Odd open today.

Capital flows (on the open) were almost exactly flat although the A/D line was almost 4:1 on the S&P advancing.

Driving it? M&A (again) although the emphasis appears to be misplaced - I didn't see anything in the deals announced that were particularly bullish. And a number of of bellweathers that I watch are all negative. And the big M&A deal (Teachers buying BCE) is one that had equity committed more than a month ago, before all this got nasty. And frankly, its not that exciting, even though a lot of people think it is - there is a lot of equity (skin) in the game, which gives this deal much less "L" than is typically seen.

It looks like the market is trying to figure out what all this mess means in the subslime and credit markets. I can tell you what it means, and have, but heh, Mr. Bull is trying to run even though his balls have been cut off.

Will he succeed? I don't see it, at least not in the short-to-intermediate term. It looks to me like we've got some bigtime drags here on the broader market coming out of housing and the credit sector, and while there's a small dead-cat in the brokers this morning, I wouldn't be surprised if it fails to hold beyond perhaps the 4th - when there's nobody much around.

What's even better is that I keep hearing rumors from the street that we're now seeing the sort of "cramming" that preceded the 2000 bust. Now granted - it preceded it by a year or so - but preceded it did. What's that? Word on the street is that the big investment banks are telling people that they "will" take some of the junkier LBO and CLO deals out there, or "you won't get any of the good ones."

Heh, I remember that song - it rhymes oddly with the IPO madness in the late 90s, where deals that, were one to actually read the S1, read like a Steven King novel. Yet they had "no trouble" subscribing them - of course what wasn't said was how they got subscribed. A bit of blackmail (or is that extortion?) never hurt anyone, right? Are we seeing it again? I can't prove it but......

Not that it will ultimately help the bagholders, er, investors. Beware here guys, for what looks good may be a hellish headfake.

The ISM June Index came out this morning; expected 55 (flat with last month) and actual 56.0; a bit better and one point higher than last month.

The markets reacted with an immediate pop. Prices paid were down a bit at 68 from last month's 71. But the Dollar is getting shellacked once again, which is not good at all. The Yen is now at 122.59, headed up .vs. the Dollar, and the Pound is at 2.01 on continued strength.

Mr. Market is likely to ignore this for a little while, perhaps thinking it won't last. But not for all that long - because it not only is likely to last, it is likely to materially worsen. A weak dollar means severe import inflation, and eventually this shows up in prices paid - that cannot be avoided! Perhaps not today, perhaps not tomorrow but there is no way to escape the reality of this change. And since Mr. Market is in fact a discounting mechanism for the future, when Mr. Market figures this out the reaction is likely to be severe - after all, its the "surprise!" deals that really upset Mr. Market, you see......

Here's what you probably won't hear from the Bobbing Head Dolls on CNBC or even Bloomberg.....

If the dollar appears likely to assault the 80 level, we will see a severe contraction in foreign liquidity. This will be anything but orderly and "nice." In fact, a break below 80 targets the middle-upper 70s in the short term, with a potential downside target a couple of years out near FORTY. That's a FIFTY PERCENT devaluation in the dollar, which means a doubling of import prices.

The Fed knows this. They will raise rates to defend the dollar, because they cannot control or manipulate the FX markets successfully, and they know it. All the "pump monkey" PPT arguments fly right out of the window if the dollar collapses and that will be prevented by the only means possible - a rise in the Fed Funds rate. A precipitous rise.

And what does a precipitous rise in Fed Funds do tot he markets? You don't need me to tell you that, do you?

So while there will be those who are cheering as the TNX (10 year yield) heads down towards and perhaps below 5.0%, I am instead very, very nervous about that development, which, by the way, I did not expect, because if it continues the dollar's collapse looks increasingly likely.

The ABX continues to decline at a frightening rate, and is now trading dangerously near 50 - that being 50 cents on the dollar - for the 06-BBB tranche. The LCDX is also trending in a crazy fashion, adding 10 full basis points in spread just from the midday fixings from Friday to today. The LCDX is a marker of LBO/PE deal risk.

The talking heads all say "oh buyouts and PE deals are healthy." Horsecrap. The LCDX says the exact opposite - these deals are in trouble - perhaps critical trouble - and they're anything but "healthy."

Today's rally looked nice, but be careful. It happened on very thin volume, and as such believing that this signals anything is dangerous. Likewise, tomorrow is likely to feature even less volume as people take off for the 4th of July Holiday.

Note that we had basically nothing happening after about 2:00 PM; no follow-through, either with volume or price movement - on the morning's run.

Until tomorrow, have fun!