Very ugly day - here's why

I see so much good news in earnings and forward guidance, but the market is responding with doom and gloom.
A lot of our stocks are down 4% today, despite very positive results. NASDAQ is down 4% in 3 days.

The fingers are being pointed at the subprime and mortgage woes. That is partly related to consumer spending (the key driver for the US economy) but mostly related to credit tightening.

The collapse of the subprime market means two things: less money around to lend and lending has become slightly more expensive.

Put into historical context, rates and borrowing costs are still very low. But compared to last year, it's suddenly more expensive.

That casts a shadow across equity speculation in several ways:
1. Investment banks get margin calls. Investment banks have to sell equities to cover losses
2. Borrowing is more expensive. Less margin trading results, less speculation, and that leads to less froth in the stock market
3. Slowdown in M&A market - deals get pushed out because the numbers don't quite work because borrowing costs are higher.

I called this out and I still think that it will take 2 more months of volatility