Looks appropriate to me this morning.......

The futures traded all over the place this morning, so long as your range was all negative. As the morning advanced towards the open levels seemed to stabilize a bit - albeit still in the red.

The ADP/Challenger employment numbers came in very weak, over 100,000 below expectations at +48,000. This may be a precursor to what we have to come on Friday, and if so, its not likely to be pretty.

The FX markets suddenly found a bid on the Dollar/Yen contract in the wee hours. There are some who are presuming this was some sort of "PPT" intervention. Nope - just someone in Hedgistan who thinks the Yen is going to be forced down by the recent rout in their elections; the pressure actually came over in the Euro, not the dollar, but a forced-down Yen hit the Dlr/Yen cross too. I believe that will prove to be a horrifyingly bad bet as forced-unwinding is likely to start to come on even more hard and fast after last night's Mark-to-Market fest in the Hedge World, and when it does there is likely to be a forced-unwind of some of the carry coming from the supply side on the dollar. This will bid the Yen, and you know what comes next.

As noted in a special issue last night Moody's put a fork in the Mortgage Market last night, not only saying that they're going to tighten underwriting criteria for rating ABS bonds as S&P has done, but actually putting a number on it. And that number isn't pretty. This essentially destroys the PayOption ARM marketplace, making the required interest rate on those somewhere near 10%. It makes a raw joke out of the concept of "ALT-A", effectively redefining anything but Jumbos with conforming back end ratios into the "Subprime" category.

My prediction a while ago was that we were going to see 30% of the mortgage - and thus house-buying - market that exists from here disappear. Moody's just basically insured it. What's far more ominous is that for those lenders who have large warehouse lines full of mortgages they have written in the last month or so - they're ****ed. They've now got closed and funded loans that can't be sold at anything approaching a profit, and that is unlikely to change. This hit the futures when announced but I suspect that most of the guys on the equity side don't understand how serious this really is. This literally threatens the survival of most of the remaining big mortgage issuers in the United States!

Oh, and in what looks like an acceleration of my expected timeline, we got the announcement today on mortgage applications - showing a decline. This is nowhere near the bottom kids.....

The morning open was one of those rare situations where you are given a gift by the market. The futures were down yet the market opened up. The futures guys almost always have it right - this was your GIFT to short the **** out of the market at the open! And lookie what happened just a few minutes after the open - a big fat rollover! If you're into daytrading this was one of those rare opportunities where the market almost begs you to take money.

The ISM Manufacturing index came in at 53.8, which was a bit worse than expectations. Not all that surprising. It never ceases to amaze me how many industries will crank along right off the cliff (over "50" is expansion)

Pending Home Sales came in up 5% (contracts signed) from the (what else) downward revised May numbers. Of course given the changes in the mortgage markets this isn't likely to remain good is it? How many of those sales will close? Betcha not as many as you might think!

MTG is getting destroyed today, down over 10%. These guys had a company they're buying which unfortunately had one of those nuclear debt-bombs timer reach zero on them the other day, with a $1B mushroom sprouting over their balance sheet.

Oil's weekly inventory report came VERY weak. At this rate in another day or two we will have an eight handle on oil. That's not going to go over well for equity prices. Oil was down significantly on the day - most likely on profit-taking in the futures.

Chris Dodd's banking committee reported out a bill aimed at the Chinese currency issue. They're not likely to appreciate it. While this is almost certain to draw a Veto from Bush, the heat is being turned up bigtime there, and there will be some sort of reaction - now we are left to wonder - "what?"

There are rumors that an American Investment Bank was forced to liquidate positions due to a margin call against "someone" overseas. There's no color on this - yet. But its unlikely this will remain "contained", despite the protests from certain pumpers who would love to unload their shares into your account. Don't believe it!

The housing sector is getting slaughtered today as rumors are out on the street that Beazer may have lost an operating credit line and be headed for bankruptcy. They denied it formally (read for yourself and determine how strong of a denial you think it is), which took a bit of the heat off - for now. Psst - have a look at a few other balance sheets to see who's got a shortage of cashola - no cashola, no company. Contained my ass! These dominoes are only going to continue falling. Sometimes the shorts are right!

The fear level is extreme right now across the board. Virtually any sort of rumor can and does spike the market - at least temporarily. This is an extremely dangerous time for both bulls and bears, as the whipsaws are likely to be very violent for a while.

There were some people who got hurt bad today on that plunge in the homebuilders this morning. If you're going to short into the hole you need to be damn careful about it and do it with the underlying NOT OPTIONS.

The reason for this is that if the momentum behind the hole closes up not only does the move reverse but the IV collapses at the same time! This rapes you twice, and makes it very, very hard to recover - even if the trend continues towards your selected strike! There is no defense against this sort of whipsaw in the options market; a trailing stop on the underlying will keep the pain small but it won't help you when the IV collapses and as a consequence the price gaps on the option prices. For this reason I NEVER short into the hole with options - if I'm going to do it (this sort of thing is a VERY high-risk trade to start with) I short the actual stock or at most buy a 2x inverse ETF.

DON'T GET SUCKERED INTO THOSE MOVES IN THE OPTIONS MARKET! This is one of the Bear (and Bull!) traps in markets like this and will suck your account balance dry.

MasterCard reported good results but showed slowing growth in transaction volume and was immediately slaughtered. Chuckie's credit card may have had the numbers burned off - and if so, he's done!

Automakers reported awful numbers for Ford - a loss of 15% in sales (!); car sales down thirty percent. Ouch. Ford's estimates were for a loss of 6.5%; that's an absolutely enormous miss. Gee, you don't think Chuckie is having some trouble buying expensive things do you?

GM's sales down 18.5% for July - that's awful too; expected was down 15%.

Toyota's sales came in down 4% and they said that the housing slump is directly impacting truck sales. But, but but..... I thought housing wasn't going to impact anything else in the economy? Oops.

Bausch And Lomb's M&A deal (they were being bought) has been called off. Oops.

Technicals: We pinned a bunch of technical levels today but didn't hold below them. Of importance were the Dow Jones Transports and the S&P 200 DMA.

Most of what you saw going into the close was mutual fund purchasing as a consequence of first-of-month 401k contributions. This, however, may set up a nice tradeable bounce tomorrow if you're inclined to do so, at least in the broader indices.

Note that part of that bounce came back off in the futures immediately after the close. This is a solid indication that (1) there was a 401k-driven rally at the end, and (2) some futures guys piled in but didn't believe in it - they squared up immediately after the cash bell, pulling it back out.

There is nothing to like in the ABX or CMBX today, nor anything to really report. The AAA credit on the CMBX came in a bit, but is still awful, and likewise is awful in the ABX. The LCDX came in a touch too.

Disney reported a beat and is up slightly in the aftermarket. So far, not much of a reaction (about 20 cents of movement)

Bottom line: Friday is a critical day with the employment report. There is reason to believe that we're going to get roached hard Friday morning because it would be difficult to believe the official government numbers will be better than the ADP numbers!

BUT - it also appears we are going to get my Scenario #2, which is a roaching, then a bounce, and then......

Have a great evening!