What about credit spreads: Shouldn't they tighten versus Treasuries - or at least have their yields drop? Yields in junk, CMBS, corporates are generally not only moving higher, they are screaming higher. There are certain things the Fed can control, like the Federal Funds Rate, and that the European Central Bank can attempt to control, like LIBOR. They can step in and buy $700 billion of mortgage-backed securities (which is fine by me - I'm happy to sell them,  as we're loaded to the gills), but this, too, shall prove a temporary adrenaline boost.

One last thing: When I look at my screen, I see a mess - a massive pile of problems that only time can solve.

Should GM and Ford be allowed to fail? Of course they should - and I believe they will. The congressional hearing bordered on laughable. If my screens are this much of a mess with the entire stimulus package, what would happen if they didnt throw all our money at the problem? One can only imagine.

But I do know this: Earnings will continue to fall, unemployment, sadly, will head towards 10%, and I fear deflation more than anything else. All I have to do is look at my Bloomberg Treasury yield screen:


Click to enlarge

1 month T-bill yields at 0.01%, 3-month T-bill yields at 0.11%, 2-year notes now firmly below 1%, 10-year notes below 3%, and 30-year bonds heading towards 3%. This is not a healthy indicator. It tells me the worst is still before us, not behind us. After all, a move from 1500 S&P to 750 is no better than a move from 1000 to 500.

Unless you have money to spend once it gets there. Which, once again, I do, after taking profits on this last burst.