It became apparent that the main engine of S.S. Bull Market, unlimited cheap credit, has been shut off.

The stock market sold off today, although it closed well off its lows. Despite the talking heads, it isn’t really meaningful to say anything “caused” it. Even if you knew the news ahead of time, you still couldn’t predict the market’s reaction. Talking of “cause” is meaningless when there is no reliable relationship of cause and effect.

Having said that, what did happen today was further deterioration in the credit markets. Risky bonds fell sharply, and default swaps rose. The “private equity” or LBO game is over for the time being. The stream of debt that has been the engine propelling the stock market higher has stopped cold. It even seems likely that some of the deals in the pipeline won’t get done.

Bill Fleckenstein summarizes the situation thus: “In short, virtually every problem I’ve been discussing in the credit arena — whether that be consumer, structured credit, or junk debt — is getting worse, and at a faster rate. That is not bullish for anything. However, at the very same time that’s occurring (which the market is now beginning to recognize — witness the action in financials of all flavors), there is an absurd party happening in big-cap tech. That, as the OPM (other people’s money) crowd assumes that if it’s big, liquid, and a tech stock, they can speculate there and make money while financial system implodes. (This activity makes those who bet on an inside-straight look smart.)”