We are now more than halfway through earnings season, and investors should begin digesting both how the real performance as been, along with assessing the fundamentals of the economy.

In a rational market, I would expect that judgement to be fairly harsh against equities. In this market? Who the devil knows!

We do, however, have some more news that has popped over the last couple of days.....

First up is a petition by Real Estate Appraisers To Stop Unfair Practices. Gee, you think appraisers have pressure applied to them in this sort of market to "hit a number"? Who'd a thunk? The charges levelled include:

• the withholding of business if we refuse to inflate values,
• the withholding of business if we refuse to guarantee a predetermined value,
• the withholding of business if we refuse to ignore deficiencies in the property,
• refusing to pay for an appraisal that does not give them what they want,
• black listing honest appraisers in order to use "rubber stamp" appraisers,

That's pretty serious stuff. Quite frankly, it reeks of fraud. They show over 9600 signatures (!) thus far; let's hope that if this is a real problem, it gets fixed - and soon.

Next up is this fun article from Bloomberg:

"With home prices in danger of falling this year for the first time in at least four decades, Americans are turning wary about borrowing against their houses to pay for vacations, education or remodeling projects. In a reversal of the ``wealth effect,'' people who once viewed soaring home values as a rationalization for higher spending appear to be pulling back. "

Really? But I thought this housing stuff wouldn't spread?

Oh wait.... that says it is spreading.......

But.... but.... but.... this is contained and will be over soon, right? Uh, maybe not:

"The sharp decline of the subprime housing market offering high-cost mortgages hasn't yet hit bottom, the head of home mortgage buyer Freddie Mac said yesterday.The number of home buyers starting such loans peaked last year, and interest rates for those buyers are due to rise in the next few years, which could cause foreclosures to spike further, Richard F. Syron said in an interview with The Associated Press."

And in the first public acknowledgement I've found that the real problem here is DTI, and that there's really no way to fix it other than for there to be a major credit contraction, we have this:

"They’ve over-obligated themselves. Of course, there are always the ones who have lost their job or have medical bills they can’t pay. But more of them are getting hung up with credit cards or house payments they just can’t afford,” said Vicki Hughes, program coordinator for Consumer Credit Counseling, a nonprofit counseling service managed by Family Resource Center."

I'd say "I told you so", but that's getting old, isn't it?

Then there's the alleged outright fraud by builders and their associated lenders, such as this:

"In turn, they filed a lawsuit March 30 against the bank; their real estate broker, D’Alessandro & Woodyard; their real estate agent, Samir Cabrera; and First Home Builders, accusing them of mortgage fraud, securities fraud and breach of contract."

Next up is the fact that the Euro appears to be headed for even more record highs against the dollar, and that we have refinery capacity problems in the US - pushing gas prices higher, with a prediction that we may reach $4.00 this summer.

Now I'd think this ought to make you kinda bearish on the US economy. But, if you want the 900lb Gorilla to start smashing the China, nothing matches this (oh wait, did I say "China"?)

"China ordered banks to set aside more money as reserves for the seventh time in 11 months to try to prevent an accelerating economy from overheating.

Lenders must put aside 11 percent of deposits starting May 15, up from 10.5 percent, the central bank said on its Web site. "

Now that, all on its own, is probably not enough to set off a major blowoff in the market.

But the risks are certainly building. When you consider that the Chinese Market has basically taken off in a moon-shot over the last year or thereabouts, one has to wonder - are we seeing 1999 again - but this time, over in Asia?

And given Asia's peg of their currency to ours, what happens when interest rates there rise, meaning that it is more profitable for people to invest in their bonds than ours?

Capital flight from the US back to China with a pegged currency effectively forces the Chinese Central Bank to print more money in order to redeem those dollars. That in turn creates more inflation and another rate hike, which makes the cycle repeat. As the rate differential increases the money flow becomes a flood, forcing a death-spiral of tightening monetary policy.

The only way to stop it is to drop the peg to the US Dollar. Such a move would return control of the Chinese Currency to its own Central Bank, but result in a flood of money rushing out of the United States - and a rapidly-declining dollar.

Can you say "liquidity problem"?

Let's hope it doesn't set up like this, but it is looking increasingly likely. Such an event would be catastropic for US equity and credit markets. It could quite literally cut equities in half and double import prices - at the same time.

"May you live in interesting times" (an ancient Chinese curse) appears to be coming to pass......