Wednesday Curtain Raiser

Just yesterday a talking head on one of the financial channels was poo pooing the recent surge in the volatility index as a blip and nothing to be worried about. Volatility is back again... not that it completely left. I unwound the rest of my March VIX calls today at a 100% gain, on top of the quintuples that I enjoyed with the first market swoon. I am still of the conviction that we take out last year's VIX highs; so I am holding a bunch of April VIX calls bought as well in February. It's more than a feeling, or hope. It's based on recognition of present, dangerous, almost unprecedented fundamentals and recognition of past severe VIX spikes. The present snowballing of events if they coalesce into a liquidity crisis could take the VIX back toward levels not seen since before 2003.

A good number of faithful readers have materialized in recent weeks and I want to thank you for your support. I hope you're here because it's a break from a great deal of mis-information that's out there and because this blog was putting out the warning signs of a market top and subprime doom weeks before it happened. Just this morning I was shocked to read a blogger (that I link to) characterize the economy as being "strong". What? 2.2% as of Q4 is not strong and with the subprime disaster accelerating, anyone who is left sans house and living in an apartment is not thinking the economy is strong. No doubt a buying opportunity will emerge, but the statement that the economy is "strong" demonstrates denial and rebellion against the recent market declines. Even among those who recognize that the market is in for a drubbing, there's an element of fantasy land where using qualifiers like "strong economy" makes me suspicious that they're clinging to the hope of a market downturn similar to the brief 1998 episode and then to the moon again. To each his own, but things in the 12-trillion dollar real estate market may take a bit longer to unravel and correct. The mavericks and cowboys may think they are going to take the near term pain like men, but perhaps they miscalculate that the pain may last longer and be deeper than expected? Only time will tell for sure, but I suspect that 1998 is not necessarily a good analog apart for looking at some market support areas.

New Century (NEW) has been relegated to the pink sheets, Accredited (LEND) is not too far behind. Who's going to be next? I've blogged in the past about H&R Block (HRB). Tonight word that the company has delayed its SEC filing. These SEC filing delays have been a precursor to bad things for lenders in this space. What's curious is that Block only wrote down $29 mln of assets at Option One. Don't be surprised if the write downs become a lot larger, or if Block has to sell Option One at a fire sale price that its balance sheet takes a huge hit.

There's the old saying that "what you don't know won't hurt you". That doesn't apply in the world of over the counter derivatives. We know from the perspective of first and second derivatives that the margin calls and demands for payment have been delivered to the most stricken of subprimers. But what could be going in the over the counter derivatives world? Surely OTC derivatives are intertwined into the interest sensitive world of subprimes and other lenders for that matter. Maybe it is better that we don't know.

Tomorrow on the economic calendar - at 7 - MBA purchase applications, then at 8:30 current account deficit data.

Big earnings - Lehman and GM.

Straight out of the gate Tokyo down about 400.

Barring a miraculous Fed injection tomororw (you just never know), last weeks lows to be re-tested:

1374 on SPX; RUT at 760 and 2340 for COMP.