Correlations got crushed this morning, which I believe is why we saw the sell off in equities.  Gold is getting smacked back down below the 50 day moving average along with the US Dollar index.  Crude is getting eviscerated for more than 4% breaking down out of its big bear flag.

The economic numbers this morning were awful again, and they will continue to get worse.  The liquidity fueled bounce in global assets is obviously over and we are seeing longer term holders exit now.  The question I will ask though, why did the dollar fall today on the news while the long bond surged and equities and energy dropped?  The answer I believe is that the economic data is getting so bad that traders are starting to think Ben Bernanke may get back up in his helicopter and start raining liquidity on this market again.  The government is afraid to hell that their reflation game is over.  Maybe we get stimulus 2.0, not that the first one did anything significant.

Our government is panicking and they really don’t have any good options.  Europe isn’t doing them any help by leaving the reflation team for the austerity squad.  Going even further, Bernanke doesn’t have a playbook for this part of the game.  He knew exactly what he needed to do at the bottom in 08-09 based on his study of the Great Depression, but there is no good model to guide him on what to do after the reflation has taken place.  In my mind, he can either start printing a crazy amount of money again and hyper inflate away the debt, or we are headed for a long period of deflation a la Japan, the more likely scenario.

So why is the dollar falling?  Well I think today some people may have gotten it in their mind that Bernanke and Obama may start up the printing presses again.  What doesn’t jive though, is the fact that crude has not bounced.  The real state of the economy, and the global economy for that matter, is getting worse quickly.

I think we’re close to an inflection point in what our government is going to do regarding the next 5-10 years.  They need to make a decision soon, if they are able to at all, or else we are surly in store for lower prices in many assets.