Ooook.....

"S&P on Thursday cut ratings on $5.7 billion of subprime-related securities it put on watch earlier this week. Both S&P and Moody's now project cumulative losses for subprime loans originated in 2006 to reach as high as 14 percent, more than double projections at the start of the year.

"That's a huge change in their projections and has huge implications for the market," said Inna Koren, an analyst at Barclays Capital in New York."

Let's see, if we think twice the number will default now, and that's just six months from when we started, then that means you have undercharged (on interest rates) the people who you gave the loans to. After all, the point of the rate being over that of "safe" debt is to compensate for that risk, right?

So, this means interest rates for those loans must rise precipitously in order to get anyone to take those bonds on new issues, because nobody in their right mind would buy them otherwise.

And what does that do to the housing market when 30% of the homes sold in the last 12 months had subprime loans associated with them?

Hmmmm... it would seem to me that if the "current" subprime mortgage goes out at, say, 9%, and it goes up to say, 12%, that's going to be a problem.

How big a problem? Well, let's say its a 30 year loan for $100,000. At 9% we pay $798.63.

At 12%? $1018.42. A roughly 28% payment increase.

Poof! There goes the subprime market. Put a fork in what's left of the housing industry for the next several years - its DONE. What do you think of a 20-30% reduction in sales volume from where we are now?

Only exception: If you can get financed on an FHA loan, you're still good. Don't have any late trades though.....

Retail sales are tomorrow.

Official expectations are for a very slightly up (0.1%) number. But many economists think it will be -0.3%, and that May will be revised downward. Let's not forget - June is supposed to be the second-best month of the year for retail, after Christmas!

Ignored today, but not for long, here come the lawsuits!

"Investors"are going to be looking for deep pockets where they can maximize their recoveries," said Rick Antonoff, a New York-based lawyer with Pillsbury Winthrop Shaw Pittman, which has a group of lawyers assigned to subprime mortgage litigation.

Homeowners are suing lenders. Shareholders are suing collapsed mortgage companies. Investors in complex mortgage securities are starting to sue big Wall Street banks. Those investment banks are turning around and suing the mortgage companies."

Anyone who touched this turd is going to be forced to take a nice, big bite - one way or another.

The downgrades on mortgage-backed bonds? They keep coming. After the market closed today S&P hit the markets with more downgrades, as if yesterday's were just an appetizer:

"Rating agency Standard & Poor's said late Thursday that it downgraded 562 classes of residential mortgage-backed securities after warning cuts were coming earlier this week. The agency said on Tuesday that it may downgrade 612, or $7.35 billion of residential mortgage-backed securities (RMBS). "

Is that good news? At this rate we'll pass the $100 billion mark in downgraded bonds within a week. We haven't added the leverage to that yet. What about those "engineered instruments" that are levered at 10:1? Oh boy.

GE is trying to dump their subprime unit. I wonder - with them reporting earnings tomorrow, do you think that report might be tainted by some sort of problem?

"``The mortgage industry has greatly changed since the purchase of WMC,'' Laurent Bossard, chief executive officer of the division, said in the memo to employees today. ``The current subprime market environment has made a significant negative impact on the business.''

No, really?

Oh, and tomorrow is Friday the 13th.

Besides the superstitious implications, we get Import prices, Retail and Food Sales both bare and ex-autos, and at 10:00 AM we get consumer sentiment and business inventories.

Of those the Import Prices and Retail Sales numbers are important. The former due to whiffs of inflation (btw, the forecast is for up 0.7% after 0.9% up last month - that's big and quite inflationary - almost all as a consequence of dollar weakness) but with the retail numbers expected to be +0.1%, 0.3% ex-autos, if that number comes in weak then the Bull's primary argument from today - that Chuckie is doing just fine - may take a header.

We shall see.

Oh, and of course we get GE's earnings in the morning. While nobody in their right mind expects them to take a loss, their US business revenues - and margins - will be interesting to watch.

I'm not superstitious, but you might be.

Have a profitable day!