Indexes scrambled around yesterday with a quick look at the mid section of last Friday's hard break but reversed course and made new session lows. Continued negative news coming from the paper hangers with Carlyle Mortgage Fund missing margin calls several times on positions related to sub-prime loans. Also, the much awaited resolution of the Ambac problem is viewed as insufficient. All these issues continue to come from the risk issues created when positions became linked to financial products that were created from bad correlation models. In creating these instruments, little thought was given to the liquidity side spread leg which in the best of trades will only cover a portion of bad action. Risk spread legs are not made of gold, they are an admission at execution that trades are notoriously capable of moving away from you. When virtually all liquidity disappears on all products correlated to your own risk leg, there is no way to get it back. There is a trading expression which is that you only get one look at a bad trade. Meaning you get one chance to get out of a bad position. That apparently was at initial execution on the risk correlations trades formulated by Wall street.
Markets will wait for tomorrow's unemployment data to mark the week.
