Interesting open.

Cat missed, as noted in the my morning flash - and is getting hammered at the open, down nearly 8%. Google is firming a bit but is still down over 6% from yesterday. All three indices are down, but the losses aren't awful - yet.

Wachovia and Citigroup came in with decent numbers. Not really all that surprising in either case; Wachovia has not been involved in much of the stupidity, while Citi is still doing a great trade in all-things-banking (no marks to market on all the trash on the sheet yet, right? Don't worry - it'll come.) But Wachovia is getting the woodshed today, as NIM (net interest margins) are down and guess what - they're still getting impacted by the loan problems! And guys, Wachovia has stayed away from most of the stupid stuff during the boom. If they're getting pinched, how bad is it at places that were more aggressive?

The $64,000 question is "How many people got caught offsides between Google and Cat"?

First blush is that the number is quite large, and that this is a surprise going into expiration that traders did not expect. The first couple of hours will tell us whether this turns into something more serious or not.

Orbitz went public today but is getting hammered, trading below the offering price. This makes two IPOs in two days that have opened weaker than their offer price, and of course we have Blackstone, which is now WELL below its IPO.

So much for "people will buy any crap you stick out there on the street eh?

Cat is a big deal and a problem for The Bulls. The thesis has been that global would save the day. What they seem to have forgotten is that the consumer is still 70% of the US GDP and the consumer has this little problem due to the housing sector, which is 30% of GDP all-told.

As Cat told us today, the US Housing Market thrashed their earnings. Oops.

And the bond market is starting to trip people. We've now got people talking about the credit crunch. Gee, you think? Uh huh. And what leads the equity markets? Back to the thesis guys - the credit markets must be healthy for equities to do well, and if the credit markets implode they smother equity prices at the same time - every time. Treasuries are finding a bid as people give up on the idea of "high yield", discovering that the guys who sold it to them forgot the second half of that phrase - "high RISK."

The concept of "contagion" is now spreading, and its no longer a "subprime" story. Now the chatter is on LBO money drying up, syndications running into trouble, CLOs being downgraded globally, not just in the US, and more.

The Gig may be up folks!

The dollar is getting roached today, pinging off 80.17 on fears of that very same credit market implosion. Most of the weakness is coming from the Yen, which is strengthening.

If 80 breaks the Yen will strengthen precipitously, the carry trade will unwind with a vicious snapback and add even more damage to the implosion in the credit markets. This is the stuff crashes are made of.

Now let me say that I am not prognosticating a crash. You know, "The Big One"? Circuit breaker trips and all? Yeah, that one.

I see the potential for one, but by definition crashes cannot be called in advance, because the actual triggering event can't be known. As these are "five sigma" events they always occur due to some exogenous trigger that is not forseen (otherwise the market would would have "priced it in" before it happens, and therefore, by definition it wouldn't happen! You'd get a slide instead of an explosion.)

But - the ingredients are on the kitchen counter. This doesn't mean they're going to get baked into a cake, but it does mean that caution is advised!

Let's recap:

• Softening consumer spending. Check.
• Rapidly rising consumer debt with no new sources of equity to tap. Check.
• Record margin debt (like throwing nitroglycerine into a fire.) Check.
• Markets running not on fundamental economic numbers, but rather on liquidity flushes and LBO premiums, currently trading 30% over a "rational" PEG value based on earnings expectations.
• An imploding sector in the economy, responsible for a large (30%) component of GDP, that people recognize as bad but are discounting as a "material impact" on the economy as a whole (housing). Check.
• Credit spreads widening at the same time that people are financing everything with debt, including "buybacks" which are announced but yet not completed. Ditto with all the LBOs. This can and usually does result in "hung deals". Check.
• Many of those deals are being written with no financing contingency and thus if they "hang" someone - usually a big money center bank - gets to eat them. Check.
• Oh, and the Dollar is being roached (again) today. This is especially dangerous because a break below 80 may cause tremendous repatriation of foreign money from the US ("dollar flight") and force the Fed to try to arrest it with a surprise rate hike. Maybe.

