning mark-to-market accounting is just a desperate attempt to sweep the problems under the rug.? That is the mildest way I can put it.? We need more transparency in the financial statements of the banks, not less.? This is an attempt to repeal one of the most basic rules of accounting, namely that assets should be valued at the lower of either cost or market.? With this change, the books of every major financial institution will belong on the fiction shelf.? Fairy tales can make for enjoyable reading, but you don?t want to rely on them for making investment decisions.?

Longer term, there will be some real winners among the banks.? I suspect that J.P. Morgan (JPM) and U.S. Banks (USB) will fall into that category, but I would wait at least a few months before getting into them.? Avoid the weaker banks like National City (NCC), Fifth Third (FITB), Key (KEY), Downey (DSL) and Regions Financial (RF) like the plague.? Sure, they may have days when they pop up by 20% or so, but they will also have days when they are down 20%, and there will be more of the latter than the former.? You would have more fun in Vegas, anyways.