This is going to be cute.

The Bank of England and ECB both held rates steady early this morning.

This puts BenDover Bernanke in a really interesting spot.

He has been issued a very stern warning by both the bond and FX markets, and undoubtedly was counting on a bailout from his ECB and BoE buddies to "fix" that little problem and disarm the vigilantes in both markets.

Well, today what he got instead was a gleeful Trichet who walked right up to him and pulled the pin out of the grenade he's holding.

Shock and Awe huh? Looks like the one stunned here is Bernanke.

Now he's standing there with the pineapple in his hand, palm clasped on the spoon, desperately looking for anything that looks like a pin to put back in the hole before his palms get too sweaty and he drops it.

Heh Bernanke - you IDIOT!

Are you getting it yet?

Your last two moves have shoved the dollar off the cliff and its now got its claws into the side made of clay, trying to prevent a total freefall. Oh - let's add that its raining. Hard.

The long end of the curve hasn't responded as you would have liked, which means no real relief for mortgage rates and the housing market. The curve has steepened and not much of it came from the short end, which spells inflation expectation. Oi.

Yesterday the Dollar corrected from its plunge somewhat, obviously in anticipation that the ECB and/or BoE would throw BenDover a bone. Well, today they said "nuts!" to that. Watch for the Dollar to resume its decline and for the pressure cooker to continue to ratchet up on other nations to drop their pegs.

So now BenDover is trapped with no good ways out of the box. If he cuts again, the dollar goes totally to **** and the inflation monster stomps on everything within 20 miles. If he takes back the cut the equity markets die immediately but the dollar recovers. If he holds and the economy doesn't pick up (and it won't) then he gets the equity implosion as well, but likely on a slower scale, and the dollar may actually go to hell anyway as the possibility of an economy-led government funding problem shows up.

Initial Jobless claims came in at up 16,000 to 317,000, four week average essentially unchanged at 312k.

The futures market reaction was a yawner.

Factory orders came in pretty bad - down 3.3% - and far worse than the expected -2.4%. The internals were even worse, with new durables orders down 4.9% (!) from previous month levels - this on the back of a much stronger than normal July number. It appears that perhaps the people overbought in July and thus cut back in August. The market reaction was fairly muted, but definitely not in the "upside" direction... there was a small bounce but then the downward trend we had for the day continued onward. Hmmmm.... we shall see how this plays going forward today. I wouldn't bet on the overall reaction being good down the road....

So now what do we got? Let's recap:

1. The dollar is weakening precipitously.
2. BoE and ECB just gave Ben the finger on letting the inflation monster out of the closet and dashed his hopes for "balanced" currency debasement, which would have kept the illusion of reasonable currency values intact.
3. Yesterday, profit growth estimates for the S&P 500 were cut in half.

This is a nasty box to be in.

If the equity market guys start doing their thinking with more than a shoe-sized IQ they will quickly focus on the P/E/G ratio for the S&P 500, which now stands against estimated earnings growth for the third quarter at eight. Even if profit growth doubles current estimates the P/E/G ratio will stand at FOUR.

For a perspective of balance, historical PEG ratios between one and two are considered "reasonable".

This implies that the S&P 500 should, assuming a double of estimated profit growth from estimates, be trading right now at about 750, or DOWN 50% FROM HERE!

Now that obviously is beyond bearish and into the realm of an outright equity market collapse. Yet without profit growth there is no reason to buy equities at all!

How long does it take before that fifty percent cut in earnings estimates sinks in to the guys riding the short bus - that'd be Equity Traders?

I don't know the answer to that question but I've never seen the S&P 500 trade with a P/E/G ratio of FOUR for any material length of time. Even during the Internet bubble we didn't get there because estimated earnings growth was so much higher.

This looks like big trouble to me, but heh, that's fundamental analysis and we know that doesn't matter any more right?

Feh. Fundamentals always win in the end.

Oh, they fixed the mortgage mess with tighter underwriting yes? Wrong:

"Subprime mortgage bonds created in the first half contain loans that are defaulting at the fastest rate ever, data in a Moody's Investors Service report shows."

Are we EVER going to see meaningful regulation out of Washington aimed at these clowns?

And guess what else is new? Richard Fisher has finally acknowledged what we all know - that inflation statistics ignoring food and energy is an act of fraud. And who is Richard Fisher?

He is one of the Fed Governors - President of the Federal Reserve Bank of Dallas!

Now read this very carefully folks, and let's see if you can discern more than the average government-school educated idiot in our nation:

"Charlie Bean, the chief economist of the Bank of England who is on the Advisory Board of the Dallas Fed's Globalization and Monetary Policy Institute, posed an interesting question after noting that globalization not only delivers freighters full of inexpensive electronics, toys and apparel to consumers in the U.S. and Europe but also puts upward pressure on the prices of energy and other commodities. What sense does it make, the real Mr. Bean asks, to exclude the food and energy price increases from our inflation gauges while incorporating the price declines on the other goods that we buy?"

and

"People, including economists living in married bliss in East Texas, do not stop eating or air-conditioning their homes when food and energy prices jump. Excluding them suggests a disregard for the impact on real people. I empathize and sympathize. Keep in mind, however, that the price indexes a central banker uses to frame, craft and evaluate monetary policy need not be the same as the ideal index used for measuring the cost of living. Indeed, there are macroeconomic models suggesting that if wages are stickier than prices, a central bank would do well to focus on an index of wages rather than prices. I just can't imagine central bankers lasting very long in their jobs if they continually announced to the public their desire to hold down wage growth."

You mean that the idea of exporting inflation to our trading partners, especially when we do it by pushing marnufacturing offshore to artificially-cheap sources of labor, ultimately comes back to us in the form of higher inflation in commodities as their demand expands exponentially?

And what's even better did I not just see an admission in that second quote that The Fed doesn't give a flying **** if every person in this country eats REAL inflation and thus a REAL declining standard of living SO LONG AS THEY CAN LIE ABOUT THE RATE OF INFLATION AND THEREBY SUPPORT ARTIFICIALLY LOW INTEREST RATES AND INDEXED ENTITLEMENT PAYMENTS?

Go read that again - IT IS A RAW ADMISSION that The Fed is in fact "managing the numbers" so as to force down standards of living by intentionally understating inflation!

Gee, haven't I and others been saying this for quite some time?

Now guess what? Marketwatch picked up on the first quote - but not the second.

How come?

Because for the mainstream media to talk about the second means that the mainstream media would have to issue a formal indictment against The Fed, essentially accusing them not of "accidentally" screwing Grandma (with her Social Security check) but rather orchestrating an INTENTIONAL butt**** of every senior citizen and working person in the nation!

I didn't make this up or extrapolate it from the data guys - this is what Fisher actually said!

Ok guys, time to start faxing and sending things to Congress again, this time pointing out that The Federal Reserve has just admitted that it is intentionally violating its mandate given by Congress!

Special prosecutor anyone?

Here's what I sent to my Congressman....

Get off your butt or get the government you deserve.

Here's your evening technical!