Oh, we got another Hindenburg today. I think we're up to five or six at this point; I've kinda lost count here, but its definitely getting "more real" by the day. That you have components of an index trying like hell to pull things up on a day that's a near-panic-sale situation is not any healthier than the opposite during a buying mania, but we've had both with this series of indicators. All is not well.

By the way, why didn't the Nasdaq collapse? People talk about Apple. Nope. It was ISRG, Intersurgical, which reported a blowout quarter but saw their stock price go up 30% on the earnings to nearly $200 a share. Even more interesting, while they got several upgrades on the announcement the current trading price is above the revised price targets!

Can you say "The Speculators Are Excited"?

Then there's Apple, of course. Piper-Jaffrey raised their price target to north of $200/share on.... of course, the IPhone. Guys, pull the other one. You folks are smoking some serious crack to be using 2009 estimates (which you're conjuring out of thin air - the company hasn't provided any guidance out that far!) to try to come up with a 12 month price target. Unless my calendar works differently than yours, its 2007 right now, not 2008!

Of course in the end, its the earnings stupid! And Brunswick, which I shorted the other day expecting the boating industry to get pounded as the economy softens, lowered their outlook, pretty much as I thought they would.

"The Lakewood, Ill., company now sees 2007 earnings from continuing operations of $1.25 to $1.35 a share, down from its prior view of $1.65 to $2. Analysts, on average, had forecast earnings of $1.70 a share, according to Thomson Financial."

Well, yeah. As a boater my entire life I can tell you this - high gas prices and lack of free cash flow in households, translates into crap boat sales. And while Brunswick makes bowling equipment, they also own a lot of the boating market, including Mercury Marine (outboard, stern drives, etc) and several boat brands. All I gotta do to see this is take a gander at all the unsold boats on dealer lots around here and how many fewer of them I see racing around during the weekends. Not tough to figure out. (By the way, while they're saying "earnings", I think there's a decent chance that by the end of the year they'll change that word to "losses".... which means they're still too expensive.)

The LCDX yawned wide once again today. Given that the Cerberus deal for Chrysler needs to poop that debt out to the market, this is not a good thing. Now here's the question - is there enough trouble there to "hang" that deal? Unknown - but if so, you're going to see the credit market do one of these:

And believe me - it won't stop in the credit markets if that happens. Just one deal that hangs and equities will hang too, and it'll come first and worst in the places that have been over-speculated. That'd be Apple, Google, Amazon, RIMM. All those places where "The speculators are excited."

Let's add another tidbit. Kudlow loves to pound the table on his "Dow Theory" with the Transports making new highs. But what he's not telling you is that there has never been a sustainable rally, nor a healthy Bull Market, without LEADERSHIP from the financials, and that leadership has been TOTALLY ABSENT SINCE THE START OF THE YEAR.

In fact, the XLF (Financial ETF) double topped in February and then again in May, and since then has broken down, utterly DESTROYING support at the 200 Day Moving Average three days ago with follow-through in both of the last two trading sessions! While the Dow, S&P and Nasdaq have been moving up, the financials have rolled over with a breakdown confirmed on 6/6 in the last of several key technical indicators.

We got another spike play in the Futures into the close on the Nasdaq which (again) was taken right off after the close. That was a clear attempt to prevent the QQQ 50 PUTs from going into the money; they threatened to right at the close. It was Nasdaq-only today - no corresponding spike in the S&P.

The ABX continued its plunge. The new 07 series now has data on it and all are at or right near the lows, with the BBBs trading at 45 (!) Even AAA credit is in the ditch. The graphs are not all that useful as they only have one day's worth of data on them for the 07s, but this will change in the coming days.

The CMBX is incredible today. Check these out:

You gotta love that "AAA" credit eh? But the BB is beyond stupid:

725 basis points?! WOW!

The LCDX today closed at 271.4 - horrifyingly bad from yesterday, almost 30 more bips.

The markets themselves were down 150 on the Dow, down 19 on the S&P and down 32 on the Nasdaq, all between 1.1 and 1.2%.

It would appear that we may be at a tipping point going into next week, and if so, things are going to get very, very interesting. If spreads continue to widen and credit quality continues to be at issue, the LBO game is over - and so is the run in equities.

Have a great weekend!