First up - GDP. 0.6% for 4Q. Hmmmm...... that's awfully close to zero, eh? After the 3Q print this is an insane deterioration one quarter over another. Obviously should that trend continue we would be deep into recession next quarter.

ADP - the employment survey continues to surprise. But - let's not forget that holiday part-time hiring should have factored into this - and now should bleed off. Will it? That's a good question, and we'll know next month. For right now, it looks pretty good - the problem is all those "adjustments"....... do they represent reality? Probably not, but heh, the market runs on perception, not necessarily facts.

So we've got one "on the brink of recession" print and one "things will be fine" print. Along with that we've got the obvious "surprise" 3/4% cut last week - is there really any need for more?

Now let's add to the quandary - embedded in the preliminary 4Q GDP results were Core PCE numbers that should be enough to scare virtually anyone - here's the "money quote":

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.8 percent in the fourth quarter, compared with an increase of 1.8 percent in the third. Excluding food and energy prices, the price index for gross domestic purchases increased 2.5 percent inthe fourth quarter, compared with an increase of 1.9 percent in the third.

Let's put this in terms of percentages.

The topline price index increased by one hundred and eleven percent (111%) from the third to the fourth quarter, while the "core" price index increased by thirty-two percent (32%) over the same time.

At this rate the headline price index would move upward by more than 400% on an annual basis, while the "core" index would move upward by more than 120%.

Inflation expectations are "well-contained" eh?

Not according to this data!

So now Ben's in a box. He can be "Wall Street's Bitch", damn the price index numbers and the slosh, or he can "pause". Either way he risks being blamed when - not if - things go wrong. And go wrong they will; the GDP print this morning is exceptional in its trend change, and coming in the 4th Quarter, which is traditionally strong due to seasonality, its especially ominous.

Here's what we come down to when all is said and done - the bid to cover ratio yesterday on the TAF was anemic at best.

The "money shot" question is WHY? We don't know if it was due to weak commercial credit demand - in which case the FFT will come down much further - or whether it is due to the lack of marginable collateral, in which case there's no need for any adjustment at all.

The increasing "slosh" to defend appears to claim that the latter is the case, but we don't know, as we're not able to get that data - but the Fed Governors have it!

As such unless you like risk - and lots of it - you're flat ahead of the FOMC on anything that has a short time-leash on it (like front-month PUTs!)

In the intermediate term, I believe there is no longer a case to be made about where the economy is headed - to get this sort of trend establishing itself into the 4th quarter makes clear that avoiding a recession is, for all intents and purposes, the wrong discussion to have.

The recession is already here!

What's particularly bad about this situation is that until the pricing pressures ease attempting to "stimulate" our way out of the mess won't work and in fact will make the problem worse.

It looks like we may be headed for a replay of the 1970s - low or no growth and ramping prices (but not necessarily inflation in the definitional sense, although you can bet the "crooners" will claim so due to their lack of understanding of what inflation actually IS!)

Now let's add to the "nasty" quotient - last night we found out that an Australian brokerage was unable to settle customer trades because an alleged 60% of their customers had received margin calls - and they hadn't been able to meet them!

This sort of news should have positively roiled the markets, and to some extent in Australia, it did.

To believe that this sort of problem will remain "localized" to Australia is pure nonsense; the unfortunate reality is that this is what brings the spectre of "systemic risk" to the forefront - and it should!

And no, a lower FedFunds Target does not ease these risks.

What would?

The Fed actually doing its job of REGULATION in the banking system.

IN SHORT, FORCE THE DAMN BANKS TO TAKE THEIR MARKS, STOMP ON THE RATING AGENCIES WHO CLAIM THAT THERE ARE "AAA" RATED FIRMS WHEN THEIR DEBT IS TRADING AT DEFAULT LEVELS (20% effective coupon?!) AND FOR THOSE WHO REFUSE, TAKE ENFORCEMENT ACTION STARTING WITH PUBLICLY NAMING THE OFFENDERS!

But it appears we need the other "F" agency - THE FBI - to do ANY of that. Yesterday we got news that fourteen separate institutions, some still operating and others "busted" mortgage lenders, are being investigated. The FBI doesn't sue people, it charges, tries and convicts them! Perhaps my dream of a few RICO charges will come true!

None of us in the United States should tolerate this outright horsecrap. There is no possible way you can argue that a company with its debt trading at 70 cents on the dollar, who just issued debt at a coupon of 10% (and which the market promptly marked down so the effective yield is double that!) deserves an "AAA" rating. This is absolute folly and points to the need for RICO indictments levelled against EVERYONE who has conspired over the last several years to practice inappropriate and entirely indefensible "grade inflation" for the explicit purpose of ripping off investors and enriching themselves!

The alternative, if the indictments and enforcement does not come in the immediate future (assuming the guilty do not atone right here and now for their misdeeds) is that debt ratings will quickly become totally worthless.

THAT results in the destruction of huge swaths of the Debt Market, "all at once", with extreme and severe impacts upon both the economy and financial markets.

Of course expecting CONgress to act against their "sugar daddies" that give them humongous amounts of money in campaign contributions, along with maintaining a tremendous presence on "K" street in the lobbying arena, is kinda like asking for Santa Claus to show up and produce a new BMW for you - tomorrow, not on Christmas.

What CONgress (and The Fed) need to get their arms around - and soon - are that they have a Hobson's Choice here - they can either act very soon (like now) and risk tanking the stock market, or they can fail to act and risk a lock-up in the financial markets very similar to what is starting over in Australia - failed trade settlements, swaps blowing up, and the sort of financial panic not seen in this country in well over 100 years.

DeNile is not just a river in Egypt, and no, the housing and financial markets will be not "be ok."

Oh, and now Flagstar is talking about "jingle mail" and people willing to just declare bankruptcy, mail in their keys, and say "screw you!" on the mortgage, whining all the way about how this is "so bad".

MY ANSWER? STOP WHINING! IF YOU HAD MADE LOANS ONLY TO PEOPLE WHO COULD PAY AFTER THEIR RATES RESET, INSTEAD OF PRICING SO THEY WERE FORCED TO COME BACK FOR ANOTHER BITE AND EARN YOU ANOTHER FEE, YOU WOULDN'T BE IN THIS BOX! FLAGSTAR, AMONG OTHER LENDERS, CREATED THIS MONSTER - THEY HAVE NO RIGHT TO COMPLAIN!

And yes, I think people SHOULD consult with an attorney, figure out if they CAN jingle-mail their lender if they're in trouble, AND IF, ON A TOTALLY DISPASSIONATE BUSINESS BASIS IT MAKES SENSE ON BALANCE, THEY SHOULD DO IT!

FOMC goes 50/50; this will be fun trying to defend it. The TNX no likey. I am getting convinced we're going to see a 4 handle on the 10 within a week or so. Look at the technical; the pattern looks to be forming, and the last one confirmed and then hit the mark.

Check's on the table guys. Time to pay up - that pump didn't work out so well, did it?

Oh, and don't look at Amazon after the market closed. Hope you didn't BUY that pig! I've warned people repeatedly about buying broken momentum stocks - how many examples do we need now? Apple, Crox, Garmin, RIMM and now Spamazon. Google may well be next.

Got PUTs?

Here's the technical!