Cancel That Emergency

I swear traders are schizophrenics with attention deficit disorder. I submit these headlines and the chart for the 3 month T-bill as evidence.

Monday:

Treasury Bill Yields Fall Most Since 1987 on Money Fund Demand: Yields plummet in a mad dash to safety. The FED will cut. The world is ending.

Today:

U.S. Notes Fall; Stocks Gain, Lacker Suggests No Emergency Cut: Yields rise. No rate cut is necessary. Stocks are cheap. Lets party.

Of course out in the real world things don't flip flop quite that quickly. The liquidity bubble caused serious problems that will result in serious consequences.

Home Builder in Spain Crashes as Ex-Chairman Keeps New York Pad: "From the looks of things at the newly built Aparta Hotel Residencia, you'd never know that it's the high summer tourist season in Canet d'En Berenguer, a town of 5,000 just north of Valencia on Spain's Mediterranean coast.

The compound's 308 apartments, completed this spring, are all unoccupied. Grass has started to sprout between the red terra-cotta tiles that lead to the empty, peanut-shaped swimming pool.

The residence is just one of a trail of buildings dotting the sandy coastline constructed by Enrique Banuelos as he amassed a fortune of more than 4 billion euros ($5.4 billion) over the past 15 years. Banuelos lost much of that money -- and shareholders' -- as the stock market punished the firm he founded, Astroc Mediterraneo SA, amid a rapid cooling of Spain's housing market. "

I've mentioned the real estate bubble in Spain a few times now.

• My post on July 3rd addressed the subprime issue in the UK: Sound Familiar?
• My post on July 5th addressed the real estate bubble in Spain: Ghost Towns? In Spain?

The UK is next.

Toll Brothers Profit Drops on Writedowns, Weak Demand (Update2): "Toll Brothers Inc., the largest U.S. luxury homebuilder, said fiscal third-quarter profit fell 85 percent as the deepening housing slump cut sales and forced the company to write down property values."

This is not the bottom yet. Wait for the the big rate reset months of Januaray through June of 2008. (ARM reset schedule in US dollars, billions.)

Solent, Avendis Fund Ratings Slashed to Junk by S&P (Update2): "S&P cut the rankings on $3.2 billion debt issued by funds of London-based Solent Capital Partners LLP and Avendis Group in Geneva by as much as 17 levels to CCC. The credit ratings may be cut further, S&P said today in a statement. "

Expect many many more of these in the coming weeks and months.

Yen Falls on Speculation Bank of Japan Will Keep Rates on Hold: "Japan's yen dropped the most against the Brazilian real and the South African rand as stocks in Europe and Asia rose, reviving appetite for so-called carry trades in higher-yielding currencies. Charts traders use to predict price movements also signaled the yen's advance this month was too fast."

Agreed. The 'too far too fast' rule applies here. The Yen will pull back a bit in coming days. But to slap back on the Carry Trade is little excessive. If one of the big LBO's falls through or another hedgie stumbles that trade could be offside big in an instant.