It started early today....

The ECB pulled out the wallet and started raining money. Well, not really, but they did their version of a TOMO in an attempt to stabilize the credit markets, as LIBOR went nuts overnight - to a degree that is basically "never supposed to happen." Why? You know....... more bad paper being discovered.

There are those "five sigma" events again, and they're happening more and more often!

Guys, when a central bank starts OPENLY propping things up you know it is bad and not contained. When the LIBOR market goes ape**** by 50 bips in a matter of hours you know that its far worse than they are telling you!

HEH MR. CREDIT MARKET - YOUR ROOF IS ON FIRE!

QUIT LYING TO US!

You got a few guys who "get it", like this writer over at Bloomberg:

"If a guy with a herd of cows described the milk market as the worst for 22 years, you might expect the creditworthiness of dairy producers to decline. In the worst air- travel market in more than two decades, you could reasonably anticipate that the credit ratings of airlines would suffer.

So when Bear Stearns Cos. Chief Financial Officer Samuel Molinaro said last week that conditions in the fixed-income markets are as bad as he has ever seen in his 22 years in the securities industry, guess what Moody's Investors Service said?

'The subprime exposures of the major U.S. investment banks and institutionally active commercial banks do not have negative rating implications at this time,' the rating company said in an Aug. 3 report. Note the caveat carefully tacked on to the end of that sentence, a get-out-of-jail card to be played at some future date if the wrongs in the credit market don't right themselves."

Whistling past your own funeral, me thinks they are.....

July retail sales aren't impressive. Big box retailers are coming in a bit over expectations driven by heavy promotions. Sell sell sell.... but don't make any money! The midline department stores got MURDERED in July - this is not good!

Hi Chucky, is your credit card blackened with the numbers burned off? Looks like it! Oops!

Jobless claims came in up 7,000 to 316,000. This is a relatively tame number; doesn't look like we're moving much on that release.

Home Depot is in trouble with their sale of the supply business; they are attempting to restructure the deal. This is what happens when you overextend into a tightening credit market.

Rumors are that a smaller (NOT Global Alpha) quant fund at Goldman is being closed.

The homebuilders seem be playing games today. But let's look at the fundamentals. Bush gets back on TV and says no bailout with Fannie and Freddie, and people just don't want to hear it!

"President George W. Bush said Fannie Mae and Freddie Mac must complete a 'robust reform package' before the government will allow the two largest mortgage finance companies to buy home loans beyond current federal limits."

You guys did not listen to him last night did you?

AIG said they have delinquency problems in prime paper (gee, CFC said this too 'yanno.... .what, you didn't hear them?)

The Yen and markets are moving in lockstep today; there is a major problem in Hedgistan guys, and its spreading. Fast. Quants - the long/short hedge funds that try to trade on "dislocations" between two stocks that "should" move together - are finding out that in stressed markets all hedges correlate to one!

This is a fact that has been known for, oh, like - FOREVER!

They seem to have stayed at the party for a bit too long and got a bit too dunk. Now there's a problem - a big problem - because they're all trying to fit through a very small door while the squeeze is on. This is producing some really odd behavior both in the Yen and the markets, as both come under both pressure and relief at the same time.

The options guys are on to the game now and you can expect MAJOR IV spikes here across the board. This is not going to be contained to certain sectors any more or certain stocks - it is going to show up in the index options very soon if it hasn't already. BEWARE if you're playing in the options market because as IVs start to skyrocket you can make money if you got in before it happens, but if you buy into it you're going to get murdered, even if you're right about the ultimate result!

The Vix is up to nearly 25 this morning, up almost 14% in the first couple of hours!

We now have people either lying repeatedly and loudly, OR THEY ARE TOTALLY CLUELESS!

Well, a week ago BNP Parabas said "there was no liquidity problem." TODAY they suspend withdrawals! NO LIQUIDITY PROBLEM?

HORSE****!

Now look - there's two possibilities.

1. Let's say he didn't know. Then he has just admitted that NOBODY KNOWS how bad it is, but its really bad and the **** is likely to really hit the fan!


2. Let's say he DID know. Then he has just admitted that he LIED just ONE WEEK AGO!

Take your pick but both are very bad.

And now we have Steve Liesman saying "if we get out of this without a major money center bank blowing up!"

IF?! IF?!!!!!!!

You really said that on national television?

Guess what?

This **** is happening right now.

Here we have one of the biggest international banks and fund managers on NATIONAL TELEVISION who is either lying up front OR doesn't know what he's doing!

Take your pick; either is really, really bad!

Now keep going with that thought process. Who else has been saying the same sort of thing - "all is well"? Oh, people like Countrywide perhaps?

And guess what - I heard something today on CNBS I have never heard before. Steve Liesman admitted that Peter Schiff has been more right than wrong!

Oops. That kinda sucks doesn't it?

Oh, and in the we must have an implosion a day camp, it now appears that Tarragon (TARR) is in trouble:

"Tarragon is currently experiencing liquidity issues caused by the sudden and rapid deterioration in the real estate credit markets. This has resulted in Tarragon being unable to complete approximately $50 million in financing transactions that had been under negotiation and were expected to close in August 2007."

Is that good?

The market action today was some of the oddest I've seen in a very long time. Instability levels are rising rapidly all over the place. This is not volatility - although it is being expressed as volatility.

It is instability, and there is a big difference between the two.

There is a mighty attempt being made here to try to get this under control, but each move the players make seems to just make it worse. Forced liquidations are happening all over the place, from Treasuries to Gold to Silver to the Yen. If it was an asset, it is being sold - one must assume the underlying reason is to meet margin calls, either actual or impending.

If you are long financials - any financial - you are at severe risk. Credit instabilities can kill any of them, including money center banks!

We came within a hair of yet another Hindenberg! 72 New Highs and 304 New Lows! Incredible. On a day down 387 points.

I don't want to spend too much time on the technicals, although they do have relevance here. The Dow is sitting on the 100 and the Transports on the 200. The SPX is also sitting on the 200. The Russell is still clear to the downside. The Nasdaq closed under the 100 while the NDX, which had regained the 50, lost it again and is now under it.

We have no new clear technical signals on the board for today, despite all this - but the potential for us heading back up - that "this is over" - became considerably less likely today. We had bad news across the board with the real monster in the closet being that this so-called "subprime" mess isn't subprime and isn't contained anywhere. At all.

NVidia reported inline at 43 cents. The initial reaction was good on the street but as we've seen before the conference call will say much. I am not going to wait for it; this was an inline report, not a "huge beat", so while it may be good for them tomorrow that all may be relative given the background.

Overnight watch the Yen for signs of further forced unwinding of the Carry and watch the futures very closely when Europe opens. Any sign of further credit market distress is likely to show up there instantly, and if you want to "front run" it, that'd be the place.

Good luck!