Latest – Banks borrow 10.3 bln usd from discount window, largest since Sept. 2001. We all thought that $100 bln TAF would cover everything. I guess now they need $110. At the same time the outstanding banking credit just declined by $31 bln and commercial paper declined by another $5 bln. When banks are increasing lending and then run to discount window – this is bad. When banks contract lending and still run to discount window – this is panic. I hope that you are all aware that non-borrowed reserves of depository institutions stand at -$61 bln? Good.

The wise men from used to say:

Bull markets are climbing the wall of worry, bear markets slide the slope of hope

In the last couple of days I hear a lot of totally misplaced optimism from radio and TV. “Jobs are lagging indicator so bad jobs numbers mean we bottomed”. What this guy had for logic? “We are looking to buy early cycle leaders, like transports and basic materials because we are early in the next cycle”. Materials are late cycle leaders, not early. First you have to wait until late cycle leaders crash before you conclude that the cycle is restarting.

Look at the KRE – regional banking sector. This chart will bottom well before the economic cycle bottoms. Those banks are lending to main street business. Until you see the Street Corner Bank doing well it means matters will continue to get worse.

And those who claim that credit crunch is reaching the bottom are not bringing any arguments. I do. Wells Fargo is still lending mortgages with 0% down. Right now. Next week they will require to bring 3% down. In early 1990s when the last housing bubble popped nobody was lending unless you bring some serious downpayment. 5%, 10%, 20% – depending on conditions, but never 3%. Lets wait until we get there before we call the bottom.