I have a strong intuition that October will be the gold-to-lead month as it was in the Great Depression and in the 1987 crash. People sleep through the summer, re-enter in September and will be hit by some cold realities. It just makes sense historically. But on a national and local level too, many people are putting up September as “decision” time (i.e. Whether the surge is working in Iraq or my own disassociation from some institutions I’ve been spending way too much of my time trying to help carry in financial and non-financial ways), which means that October is likely to be “consequence” time. All Hallow’s Eve indeed. It’s going to be interesting.

It's worth reading this blog entry. The author is writing *specifically* about CDPO's. But I think that the general idea applies as well to the entire range of credit derivatives: Sigma Happens.

This is what I've been thinking, but not able to articulate. We are in the middle of a 3-sigma event, but nobody seems to notice that we are in the middle of an unusual event. No, instead this 3-sigma environment has been wrongly perceived as 'it's different this time'. It looks like that misperception is being 'repriced'.

Or, by analogy, rating models -- by assuming there will *never* be higher default rates -- are wayyyyy off, because they did not take the 3-sigma environment into account. I'm wondering how long it will take for this realization to dispel the current Euphorestra induced fog? Maybe a few handfuls of people already understand the reality rather than the illusion. But most are probably not saying anything right now, because they have been told not to.

The larger factor, that leaves me with a queasy feeling, is that the macroeconomic backdrop has changed from a manufacturing base to a service base and that means that capital investment is in furniture. It costs less for a 'service' provider to just close the doors, than to ride out a downturn. Forget about employer loyalty, there's no such thing anymore. So, tell everyone to go home and last one out remember to turn the lights off.

To summarize, high employment could happen almost overnight. Doesn't it strike anyone else as a little odd that, as the subprime and other brokers go out of business there is not even an effort to survive. No progressive downsizing, no visible attempt at all to keep the doors open. They just fall like a row of dominoes. This 'service economy' could turn into something really unpleasant.