The Economy

When I posted earlier, we were near the session lows. When I said it might be short-term capitulation, it was because what I was watching had the feel of a washout finally.

With the selling we saw last week, the short-term oversold conditions using any number of indicators were really extreme today. It doesn't necessarily ever mean that things are going to bounce, but with the Fed meeting finishing on Wednesday, the catalyst for something wasn't there today. Nobody wanted to take a price dump too far, only to have the Fed pivot yet again (i.e. -- panic) on Wednesday and see the S&P up 300 points on the euphoria and a short squeeze.

The difference now, like I said, is a CPI that was running @ 7 percent year over year last time. If they do the right thing and tighten this year, it's not going to be pretty for risk assets. And if they don't tighten enough out of fear of a credit crisis because of the mess they have created, it may not even have the effect of bringing the price inflation down. The trillions of dollars of mispriced debt that depends on negative real yields that they are responsible for has serious financial stability implications. Take away the schemes to beat down market forces and suppress rates and I don't want to think about what we might see in terms of defaults.

 

This was Mohamed El-Erian yesterday morning, actually before the roller coaster day.

 

Bad news for Michigan taxpayers. The $824 million in "incentives" they gave to GM (and LG), includes a direct $600 million cash payment subsidy.