1. The Worst is Behind Us

In the 1974 film Dirty Mary, Crazy Larry, the title characters spend an hour and a half eluding a small-town country sheriff in a helicopter with a 1968 Dodge Charger before clasping hands, laughing, and shouting, "Looks like we made it!" seconds before a train plows into the car, killing them just ahead of the closing credits.

It was a shocking ending for a 1974 audience. In those days, no one in their right mind would knowingly pay $1.50 a person to go to a drive-in theater and see a couple of kids get mowed down by a speeding locomotive. Which explains why no one except Nascar geeks and grindhouse cinema freaks (and me) has ever seen the movie.

I was thinking about this movie this morning while listening to MasterCard (MA) CEO Robert W. Selander discuss the company's earnings. Clearly, Selander must hate both Nascar and grindhouse cinema flicks.

"In summary, I believe the worst is behind us," he stated unequivocally this morning on the company's earnings conference call. Then the train hit. Relax, I'm speaking metaphorically.

While MasterCard's tracked retail sales (excluding autos) declined 2.1% versus September last year, if you factor out both autos and gas, retail sales actually rebounded, growing 2.1%.

Clearly, while we're not driving anywhere, we're still using our MasterCards to make some purchases.

And therein lies the kernel of a critical mistake. Why, exactly, is debit card spending rebounding? Because credit card spending is being attacked by companies such as Bank of America (BAC) and American Express (AXP), both of which have taken down credit lines, or pulled them altogether, in the wake of increasing defaults.

2. Wait, Actually, It's the Best of the Worst That's Behind Us

So does that mean the worst of the worst is still ahead? It's too confusing. Anyway, while we're celebrating with MasterCard -- the worst being behind us, even though it isn't, and even though we're celebrating for the wrong reasons -- something interesting is happening in credit markets.

Take a look at the chart below showing the recent widening of Goldman Sachs (GS) credit default swaps spreads (orange) with the stock price overlaid (white). 



Meanwhile, similar widening moves are happening with Citigroup (C) and other financials. The bullish spin is that these moves are minute compared to how far they've declined; just take a look at the GS CDS above and note the massive narrowing that's occurred since a year ago.